Better Care and Better Business

Better Care and Better Business 150 150 Dave Ghose

The changing economics of health care are forcing hospitals to find solutions that are good for patients and for the bottom line.

A puzzled neonatologist approached Richard McClead, MD, after he spoke at a conference in Boston. It was 2010, and Dr. McClead just finished detailing a new initiative at Nationwide Children’s Hospital to reduce the time babies spend in the hospital’s neonatal intensive care unit. “Why would you do that?” asked the neonatologist.

Nationwide Children’s was challenging the conventional financial wisdom of the time. At the neonatologist’s hospital, the NICU was a “cash cow.” The longer a preemie stayed in the unit, the more money the hospital made. “He was implying that, ‘If I cut length of stay in my NICU, my hospital administrators are going to be all over me because we’re losing money,’ ” recalls Dr. McClead, associate chief medical officer for Nationwide Children’s.

Today, the changing economics of health care are forcing providers everywhere to redesign how they treat patients. The goal is better care and better business. No longer can hospitals expect payment for services in all circumstances — especially if they’re to blame for a costly “serious safety event” such as a wrong site surgery. “In an environment where costs are less likely to be reimbursed for preventable harm, harm prevention becomes not only the right thing to do for the patient but also the right thing to do economically,” says Daniel Hyman, MD, chief quality and patient safety officer for Children’s Hospital Colorado.


In the traditional fee-for-service economic model, hospitals aren’t always incentivized for harm reduction. They get paid even if they’re treating a hospital-acquired condition such as bedsores or catheter-associated urinary tract infections. “The health care industry is about the only industry where you’re paid to hurt people,” Dr. McClead says. “It sounds over the top, but it’s true. We get paid for things we do poorly.”

Nationwide Children’s began to upend this model in 1994 when the hospital created Partners for Kids (PFK), a physician-hospital organization comprising 760 physicians.

Partners for Kids is the oldest and one of the largest exclusively pediatric accountable care organizations (ACOs) in the United States. As an ACO, Partners for Kids takes on the full financial and clinical risk for Nationwide Children’s Medicaid enrollees, functioning much like an insurance company. Instead of receiving payment for services, the hospital takes home a fixed amount per enrollee per month. The approach gives the hospital a financial incentive to reduce costs. “And much of those costs arise from causing preventable harm to our patients,” Dr. McClead says.

A wide-ranging quality improvement program has coincided with the new economic approach. In 2008, the hospital set an ambitious goal to eliminate all preventable harm. Full-time quality improvement personnel increased from eight in 2007 to 33 in 2012, while the budget grew from $690,000 to $3.3 million. Multidisciplinary teams were deployed to focus on the most significant problem areas, such as bedsores, adverse drug events and hospital-acquired infections, including catheter-associated urinary tract infections, ventilator-associated pneumonia and surgical-site infections.

The initiative has produced impressive results. The rate of serious safety events — variations from expected practice that result in significant harm — dropped dramatically, from 6.7 per quarter to 1 (an 85.1 percent drop). Also decreasing were common preventable conditions such as bedsores, adverse drug events and hospital-acquired infections.

2013 study published in The Journal of Pediatrics reported the total annual estimated cost of preventable harm at Nationwide Children’s dropped from $8.37 million in 2010 to $6.53 million in 2012, a 22 percent decrease. “Each one of those harm events not only causes harm for the patient but also causes financial harm to the system,” Dr. McClead says.

Children’s Hospital Colorado also has experienced dramatic results since it launched its own major quality improvement program. Over the past two years, the hospital saw the number of serious safety events drop by about two-thirds, while the rate of hospital-acquired conditions has decreased by 30 percent, says Dr. Hyman, who joined Children’s Hospital Colorado in 2008 to fill the newly created position of chief quality officer.

In 2015, the Aurora, Colorado, hospital won the American Hospital Association-McKesson Quest for Quality Prize. Other honorees included Nationwide Children’s, Duke University Hospital in Durham, North Carolina, and Schneck Medical Center in Seymour, Indiana. Only three children’s hospitals have ever received this recognition.

“We’re doing this because it’s the right thing to do for patients,” Dr. Hyman says. “We’re doing this because the economics make sense. And we’re doing this because our organizational leadership believes it’s the right thing for us to do to be the best hospital we can be for our patients and families.”

