Sustainable Cost Savings are Critical, Elusive without a Strategy

OMB Report: Health Care Costs at Heart of Budget Deficit is the title of a recent post in the WSJ Health Blog. It makes a important point about the impact of even fractional reductions in the total cost of care. For example, quoting the Office of Management and Budget report on health care spending, the article notes that reducing the rate of growth of health care costs by 0.15% would, by itself, equal the amount needed to close the 75 year Social Security shortfall!

Given that projections in growth in federal spending on Medicare and Medicaid in the OMB report, and the unsustainable overall deficits projected for the next 10 - 15 years unless the health spending trend lines are changed, it is almost a given that - with or without an omnibus health care reform package - providers are going to get paid less to provide more care to more people in the coming years.

That fact underscores the imperative of health systems acting now to address their own cost structure. One particularly fertile opporutnity for many systems is indirect costs. As systems have careened back and forth between centralizing and decentralizing support services they have often left behind pockets of "unseen" indirect costs.

Traditional cost reduction efforts often miss these pockets, because they do not start from an understanding of the optimal balance point between centralization and decentralization. This is a lesson we have learned in through our work in Performance Transformation at Navvis.

I am curious to ask the readers whether their cost reduction efforts are tied simply to a cost savings benchmark, or grounded in a broader understanding of what is the appropriate balance between centralization and decentralization of services? It seems the answer to this question might influence the sustainability of the savings achieved.