Cost-Effective Healthcare Practices in Nursing: A Review

Introduction

Over the last 50 years, healthcare systems all over the world have experienced rapid and significant changes. Some of these changes have been the result of innovative developments in medical science and technology that have greatly benefited patients, prolonging and saving the lives of millions. Some of these changes, however, have had the unfortunate result of limiting patient access to prescribed treatment and diminishing the overall quality of care.

Significant challenges are being faced in healthcare as systems restructure and reinvent themselves in a difficult and often painful effort to make more efficient use of their available resources (ICN, 2001). Since healthcare is such a labor-intensive industry, the stresses on these systems inexorably trickle down to affect those employed within them. Nurses, who are the most highly trained caregivers with ongoing, regular patient contact, stand at the very heart of any healthcare system, regardless of where it is located (Clark & Clark, 2003).

Widespread anecdotal evidence indicates that the issues in healthcare have negatively affected the workplace experience of nurses. The media regularly reports on the challenges that nurses face daily, ranging from low pay in Ireland to safety and health problems in South Africa, emigration in the Philippines, and mandatory overtime in the United States. It is clear that nursing is a profession in crisis — a situation that extends around the world (Clark & Clark, 2003).

The healthcare reforms introduced around the world, including privatization and the introduction of market-based approaches, have succeeded in bringing numerous new pressures to bear on healthcare systems and their workers (Clark, Clark, Day & Shea, 2001). While the crisis in healthcare is multifaceted — encompassing shortages of trained medical personnel, epidemics (including AIDS, tuberculosis, and malaria), environmental problems (air pollution and water contamination), natural disasters, the consequences of war (civilian casualties and refugees), and changing demographics — the root of the problem is ultimately economic. In today's world, developing nations cannot provide the most basic healthcare to their citizens, and the public and private sectors in developed countries have difficulty keeping pace with the rapidly escalating cost of care (Clark & Clark, 2003).

Background and Overview of Healthcare Cost Pressures

The purpose of this paper is to identify successful cost-effectiveness practices in place in various healthcare settings in the United States, to examine how nurses and nursing fit into these practices, and to determine which cost-control factors can contribute to a successful nursing budget. A summary of the research on nursing administration and the efficiency, cost-effectiveness, cost-containment, and quality-control issues facing the nursing profession will be provided in the conclusion.

The healthcare systems of all capitalist democracies were subjected to radical transformation during the 1990s, rooted in the need to control the cost of healthcare for the government, business, insurers, and individuals. Some of the factors driving this need include the increasing number of effective services, the growing population of elderly patients, and changes in patient expectations. A central issue has been the attempt to allow market forces to control costs (Griffith, 1999).

The provision of care in the United States has been predominantly in the private sector, with large-scale hospital chains playing a significant part. Doctors and hospitals have traditionally been paid on a fee-for-service basis, funded primarily through insurance, which has given healthcare providers powerful incentives to increase costs. As a result, millions of Americans have no insurance coverage for healthcare, despite publicly funded systems like Medicare (for the elderly) and Medicaid (for the impoverished).

This traditional model of healthcare has made way for managed care plans called Health Maintenance Organizations (HMOs). In 1980, nine million Americans were covered by HMOs, with that number rising to over 23 million in 1986 and to greater than 41 million by 1992 — translating to over 15 percent of the total U.S. population (Griffith, 1999). The transaction costs within the U.S. healthcare system are enormous. A five-year study conducted in Boston, Los Angeles, and Philadelphia found that overhead costs of 20–34 percent were routinely claimed by managed care plans.

There is little evidence that quality of healthcare is poorer under managed care in the United States. Over 70 percent of observations indicated no significant difference in quality between managed care and alternative plans. However, managed care organizations consistently achieve lower ratings for patient satisfaction — for example, in relation to the professional competence of clinicians and the time devoted to consultations. In one study, 27 percent of former HMO members reported leaving the managed care system due to dissatisfaction with the quality of care (Griffith, 1999).

