Automation and the Healthcare Cost Curve

This article appears in the April 2012 issue of HealthLeaders magazine.

Automation, the use of labor-saving devices and information technology to reduce or eliminate the need for human labor, has yielded exponential savings in dozens of industries. But why is healthcare historically a slow adopter of potentially labor-saving, and thus cost-saving, techniques and technology? For one reason, there was no urgency. Productivity in healthcare, in the sense of wringing out incremental savings in labor, has lagged far behind the rest of business largely because competitive pressures present in other industries simply didn't exist in healthcare. But with margins being threatened as never before, many new contracts with commercial insurers depend at least partially on efficiency, meaning healthcare providers must improve labor utilization.

Automation, either full or partial, of various jobs can be a productive tool for healthcare organizations looking to cut costs, and proven solutions and technology are enticing.

Save labor, save money
There are two ways to save on labor costs: Make your current workforce more efficient, or eliminate the need for a human to fill a job altogether. Either way, the effect on the bottom line is similar.

Labor costs are clearly one of the top concerns in healthcare. In fact, in the HealthLeaders Media Industry Survey 2012, Senior Leaders Report, labor costs are ranked as the No. 1 cost driver by 33% of senior leaders, and 59% put it in the top three. Second in the list of 12 choices was government laws and mandates, with 24% designating it as the top driver, and 56% including it among the top three.

John Dragovits, chief financial officer of Dallas-based Parkland Health & Hospital System, came to the industry from the healthcare IT world. Having seen the benefits of automation on cost control, he's a big believer. Parkland has completely automated its hospital pharmacy, with a robotic pick-and-pull system that can locate, prepare, and package pharmaceuticals for individual patients. Parkland also reduced the number of people needed to staff the center to furnish the orders. Dragovits says healthcare needs to do a better job in areas such as automation because that lack of innovation is partially responsible for the unsustainable cost curve of healthcare inflation.

"If you look at an average hospital's financial statement, 50%–60% of their expenses are salaries and benefits," he says. "By definition healthcare is an inflationary model, but it's exacerbated by the fact that everyone wants to hire more people rather than think about how they can live with fewer people. That's what got us to this conundrum."

Dragovits says a first step for many hospital senior leaders is placing an emphasis on labor-saving technology and techniques.

"The challenge in this industry has always been getting people excited and intrigued and rewarded for looking at things innovatively and using technology to do things quicker and cheaper," he says. "That requires thinking through a plan or strategy. I'm willing, as CFO, to make an investment to get those returns."

Parkland, which is building a totally new replacement hospital across the street from its current 775-staffed-bed main campus, is trying to get ahead on some of the gains from automation, as it has a rare opportunity to design something from scratch.

"As we look at building our new building, I'd like to start with a 100% automated lab," says Dragovits.

That means designing it the reverse way, he says, in that planners are evaluating various technologies to make the lab as automated as possible before integrating a labor force into the planning models.

"The plan is to integrate people if needed," he says. "I've gotten a lot of support on that."

Further innovation
Some hospital systems are experimenting with similar labor-saving tools, such as automated readings of radiology scans, at least for the basic work involved. Dragovits is interested.

"Radiology always costs more FTEs because there's another modality all the time," he says. "There are some startups working on early-stage development of automated readings, and over time, that will play an important role—similar to computer-assisted coding. That's another big one for us."

But outside of not-ready-for-primetime technologies, other advancements are cutting labor costs and allowing physicians to provide better, more up-to-date evidence-based care, which is a form of automation.

For instance, Atrius Health, a large ambulatory physician group practice with six practices in 30 locations in Massachusetts, is committed to being an accountable care organization in CMS' Pioneer program. That means big investments in care coordination, part of which necessarily involves keeping its approximately 1,000 physicians well apprised of changes in evidence-based medicine treatment protocols. The change also involves a doubling of the practice's managed Medicare population, which means that saving physicians valuable time and effort is paramount, says Michael Lee, MD, the director of clinical informatics for Atrius.

Physicians use an online service from UpToDate, a clinical decision-support system that uses clinical evidence updated daily to answer clinical questions about dosing or diagnosis at the point of service. Problem was, at the beginning, it was available only through Web browsers, which would require the physician to leave the electronic medical record to perform any search. Three years ago, Atrius was able to get the service installed as a button on its Epic EMR system, which is always available. That move not only saved labor, but also alleviated the problem of physicians declining to use it because of the inconvenience.

Since the change, the physicians have become accustomed to the convenience and the help it provides.

More recently, says Lee, "we had an upgrade where we added a scheduling feature to the toolbar, which pushed UpToDate down on the page. That led to the help desk [phone] ringing off the hook that day. All we did was hide that button, but people were using it so much, they went crazy," he says. "We put it back the next night."

But he says the potential for labor savings with the tool is still not fully realized because further usefulness depends on its ability to share information with Epic. For instance, Lee says, "wouldn't it be great if the order tools would change automatically so nobody would have to read anything? That would be really progressive, but the technology's really not there yet," he says. "If they did it, there is an opportunity to save money by providing better care."

Reducing headcount
Layoffs are a touchy subject around healthcare. Most times, they're seen as a short-sighted desperation move by hospitals seeking short-term survival. But it doesn't have to be that way. Done systematically, and as a result of innovation, valued employees don't have to be cut loose en masse along with the poor performers or malcontents you'd certainly like to get rid of. Instead, valued employees can be reassigned to higher-level tasks or retrained.

At Parkland, Dragovits says the health system was able to shrink its headcount of financial counselors by 70 recently (from about 200 to 130), simply because it found a way to do automated eligibility rechecks for patients who receive public assistance to pay for their medical care. That's a huge portion of the patient population at a public hospital like Parkland.

"We're looking at automating everything in the revenue cycle area," says Dragovits. "We're using more automation for eligibility rechecks, for example, where in the past, people would have to come in and see a counselor to requalify. We can now do that 100% automated with some of the database systems out there."

From a delivery system perspective, Parkland is also working on a mail-order model for its pharmacies within Parkland's 11 community clinics. Currently many of its clinics have their own pharmacy, "which is very expensive," says Dragovits.

Under a new potential model the system is considering, all prescriptions that had been filled at these individual pharmacies could be done in an automated central pharmacy using robotics to fill and mail prescriptions.

Thinking automation first
Dragovits compares the healthcare industry to a loaded spring with lots of potential for cost and quality gains through automation. He says healthcare leaders need to start thinking about automation before making decisions about building and renovation, before adding services, before hiring staff.

"It's challenging to get people to think that way, but once they get a taste, they get pretty excited," he says.

He foresees big gains as systems grow larger and can not only take advantage of economies of scale, but also invest in dramatic new technologies that can shave headcount organically over time.

Also, technology companies are now increasingly recognizing healthcare as a legitimate business segment.

"These are the kinds of things we're going to have to do in order to be the system of the future," Dragovits says, adding that what's as important as cutting cost is increasing quality.

"I don't think the technology has existed before to really capitalize on automation," he says. "As hospital systems become larger and can take advantage of increasing scale, and are rewarded for doing so, they can afford to be innovative. Anything can have a chip in it now."

This article appears in the April 2012 issue of HealthLeaders magazine.

Reprint HLR0412-5