Global

Details

  • Service: Advisory, Management Consulting, Business Performance Services, IT Advisory Services
  • Industry: Healthcare, Government & Public Sector
  • Type: Business and industry issue, White paper
  • Date: 1/22/2014

Overview: The low-cost challenge 

As countries grow wealthier, models of healthcare provision and financing need to adapt to increasing expectations and new demands for healthcare. In many countries, there is growing interest in developing affordable universal health coverage. While this will bring important benefits it also creates challenges.
Successful low-cost systems require coordinated action across a wide range of areas.

The last decade has seen a massive explosion in the number of people achieving middle class financial status. Over a billion people worldwide – with a combined wealth of US$33 trillion – now occupy this new, influential, fast-growing population group. Such a powerful demographic shift is transforming the way countries with developing and maturing health systems think about the financing and provision of care.

The low-cost challenge

The individual building blocks of creating low-cost, high-quality health systems are well understood. Assembling them is difficult in environments that are shaped by immature insurance systems, unregistered private providers and widely held assumptions that high-tech and high prices automatically equal good quality.


Successful low-cost systems require coordinated action across a wide range of areas. They also need markets that function effectively, with appropriate incentives for payers, providers and patients. Facilities need to be flexible, clinical quality must be routinely regulated and processes such as procurement should be standardized where possible.


Above all, the focus on provision has to move beyond simply looking at ‘low cost per transaction’ towards a system that seeks to create value along the whole care pathway and beyond this to managing population health.

The low-cost landscape

Low-cost providers come in many shapes and sizes. The models they use to generate the required economies of scale are dictated by the size and nature of the markets they serve. Whatever model is chosen, however, the evidence points to six key factors to ensure that low-cost doesn’t mean low quality:


Pathways
Standardization is key. Streamlining patient pathways by reducing variation and creating flow reduces staff, equipment and estate costs. Proven techniques include the separation of complex and routine work, a move away from batching treatments and the introduction of lean methodologies.

People
Labor is the biggest cost in any health system, so getting the most out of people and skills is the number one consideration for low-cost providers. Often this involves redesigning roles and processes to ensure that staff is operating at the full extent of their license and training. Creating the right training environment, removing unnecessary tasks and developing effective performance frameworks have been shown to be fundamental to successful low-cost HR strategies. Low-cost workers and skimping on training look like a route to low-cost healthcare – the real answer is much more sophisticated.

Procurement
In order to control supply costs and keep overheads down, the best low-cost providers demonstrate strong discipline in their drug and equipment purchasing functions, together with a willingness to look at innovative outsourcing approaches. Paradoxically, organizations with the most standardized systems tend to be the ones most willing to experiment and pilot new ideas. Removing unnecessary variation only serves to make testing new concepts easier.

Environments
Focusing on energy-efficient, flexible, future-proof buildings has been a successful strategy for a number of low-cost providers. Design approaches are emerging which move towards more ‘layered’ hospital environments. Innovations, such as dedicated clinical ‘hot-floors’, modular construction and asset-light agreements, offer significant opportunities to reduce costs.

Technology
The deployment of technology is a double-edged sword. The leading low-cost operators ensure that technology is not an end in itself, but rather a mechanism to help staff manage workflow more effectively. The rise of the smartphone, point-of-care testing and portable diagnostics are all proving crucial to delivering services more cost-effectively, while at the same time improving convenience and quality.

Management
Excellent management is consistently seen as the key to successfully achieving low-cost delivery. Empowering frontline clinicians and creating the right conditions for experimentation and continuous improvement are the hallmarks of the highest performing organizations. Poor governance and oversight are features of many struggling low-cost systems.

Shared characteristics

The following are the four key areas where providers need to focus to succeed:


  1. Be clear about the patients to be served and the business model
  2. Have highly efficient processes based on standardization and flow
  3. Develop models for workforce, technology, buildings and logistics that drive quality and low-cost
  4. Create systems to manage this and drive continuous improvement.

We found that the organizations engaged in this share a number of characteristics:


  • Skilful execution and in some cases a first-mover advantage, particularly where this has enabled them to create large-scale operations
  • A willingness to experiment and an environment to take risks
  • An ability to redesign the care process, workforce and systems for delivery
  • In many cases, a strong mission based on creating value and expanding access
  • They invest in staff and their training
  • They ensure very high quality and efficient support services.

The architecture of a low-cost system

Providers cannot create a successful low-cost system on their own – payers and policy-makers have a crucial part to play.


Increasingly, insurers and governments are becoming more ‘activist’ in their payment behavior, either by altering the level of coverage they are willing to pay for, or imposing outcome-based conditions on healthcare funding.

Shaping patient behavior

Payers have a number of opportunities to influence both system and patient behavior. They can control overall system costs by determining the level of coverage and the types of treatment they make available. Governments, for example, can legislate to increase the size of an insurance pool. Insurers, for their part, can reflect local or national health priorities in the formation of their packages of cover.


Payers can provide direct incentives to patients by rewarding behavior, such as adopting healthier lifestyles. They can also empower communities to take responsibility for themselves through schemes such as mutual insurance. In some emerging health systems, providers are even venturing into traditional payer territory by experimenting with their own bespoke insurance-based top-up systems.

Shaping provider behavior

The new breed of activist payer is prepared to take action to shape the system to ensure they drive the best value.


Research has found that they are using a number of different techniques to do this including:


  • Setting strict treatment guidelines and agreed pre-treatment authorizations for providers
  • Developing new outcome measures to facilitate payment by performance
  • Focusing on overall population health rather than patient outcomes
  • Reshaping provider systems by centralizing care and driving economies of scale
  • Financially incentivizing providers to create integrated systems that push more patients upstream towards community and primary care services.
 

Share this

Share this

Necessity: the mother of innovation

Necessity: the mother of innovation
Based on the expertise of 75 healthcare leaders, this report explores the challenges emerging health economies face in delivering high-quality, cost-effective care.
  • Subscribe to related feeds