The spiraling costs of healthcare in the U.S. have precipitated a tangible backlash — as demonstrated by the passage of the Patient Protection and Affordable Care Act in 2010 — that suggests that demands for better care at lower cost are not simply going to go away. In light of this, it’s become critical for hospitals and health systems to develop a new approach to managing healthcare costs.

Most delivery organizations have had some kind of cost management activity going on for the last decade, but so far, these efforts have not managed to bend the cost curve. To bring down the cost of care, healthcare delivery organizations must identify and address cost outliers — those patients or physicians whose costs are well above the norm. The only sustainable way to manage these outliers is to do so systematically, rather than trying to address them on a one-off basis. This approach builds the infrastructure to first tackle the low-hanging fruit of extreme cost outliers, then serves as a mechanism for continuous improvement. Below are the steps you’ll need to take, and the pitfalls you’ll want to avoid.

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