These initiatives, collectively known as the ThedaCare Improvement System, are helping to enhance quality while reducing costs, says John Toussaint, a physician who served as ThedaCare’s chief executive until April, when he left to launch the ThedaCare Center for Creating Value in Healthcare, which focuses on reducing costs for providers, businesses and individuals. “Administrative costs are only one element of health care delivery, but we’ve found thousands of ways to cut them,” Toussaint says. By eliminating overlapping responsibilities among employees involved in ThedaCare’s accounts receivable process, for example, the organization reduced receivables by $12 million in six months. And using the ThedaCare Improvement System to remove administrative hurdles in human resources has reduced the average time it takes to hire someone from 38 days to 18. All told, implementing lean management tools has saved the organization $23 million during the past five years—without cutting jobs and while improving service to patients.

Still, in a system that has net revenue of $550 million annually, “there are millions and millions of dollars left to go,” says Toussaint. He says he could take these reforms only so far, however, in large part because none of ThedaCare’s dozens of payers has been willing to sit down and work with the company. “It’s not malicious,” Toussaint says. “The marketplace is just totally dysfunctional, and we’re thrown in with everyone else who’s not as efficient. I can lower my prices 20%, and it will never get to the consumer.”

The Massachusetts General Physicians Organization, too, has been making progress in its fight to control administrative costs, in part by participating in the kind of coordinated, systemwide approach that Toussaint craves. The New England Healthcare Electronic Data Interchange Network, or NEHEN, is funded by 54 hospitals and eight health plans and promotes electronic data exchanges among payers and providers. It’s a kind of information technology pipeline intended to streamline the flow of data among many regional entities while safeguarding patient privacy. Now, 10 years after it was established, more than 4.5 million health care “transactions”—including claims, referrals and verifications of insurance eligibility and benefits—pass through the NEHEN network each month.

“NEHEN has taken the whole issue of how to move bits and bytes between payers and providers to a pretty efficient level,” says Heffernan. Whereas before NEHEN it might have cost $5 to process an insurance eligibility transaction by hand, such exchanges today can happen electronically for “pennies per transaction,” says Sira Cormier, project manager for NEHEN in Waltham, Mass. (The MGPO now processes 93% of its claims electronically, compared with 75% just two years ago, and a much smaller proportion before that.)

NEHEN is one of the first examples of a health data exchange network now commonly known as a regional health information organization, or RHIO. Since 2004, when President Bush established the Office of the National Coordinator for Health Information Technology, the federal government has awarded more than $139 million in grants and contracts to create RHIOs as electronic hubs linking hospitals, physicians, insurers, pharmacies and laboratories. The intention was to create a free flow of medical records and administrative data within a geographic region. According to a Harvard University study, the federal government, states and private organizations have launched more than 145 RHIOs in recent years. But most have struggled to establish themselves, and only 20 have achieved even modest success, notes the study. Problems include building trust among members, choosing information technology criteria and creating a sustainable business model that will keep the RHIO going after initial funding dries up.

“The problem is that once you’ve seen one RHIO, you’ve seen one RHIO,” says Dan Rode, vice president of the American Health Information Management Association. “There’s just no uniformity. For this to work, members must be willing to give up something.” RHIOs in California, Colorado, Indiana, New York and other states, for example, have all adopted different strategies, governance models and electronic architectures, and in contrast to NEHEN, they’ve focused mainly on exchanging clinical rather than administrative data. “With clinical data exchange, it’s much harder to determine immediately whether you’re reducing costs,” Cormier says. “We started with a common goal—reducing costs—and administrative transactions gave us an easy target that made business sense.”

Another imperative is to educate physicians about how much their supplies and equipment cost; otherwise, not knowing what the facility already has or which vendor may offer the best price, they may inadvertently inflate expenses, says Joe Lavelle, executive vice president of the Medical Center of Central Georgia in Macon. At the MCCG’s electrophysiology lab, which treats heart rhythm problems, supply costs had been higher than those of other hospitals handling similar patient volume and case severity for those procedures. But by sharing cost and utilization information with its electrophysiologists and cardiologists, the heart center has saved more than $1.7 million during the past year. The MCCG also implemented an ordering and management system that generates and processes physician requests electronically, allowing administrators to negotiate efficiently with suppliers. Now other cardiology services are following suit.

Yet even such coordinated efforts may not be enough to overcome the tendency, within a large organization, of different departments to adopt their own systems, software and protocols. “You’ll go in and find a wide variety of equipment, and of types and versions of application software,” says Mel Van Howe, a principal at the Copperwood Group, a Novi, Mich., consulting firm.