Five steps to cost saving.

The authors of a recent book on 91 cost-saving steps in nursing homes suggest how to go about doing it

Facilities looking for a more systematic way to approach revenue enhancement and cost saving can benefit from five basic principles of how to innovate without deleterious effects on residents or staff. These principles are based on real-life research conducted through the authors' home organizations, the Nursing Home Community Coalition of New York State and the Myers Research Institute of Menorah Park Center for the Aging in Cleveland, Ohio. The study was funded by the Fan Fox and Leslie R. Samuels Foundation of New York.

We looked at six nursing homes in New York City with good reputations for providing quality care, with lower-than-predicted costs, as a way to determine how quality care can be provided at lower costs. To find the six, we studied state resident assessment data. We identified facilities that scored well on a list of 27 quality indicators, such as minimum use of restraints and psychotropic drugs. Next, we analyzed facility financial data using cost models that factored in ownership, occupancy, location and percent of Medicaid recipients to determine which facilities operated most cost-effectively. We also talked to ombudsmen to see if a facility's numerical excellence was borne out in actual experience.

Our next step was to make site visits, meeting with CEOs, CFOs and other administrators to discuss their expense-control strategies, and with division heads to learn about the specifics of the programs involved. In this way, we came up with 91 ideas for saving money, more formally titled 91 Ideas for Reducing Costs, Enhancing Revenue, and Maintaining Quality in Nursing Homes.(*)

Whether any or all of these ideas are applicable to a particular organization, the main point of the report and this article is that there is a systematic approach to innovating for cost-efficiency. From our study, we gleaned five major lessons addressing this issue:

First, controlling expenses does not require reducing quality of care. In fact, becoming more cost-effective may in many cases enhance the quality of the care you are providing. For instance, some facilities we spoke with were cutting down on psychotropic drugs to try to save money, while others were using a similar initiative to improve quality. The result in both instances was better care and reduced costs.

Second, begin in areas that minimally affect direct patient services. It may seem wise to begin by focusing on the largest items in the budget, such as personnel for nursing, dietary and housekeeping, but these areas have the closest relationship to resident quality of care. Instead, look first into indirect areas for saving. We've seen facilities generate major savings through reduced administrative costs, joining purchasing alliances, self-insurance and the use of private workers' compensation, none of which presents even a remote threat to quality of care.

Third, make your expense reduction efforts systematic and institution-wide, rather than ad hoc. In our study, we found that where cost control was approached in a systematic, overall fashion, cost-control measures were most effective. Furthermore, the most effective reforms we saw were instituted by division directors or department heads. These personnel evaluated their operations up close and worked with administrators to find areas for expense reduction. More grassroots-oriented efforts such as suggestion boxes made more modest differences and were of more benefit to smaller facilities, but we found them to be very effective in contributing to staff morale and involvement in the cost-reduction campaign.

Fourth, use a balance of both expense control and revenue enhancement. Because reimbursement to long-term care facilities will continue to tighten for the next few years, expense control must be augmented by finding new revenue streams. Services that can be added include subacute care, adult day care and outpatient rehabilitation. Diversification efforts include home health, a wellness center, and even a handyman service to the community. In fact, cost savings from expense-reduction innovations can be put to work funding new programs like these.

Fifth, systematically evaluate all your changes. One of the most distressing findings in our study was that very few facilities instituted systematic evaluations of any innovation. Queried about the impact of changes on quality of care and resident quality of life, the staff commonly responded only anecdotally, or by saying that complaints had not increased. It was also rare to find any precise information about the cost savings of any innovation. Most of the staff queried had only a crude sense of the savings that resulted. It is vital to develop an evaluation plan to measure the effect of any change on both quality of care and on revenues.

To do an evaluation, you should first be sure to identify potential threats to quality inherent in the innovation and inform staff, residents and families about the potential change to see how they believe it will affect them. Then, identify ways to evaluate the effects of the change and to measure how costs and revenues will be affected. Next, be sure to institute the change on a trial basis for a limited time with a limited population to test the new policy and get feedback from all concerned. Finally, estimate how much will be raised or saved overall by implementing the change, and then involve staff, residents and families in the decision of whether to roll out the innovation throughout the facility.

Charles D. Phillips is director of the Myers Research Institute, a division of the nonprofit Menorah Park Center for the Aging, Cleveland, Ohio. Cynthia Rudder is the executive director of the Nursing Home Community Coalition of New York State, a statewide resident-advocacy group. For further information, (216) 8315452.