Healthcare expense experts develop new model to eliminate inefficient processes and wasteful spending

Oct 23 2009

As Washington wrestles with reforming the healthcare insurance system, The Center for Modeling Optimal Outcomes® LLC, a Jackson, NJ-based think tank, developed an organizational operating model that focuses on eliminating inefficient processes and wasteful spending.

The Center's portfolio, which consists of a variety of process models and services, is available for industry-wide adoption and implementation.

Founded by one of the nation's leading healthcare expense management experts, William J. McFaul, and fortified by a diverse team of clinical and operational staff and advisers, The Center created and developed a series of cost-reduction and management service lines designed to generate meaningful and realistic reductions in operating expenses, as well as a series of clinically focused specialties geared toward improving patient outcomes.

Based on a random sampling of published data from 50 hospitals and health systems conducted by The Center, McFaul's team identified a number of factors that indicated the percentage of total hospital spending attributed to non-payroll expenditures is far greater than previously thought. The Center can work with other hospitals and health systems perform their own similar studies.

"When I worked with the Department of Health in New Jersey during the DRG experiment in the late 1970s we found the percentage of non-payroll expenses was in the range of 40 percent to 45 percent," McFaul noted. "Our recent analysis indicates that today the number is as high as 57 percent. Adjusting for a few non-controllable factors such as regulatory and licensure fees, interest, depreciation and capital related costs, we feel it is safe to use a range of 50 percent to 55 percent."

In fact, McFaul believes that by expanding the expense reduction model his original firm developed in the early 1980s and adjusting for today's issues hospitals and health systems conceivably can generate at least $300 billion in real expense reductions over the next ten years. He attributed these expectations to the adoption and implementation of a new generation of methodologies that takes "lean" management to the next level.

"Making these services for cost reduction and management available to the industry will enable providers to slash operating expenses by $35,000 to $50,000 per bed in service per annum," said Al (Alfred) LoBiondo, a 25-year veteran in healthcare expense reduction, strategy development and execution planning with extensive experience in group purchasing and shared services operations. "These dollars fall predominantly in the non-payroll expense stream without negatively impacting quality of care."

The Center's "Strategic Initiatives in Healthcare(®)" are available through limited licensing agreements between The Center and group purchasing organizations, consulting firms and healthcare providers.