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Application of TQM principles to the utilization management process.

Application of the philosophy and principles of TQM and CQI to utilization management within an institution necessitates an in-depth review of the systems and processes of the flow of inpatients throughout their stay. This encompasses a total systems perspective, beginning with the admitting process and going through the discharge process. TQM and CQI philosophies identify that the most significant and costly inefficiencies are due to faulty systems and processes, not individuals. Applying this management strategy to a health care institution requires a detailed review and analysis of processes by which service is delivered and requires evaluation of the outcomes of patient care and patient satisfaction.

Physician practice patterns clearly have a major impact on how institutional services are utilized. From the outset, efforts to alter physician practice patterns should be done through an educational, nonadversarial approach. Management must also be more accountable in identifying and correcting inefficiencies that occur in the delivery systems that result in unnecessary costs, reduced quality, and increased risk. Promoting the institution's goal of increasing effectiveness and efficiency of services increases the likelihood of physician "buy-in" and their willingness to change practice patterns. Unfortunately, there will almost always be a residual cohort of practitioners who remain resistant to change and to any suggested alterations in their practice patterns. This latter group will need a more direct approach, through both administrative channels and peer review.

The utilization process at Mercy Hospital, Miami, Fla., was approached with this philosophy in mind. Mercy Hospital is a full service, 400-bed, not-for-profit, Catholic institution providing Level III care. There is a predominant Hispanic subcultural influence among physicians, staff, and patients. The hospital has an average daily inpatient census of 270, with the payer mix noted in figure 1, page 10. In April 1991, the hospital's Utilization Management (UM) Department underwent a reorganization. Although at this time there was no formal organizationwide commitment to TQM or CQI, it was decided that these principles would be applied to the utilization process. The basis for this decision was the belief that TQM would allow for proactive accountability to replace adversarial autonomy resulting from retrospective review. This decision paved the way for implementing TQM throughout the institution.

Program design and implementation were organized in two phases (see table 1, page 10). This article addresses Phase I. It is universally accepted by proponents of TQM and CQI that systems failures that lead to ineffectiveness and inefficiencies significantly overshadow individual variation in the delivery of medical care. Therefore, and analysis of all systems within the organization that affect utilization was undertaken prior to designing or endorsing an approach to improving the way in which services were delivered and used. Concurrent with this evaluation process, an in-depth educational program was initiated for the medical staff. The relationships between the "Prospective Payment System" (PPS), "Diagnosis-Related Groups" (DRGs), and "Severity of Illness" and "Intensity of Service" triggers were explained in detail. Reasons for accountability versus autonomy were repeatedly explained and reinforced.

This was further exemplified by the need for accountable documentation in the medical record. Informing the medical staff of the analysis process being used to evaluate the institution's efficiency and effectiveness in delivery of care set the stage for recognition of the need for joint accountability in the utilization of services. It was recognized early on in this approach that overutilization also occured from individual practice variations. However, it was felt that internal and generic standards needed to be put in place first. Phase I was principally designed to reduce length of stay (LOS). Phase II would more directly affect the intensity of services and identify individual practice variations.

Phase I analysis, system design, implementation, and integration (communication) improved institutional efficiency and effectiveness. Again, this was repeatedly documented for the administration and demonstrated to the medical staff. Collective accountability was enhanced via expanded staff participation in the dynamics of discharge planning committees. These committees meet weekly on each nursing unit and are empowered to reduce LOS by making the discharge planning process more effective and more efficient. Continual reeducation and application of the "Severity of Illness" and "Intensity of Service" criteria as they apply to each patient are an important agenda for the discharge planning meetings. These committees are made up of the nurse manager for the respective unit, the utilization review coordinator, case managers from the social service department, dietitians, representatives from pharmacy and from physical and occupational therapy, and a representative of the hospital's clergy. Committee meetings are facilitated by the physician director of utilization management.

Systems Analysis and Process Implementation

Systems analysis resulted in the following corrections and improvements:

* Utilization Management Department staffing was increased to enable both concurrent utilization review and quality management to be instituted and to replace retrospective assessment. Retrospective analysis was used for database development.

* Educational programs were developed for the hospital's nursing and ancillary support staff. This was accomplished with formal lectures, focus groups, one-to-one dialogue, and a monthly in-depth utilization newsletter.

* Program success was predicated on administrative endorsement to prevent confusion at the managerial level about the UM process.

* Expansion of the Social Service Department was initiated to provide more complete case management. Social services became more assertive in the discharge planning process by initiating patient evaluation upon admission and concurrent monitoring throughout the stay. The Emergency Department had direct availability of social services to fascilitate the exit triage process.

* Management Information Systems developed programs that allowed easier retrieval of current financial information to assist in the discharge planning process.

* A change was made in the system to provide psychiatric services for geriatric patients from a "prospective payment" bed allocation to "prospective payment exempt" status.

* New medical record forms were designed to improve documentation, increase accountability, and facilitate and expedite the posthospital follow-up process. Admission justifications were required, and ongoing physician documentation for LOS justification was requested. This in turn increased physician accountability.

* Medical staff by-laws, as well as rules and regulations, were reviewed in light of their impact on the utilization process. The medical staff endorsed the appropriate changes.

* Increased use of pastoral services was encouraged for patients and for families who had to assume the surrogate role in the patient's behalf as it related to case management and the discharge planning process.

* The entire admitting process, including the triage of emergency department patients was reviewed and analyzed. An educational process was initiated to more appropriately use the extended outpatient stay ("less than a 24-hour stay") classification.

