Inside Duke Medicine

Prepared for the future

Before economic storm clouds gathered, DUHS was at work seeking savings and enhancements

More than a year ago, well before “global economic downturn” became a household phrase, senior managers within Duke University Health System saw financial storm clouds on the horizon and initiated an organization-wide effort to identify major opportunities for cost savings, or where additional revenue opportunities might exist.

Expectations were significant—a target of $50 million annually between cost savings and increased revenue opportunities. If successful, it was felt the organization would be optimally configured to move into a future likely to be characterized by reimbursement reductions and probable health care reform proposals by a new administration in Washington.The work that began in March 2008 did not benefit from a crystal ball, nor did anyone foresee the depth or breadth of the global economic crisis that took hold in the last four months of the year. But those events significantly accelerated the urgency of this project.

The farsighted actions taken over the last year have positioned Duke well to weather the current uncertainty and prepare for future growth.

“While we obviously didn’t foresee the global economic collapse, we did see a number of indicators early in 2008 that we felt required immediate organizational attention to create a financial structure in which we could be successful moving forward,” said William J. Fulkerson Jr., M.D., senior vice president for clinical affairs. “The really impressive thing that emerged in this project was the collaboration between physicians, nurses, managers and a host of others to achieve the goal.”

Achieving, and in fact exceeding, the target in this project has been a remarkable feat, considering that the teams sent out to find the savings and revenue were given two principles to follow strictly as they combed the organization looking for opportunities - - don’t affect the workforce and don’t do nything that would weaken patient safety or patient care.

This expense management initiative was important for at least two significant reasons. First, the results were felt to be what would be needed to offset anticipated potential future reimbursement reductions. Second, in offsetting potential threats to operating income, it better positioned the organization to consider decisions regarding major capital investments in our future.

“We must have the resources necessary to build a foundation for growth,” Fulkerson said. “And it’s important that we work to eliminate barriers to our growth potential or possible risks of impact to the health system workforce, the people who are responsible for Duke’s tremendous success and reputation.”

There were three primary factors that suggested that the project was necessary, said Ken Morris, the health system’s senior vice president, chief financial officer and treasurer.

First was a growing belief within the American health care industry that government reimbursement programs had reached their peak and that in a few years Congress, struggling with growing budget deficits, would do as it had done in the past and cut reimbursements to health care providers.

Second, Morris said, were the health system’s growth plans, which like with any building projects, would require significant capital during construction and first few years of operation. Health system leaders wanted to make sure that there was more than enough resources for current operations and expansion expenses.

And third was a body of growing evidence that the U.S. economy was cooling down and that credit markets were entering a period of turmoil.

“Considering our estimates of government reimbursement reductions, our future growth needs and wanting to be prepared if the global economy became more certain, we came up with a target figure we thought we could achieve over the next two to three fiscal years,” Morris said.

During the process, priorities were weighed—it was about more than simple cost cutting. It was about making the health system operate better.

For example, one team looked at hundreds of devices and products that are used in procedures in the health system’s hospitals—from linens to laboratory materials to surgical needs and beyond.

Working together, faculty physicians and procurement officers make strategic choices of goods that provided the same or better service, but at lower cost.

Another team, focused on revenue enhancement, also found success.

A team at the Patient Revenue Management Organization worked hard to determine Medicaid and Medicare eligibility of patients and to reduce write-offs and bad debts.

“This project was not just expense reduction; it was also revenue enhancement,” Fulkerson said. “The goal with revenue enhancement was to make sure that we are being paid what we are supposed to be paid for providing care to our patients.”

Savings were found in other areas—the ongoing switch-over to Internet telephone and aggressive efforts to reduce energy consumption will together save more than $2 million when fully implemented.

As part of the cost-saving effort, some vacant positions were eliminated.

The effort to find ways to improve Duke University Health System is a project without an end date.

“I like to remind people that this is not ‘one-and-done,’ ” Fulkerson said. “Expense management and revenue enhancement have got to be core competencies for us, and we are really getting there. For example, I am very proud of the way the hospitals work on expense management. Now, we’ve got to take it to the next level.”