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Contract Optimization at Texas Children's Hospital

Author

Listed:
  • Chris Born

    (Texas Children's Hospital, 1919 South Braeswood, MC 4-8300, Houston, Texas 77030)

  • Monica Carbajal

    (Texas Children's Hospital, 1919 South Braeswood, MC 4-8300, Houston, Texas 77030)

  • Pat Smith

    (Texas Children's Hospital, 1919 South Braeswood, MC 4-8300, Houston, Texas 77030)

  • Mark Wallace

    (Texas Children's Hospital, 1919 South Braeswood, MC 4-8300, Houston, Texas 77030)

  • Kirk Abbott

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Surain Adyanthaya

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • E. Andrew Boyd

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Curtis Keller

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Jin Liu

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Wayne New

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Tom Rieger

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Bert Winemiller

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

  • Ron Woestemeyer

    (PROS Revenue Management, 3100 Main Street, Suite 900, Houston, Texas 77002)

Abstract

In 1998, faced with mounting financial pressure, Texas Children's Hospital found its mission in jeopardy. Payors sought to reduce expenditures, while physicians wanted to provide the highest quality patient care, research, and teaching. Working with PROS Revenue Management, the hospital spearheaded an initiative to bring greater analytic capabilities to administrative operations, initially focusing on optimizing the performance of contracts with insurers because of the potential revenue leverage. It did so by (1) quantifying expected future demand through forecasting, (2) establishing risk as an important means of measuring contract performance, and (3) embedding the underlying Bayesian forecasting and nonlinear optimization models in a software system that supports the daily activities of contract negotiators. Direct benefits include revenue improvements of up to $17 million annually on contracts renegotiated with use of the PROS technology. The project's initial success has spawned efforts to improve the hospital's planning and operational activities. With a system designed for transfer to other hospital settings and possible enhancement of the diagnosis-related group (DRG) classification system through the use of patient pathways, the health-care optimization technology has the potential for broad impact in the industry.

Suggested Citation

  • Chris Born & Monica Carbajal & Pat Smith & Mark Wallace & Kirk Abbott & Surain Adyanthaya & E. Andrew Boyd & Curtis Keller & Jin Liu & Wayne New & Tom Rieger & Bert Winemiller & Ron Woestemeyer, 2004. "Contract Optimization at Texas Children's Hospital," Interfaces, INFORMS, vol. 34(1), pages 51-58, February.
    • Handle: RePEc:inm:orinte:v:34:y:2004:i:1:p:51-58
    DOI: 10.1287/inte.1030.0062
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    References listed on IDEAS

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    1. Robert B. Fetter, 1991. "Diagnosis Related Groups: Understanding Hospital Performance," Interfaces, INFORMS, vol. 21(1), pages 6-26, February.
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