Benchmarking to improve financial performance - Industry Watch

Health Management Technology, Feb, 1995 by Melony Williams

Information management professionals can assist more effectively in operations improvement by knowing how to use the benchmarking tools available on the market.

Benchmarking data are available today that will enable hospitals to compare detailed financial, operational and clinical performance to any peer group desired. Hospitals can avail themselves of this advantage by using benchmarking data to: target operational and clinical areas for improvement; and identify, set and direct precise and attainable performance goals.

Several sources of reliable benchmark data exist. Public data are available for purchase from the Health Care Financing Administration (HCFA), state organizations that monitor healthcare costs as well as many healthcare data-management companies. HCFA sells the Medicare data from hospitals submitting detailed bills. Many of the data-management companies sort and compile these data into user-friendly formats by hospital or peer grouping.

Sources of benchmark data

Three example sources of benchmark data are: Maryland Health Services Commission for Rate Control (HSCRC); Health Care Investment Analysts (HCIA); and Market Insights, Inc., a data-management company.

* HSCRC provides financial and departmental operational data by hospital in the state of Maryland. For example, one can see the number of paid hours per day, labor and non-labor costs for every pediatric unit in the state. In the case of obstetrics, which has a high outpatient procedural volume, relative value units are used for the procedures to provide the comparative hours. These data are a very good benchmark; they even figure in the use of agency hours to the appropriate department.

* HCIA buys data from HCFA, sorts the data and compiles them into user-friendly pieces. HCIA also sponsors its own research on these data. For the past two years HCIA has produced a list of the top 100 hospitals ("best practices") in the country. All U.S. hospitals are sorted into five categories by type (e.g., major teaching hospitals with 400 or more beds). Eight financial, operational and clinical criteria are used to select the top 100 hospitals. This HCIA listing of best-practice hospitals is a good place to start in developing a peer group.

HCIA calculated that if all hospitals could achieve the best-practice criteria, the results would be dramatic: $21.6 billion per year would be trimmed from national healthcare cost; mortality would decrease by 17 percent; and complication rates would decrease by 14 percent.

According to Jean Chenoweth, vice president of HCIA, "This year's hospitals improved from last year's list. Only 25 hospitals held their position. This year, hospitals had a 9 percent lower expense per adjusted discharge and 6 percent lower average length of stay than last year."

HCIA has also developed a data set called the IMPAQ Series, which has three major components:

1. The Hospital Efficiency and Effectiveness Analysis uses refined DRG analysis to compare performance across hospitals and to track underlying causes for variations in length of stay, charges and mortality.

2. The Physician Efficiency and Effectiveness Analysis measures physicians against a hospital norm and also with respect to their primary DRG.

3. The Clinical Pathways Analysis provides line-item detail on national and regional practice patterns for specific diagnosis and compares physicians and hospitals against a clinically derived benchmark.

* Market Insights, Inc. also uses the MEDPAR data and provides 12 standard reports that depict a hospital's operational and clinical relationship to a chosen peer group.

Benchmark peer hospitals

Choosing the benchmark peer hospitals is the step that requires the most insight from the hospital executive team. Best-practice hospitals may be identified by the data-management companies and approved using the experience of hospital executives. Because medical practices vary by region, regionally proximate hospitals should be chosen which are similar in size, reputation, city size, unionization and teaching affiliation. Local hospitals may be chosen for the purpose of comparing the operations and costs of hospitals competing for the same patients.

Achieving improvement

Once the peer group has been chosen, improvement may be achieved in a number of ways: A hospital may target broad areas for improvement such as clinical utilization, operating costs or mortality, or by using the same high-level ratios used by HCIA to identify the 100 best-practice hospitals.

Once the broad areas for improvement have been chosen, more detailed operational indicators should be used (for example, operational indicators by department and utilization, mortality, and complications by diagnosis) to pinpoint exactly where each hospital requires improvement. Further, some consultant companies have identified critical success factors of best-practice hospitals; knowing these can often be a boon in facilitating improvement.

Benchmarking for financial, operational and clinical improvement will become increasingly necessary if hospitals are to keep up with or surpass the competition. If the best hospitals reduced their expenses by 9 percent per adjusted discharge--and assuming average hospitals also improve each year--the gap between the improving hospitals and those behind on the change curve becomes wider, making competition and success difficult for stagnant organizations.