* Formulary adjustments to improve the availability and delivery of pharmaceuticals were aimed at streamlining efficiency and promoting effectiveness. This included having the Pharmacy and Therapeutics Committee develop "criteria for use" of the more costly antimicrobial and biotechnology drugs.

* An extensive medical staff educational process was initiated regarding utilization and quality issues using individual dialogue, focus groups, and formal presentations. Physician financial experience profiles were developed and tracked and, when necessary, were reviewed with individual physicians. The need for appropriate documentation and attestation in the medical record was continually reinforced. This educational process accelerated a new cooperative alliance between the hospital and its medical staff.


The results presented in this article are for the period from April 1991 through August 1991. March 1991 was used as the benchmark month. LOS data are derived using two different sets of data. The utilization staff uses the relationship of total patient discharge days to total patient discharges. The hospital's Finance Department, in developing its monthly financial statements, does not accrue "patient days" data from one month to the next and therefore looks at LOS as the ratio of total patient days for current month to total patients discharges.

Figure 2, above, summarizes the results of improved utilization management on monthly LOS during the study period. In order to determine the impact of extended stays, we randomly analyzed two separate months to determine the effect that patient days had on LOS beyond a maximum of 14 days (longest of more frequently used PPS-DRGs) and how they affected the monthly averages. This is summarized in table 2, above.

Implementation of this systemwide utilization management program resulted in a reduction in LOS for all classes of patients, regardless of payer class because of improved efficiencies in delivery (table 3, below). Determining the financial impact of LOS reductions must be done with certain reservations. "Savings" (interpreted as a reduction in charges) should, after a lag phase, affect contractuals. The data in table 4, page 13, were compiled by taking the monthly differential of reduction (or increase) in LOS and multiplying it by the number of patients discharged that month. Because LOS reductions most likely affect the last phase of hospitalization rather than the earlier more intense phase, both comparative and cumulative "savings" are considered. Case I assumptions are based on average daily charges of $1,500 per day. This premise is based on a reduction in LOS that transcends the entire hospital stay and not just the final days of hospitalization. Case II reflects only charges relating to the final day of hospitalization, when the intensity of services is much reduced. In the current era of the Medicare Prospective Payment System, using reductions in charges to compute "savings" must be viewed with qualification and caution.

Mercy Hospital's cost experience approximates 60 percent of charges. Table 5, page 13, reflects, in Case I and Case II, the effect of "savings" based on charges and costs. True final day charges that are reflected in LOS are probably between Case I and Case II ($1,500/day and $500/day respectively). Table 6, page 13, shows the annualized effect on charges at various reductions in LOS. The 1.53-day reduction annualized should reduce charges significantly and have a resultant effect on lowering the contractual adjustment over time.


The integration of process implementation and team empowerment in the discharge planning committees contributes significantly to overcoming departmental and regional isolationism and protectionism within the organization. TQM created an environment in which diverse participants could conceptualize and respond to the need for increased accountability. It is reasonable to assume that the application of this type of systems approach to utilization management can maximize LOS reduction to a certain point. Beyond this definable plateau, further reduction of LOS could negatively affect quality of care. Therefore, L.O.S. reduction alone has a limited utility. Further, it should be quite obvious that such reduction in contractual adjustments from gross revenue can and do occur without affecting actual third-party (PPS) reimbursement. Improved efficiencies of delivery of services may well affect the earlier, more intense days rather then the latter, less intense days. A more accurate determination of "savings" would require a detailed analysis of actual charges incurred per day.

Although reduction in LOS does not in itself directly affect operational costs, an increase in the efficiency of patient triage through the system allows for analysis and process improvement in basic operational effectiveness and efficiency across many organizational areas. Utilization management thereby becomes the stimulus for an organizationwide cultural change to a TQM philosophy. Over time, this will have the potential for the most significant real dollar savings.

In the present era of per diem and per case reimbursement, it is generally accepted that indexing on severity of illness (i.e., length of stay) and intensity of service is responsible for the significant losses seen in health care institutions. The approach of identifying overutilization by only criticizing individual physicians' practice patterns is reminiscent of the "Bad Apple Theory." The authors strongly feel that it is necessary to add this type of systems' analysis, process implementation, and integration to the utilization process to more properly expend resources along critical paths of health care delivery.

The reduction in LOS is only the beginning of a long journey toward the need to reduce operating losses of the acute care hospital. Focusing attention on the intensity of services utilized, in addition to reduced LOS, probably allows for the most significant "savings" of all. In our experience, the initial approach using education to reduce LOS can have the greatest impact on getting both physicians and hospital staff to accept the vision and the need for change. Once that captive audience is nurtured, combined efforts (administration and physicians) to more rationally analyze how services are utilized is more easily accomplished. At the same time, communicating the hospital identification of and correction of systems and processes in need of repair creates a milieu of shared accountability.

Using this modified TQM process of systems analysis and process implementation and integration in utilization management allows for a unique approach to the introduction of a total quality management program in the entire institution. While the traditional approach to TQM using "top-down" leadership in the organizational culture is the standard bearer, starting with the Utilization Management Department is very effective because of its interface with all aspects of the organizational structure and culture.
COPYRIGHT 1992 American College of Physician Executives
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Medical Quality Management; total quality management
Author:Rosasco, Edward J., Jr.
Publication:Physician Executive
Date:May 1, 1992
Previous Article:Physician executives' characteristics and attitudes.
Next Article:In transit from physician to manager - part 2.

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