Staffing Models and the Use of RNs, LPNs, and Technicians

It has been reported that managed care techniques, together with market forces, caused insurance premium growth rates to retreat from 10.6 percent in 1992 to 1.2 percent in 1996. Managed care mechanisms have resulted in lowered use of expensive discretionary procedures and fewer hospital admissions. Utilization review has decreased hospital costs by 10–15 percent. On the other hand, HMOs under Medicare appear to cost almost six percent more than non-HMO arrangements, resulting in the government losing money on the people who use them. There is also strong evidence that HMOs operating in markets with twelve or more competitors charge notably lower premiums than those in areas with less competition (Griffith, 1999).

Primary care nursing was a reorganization that began in the late 1960s, gradually replacing other forms of nursing organization. Before that time, team nursing was the accepted form of nursing organization. Under team nursing, RNs, LPNs, and aides all worked together in providing patient care, with RNs overseeing the work. Team nursing effectively moved RNs out of direct patient care and into a managerial role. In contrast, primary care nursing assigns each RN to the overall care of five to eight patients (Krall & Prus, 1995). Although LPNs and aides are still utilized in this type of nursing organization, their roles were diminished and subordinated to the authority of the primary RN (Marram, 1977).

Pope and Menke provided an analysis of the hospital labor market in the 1980s, observing that "because of the low wages of some more highly skilled occupations relative to their productivity, hospitals could provide care at lower cost by substituting the occupational categories with higher skills (e.g., RNs) with those with lower skills (e.g., licensed practical nurses and aides)" (Pope & Menke, 1990, p. 130).

However, the history of cost-containment pressure on hospitals over the past few decades shows that these pressures have changed the intensity and complexity of hospital care. In 1983, the U.S. government implemented prospective reimbursement for hospital costs, effectively categorizing admissions according to diagnosis-related groups (DRGs). As stated by Pope and Menke, "the results of these efforts and other trends has been fewer, but more severely ill, inpatients, shorter length-of-stay, and increased outpatient activity" (Pope & Menke, 1992, p. 127).

Cost-containment policies have essentially limited the amount of time patients may remain in hospitals for any given health issue and have restricted inpatient hospital care to more serious procedures. As length of stay and severity of patient illness increase, more acute care is required from nursing personnel. Many tasks that would previously have been performed by lesser-skilled nursing personnel have simply been eliminated. Ordinarily, the need to contain labor costs might result in an increased utilization of lower-paid workers and a minimization of the use of more highly skilled and highly paid workers. However, the change in complexity and intensity of hospital care caused hospital administrations to attempt to eliminate from the mix any workers who were not capable of being flexibly deployed (Krall & Prus, 1995).

Licensed practical nurses rapidly disappeared from acute-care hospitals as the changeover to all-RN staffs picked up momentum across the country in the 1990s. The reasons were relatively clear. As patient acuity increased and cost-containment pressures grew, nursing directors believed they could employ only nurses qualified to deliver a broader range of care. At the same time, cost-containment pressures created an environment in which hospitals had to more closely account for and justify their nursing costs. As Prescott pointed out, "especially now that hospitals face serious fiscal constraints associated with changing reimbursement and cost-control mechanisms, administrators must look closely at both the number and type of nursing staff they employ" (Prescott, 1986b, p. 81).

Nursing costs are notoriously difficult to track because it is difficult to predict exactly how many and what type of workers will be required at any particular point in time. Hospital needs fluctuate depending on the numbers, types, and individual responses of patients on a given day. Management developed methods to predict nursing needs based on patient population. This type of patient classification system is a process in which RNs document patient needs; management then uses this documentation to standardize patient care and to predict the right mix of nursing personnel required for any particular patient population (White, 1988).

This management strategy requires a high level of RN utilization, because RNs are more highly educated and better suited to the documentation process required for patient classification systems to function effectively. In addition, RNs are trained to participate in the process. This system is widely used to measure productivity in the staffing of units on both a daily and monthly basis. It is also used to make budgetary projections within various cost-containment restrictions and to ensure the delivery of high-quality patient and family care (Grant, Bellinger & Sweda, 1982).