Identifying cost management strategies in dialysis clinics: Sustainable savings with positive outcomes

Objectives: To examine whether cost management strategies are used in a revenue-constrained environment without compromising clinical effectiveness. Study design: Cross-sectional analysis of monthly cost and acuity-adjusted hospitalization data. Methods: This research included longitudinal regression analyses involving 10 years of data, 1990 through 1999, from each of 6 dialysis centers. Two sets of regression models were used: one set examined cost interactions and cost trends (P ≤ .001); the second set examined clinical outcomes (P ≤ .001). Four cost management strategies were examined: (1) selective reductions in targeted cost categories, (2) cost reductions through improved efficiencies, (3) cost avoidance by shifting responsibilities to external parties, and (4) uniform reductions across all cost categories. Results: Managers appeared to have limited opportunity to selectively or uniformly reduce costs because of cost "stickiness" and minimal resource substitutability. Improvements in operational efficiencies and cost shifting to external parties occurred. Over time, however, realized efficiencies increased at a decreasing rate, whereas cost shifting actually declined. Contrary to prior hospital studies, these results indicate significant economies of scale. No statistical correlation was found to indicate that the physician/clinic management teams' use of cost reduction strategies affected acuity-adjusted hospitalizations of dialysis patients. Conclusions: Strategic models that include both financial and outcomes data can enable healthcare managers to predict both positive and negative results of cost management proposals. These models can help identify aspects of an organization's cost structure that affect sustainable cost savings: cost stickiness, cost substitutability, institutional experience, realized operational improvements, and economies of scale.