ACOs still remain relatively rare concepts in pediatric care. Children’s Hospital Colorado doesn’t have an ACO other than a small pilot project with the state of Colorado, but Dr. Hyman predicts change is coming.

“The vast majority of costs in our national health care system are in the adult world,” he says. “So we’re kind of the tail of the dog. But I think children’s hospitals are clearly doing the right thing by investing and testing approaches to global reimbursement and capitated contracts where there is alignment with the right care and lower costs and better outcomes.”

The Affordable Care Act encourages the creation of ACOs, which reward providers for keeping their patients healthy. “It’s becoming more and more the case that the whole country is going to have to go in this direction,” Dr. McClead says. “And they better get on board with finding out how to improve outcomes.”


Around 2009, Dr. McClead began to explore how Nationwide Children’s could improve the quality of care in the neonatal intensive care unit. When he looked at the data, he discovered that 75 percent of similar children’s hospitals had shorter lengths of stay for babies admitted to their NICUs. “That was kind of a marker for the fact that we had a problem,” Dr. McClead says.

For extremely premature babies, feeding is a particularly complex challenge involving the brain, airway and foregut. What’s more, variable training, inexperienced personnel and lack of communication among NICU staff made feeding even more difficult. “The bottom line was there was inadequate knowledge being disseminated inadequately,” says Sudarshan Jadcherla, MD, principal investigator in the Center for Perinatal Research at Nationwide Children’s.

Dr. Jadcherla developed a standardized approach called SIMPLE (simplified, individualized, milestone-targeted, pragmatic, longitudinal and educational) to improve feeding in the Nationwide Children’s NICU. The program analyzes institutional processes, builds consensus, improves communication, monitors compliance and accountability and offers educational opportunities through workshops.

In a study published this year in the Journal of Parenteral and Enteral Nutrition, Dr. Jadcherla and his co-authors reported that the SIMPLE program shortened stays in the hospital’s NICU by as much as two weeks without any drop in the quality of care. “Much of the time the premature baby spends in the hospital is learning how to eat,” Dr. McClead says. “If we’re not very competent about how to accomplish that, then the kid’s going to be in the hospital longer. So what Dr. Jadcherla provided was that structure on how we approach feeding.”

The findings have generated much interest. The new approach can result in significant savings — each day of hospitalization in the NICU costs between $2,000 and $3,000, depending on the institution, Dr. Jadcherla says. Two other hospitals — Connecticut Children’s Medical Center in Hartford and MetroHealth System in Cleveland — are exploring implementing the program.

But it will take a lot of work to replicate Nationwide Children’s NICU success. It’s easy to imagine ideas that can hit the sweet spot of better care and better business, but it’s much more difficult to execute and deliver on the increasingly important goal. “It’s very challenging and very difficult to do this,” Dr. Jadcherla says, referring to the SIMPLE program. “It needs education. It needs commitment from the institution. And, of course, it needs the concerted approach of the NICU staff.”


With ACOs, quality improvement and preventable harm gaining the spotlight in health care, Drs. McClead, Jadcherla, Hyman and other pioneers are leading the way to merge better care and better business. Their work points toward a new future where forward thinking leaders across the medical spectrum embrace improving outcomes and cutting costs as the traditional fee-for-service economic model goes away.

With health care in so much flux, Dr. McClead can’t help but wonder about the neonatologist he met in Boston five years ago and whether his hospital’s point of view has evolved since then. “I bet they’re far from, ‘Why are you doing that?’ ” he says.



  1. Brilli RJ, McClead RE Jr, Crandall WV, Stoverock L, Berry JC, Wheeler A, Davis JT. A comprehensive patient safety program can significantly reduce preventable harm, associated costs, and hospital mortality. The Journal of Pediatrics. 2013 Dec;163(6):1638-1645.
  2. Jadcherla SR, Dail J, Malkar MB, McClead R, Kelleher K, Nelin L. Impact of process optimization and quality improvement measures on neonatal feeding outcomes at an all-referral neonatal intensive care unit. Journal of Parenteral and Enteral Nutrition. 2015 Mar; 0148607115571667.
  3. Kelleher KJ, Cooper J, Deans K, Carr P, Brilli RJ, Allen S, Gardner W. Cost saving and quality of care in a pediatric accountable care organization. Pediatrics. 2015 Mar;135(3):e582-e589