The savings illusion--why clinical quality improvement fails to deliver bottom-line results.

10.1056/nejmp1111662 nejm.org e48(1) into clinical processes will reduce resource utilization and thereby lower costs. Certainly, evidence suggests that there is no association between high quality and high costs.1 Yet true bottom-line savings from improved clinical quality rarely materialize, and costs continue to climb. Manufacturing and service companies around the world have demonstrated the cost benefits of improving product quality and production efficiency. So why haven’t nearly two decades of work on improving health care quality had a measurable effect on health care costs? The explanation lies in the cost structure of the typical health care setting. Its management and organization create a rigid cost structure that is relatively insensitive to small changes in patient volume, resource use, or the severity of patients’ health conditions. This fixed-cost dilemma leaves most health care costs insensitive to changes in volume and utilization, so clinical quality improvements typically create additional capacity rather than bottom-line savings.2 An examination of the different cost layers highlights the distinction between variable costs, such as supplies and medications, where reduced use produces true savings, and fixed costs, such as facilities and ancillary services, where the costs persist despite reduced use. To better understand the cost structure of health care delivery, it can be useful to consider how different costs behave depending on the degree to which they are sensitive to changes in resource utilization. The four cost layers we have identified are defined in the table. Clinical improvements that reduce layer 1 costs, such as those of supplies and medications, will generally create bottom-line savings, since these are the only truly variable clinical costs in a hospital. To generate savings by reducing use of the resources that account for layer 2 costs, the need for the resource must be reduced enough to allow elimination of a payable unit. For instance, a single nursing unit might have to The Savings Illusion — Why Clinical Quality Improvement Fails to Deliver Bottom-Line Results