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Weathering the Financial Storm

Scott Downing, for HealthLeaders Media, November 10, 2008

Everyone is feeling the pinch of the ailing economy, as the stock market continues its freefall, the government bails out financial institutions, and the credit market remains frozen. This dreary financial picture is made worse by the fact that the government is tightening reimbursement regulations and seemingly trying to take back the money it has already paid hospitals.

What can hospitals do to weather this financial storm?

The obvious answer is anything that will improve the bottom line. That means cutting costs and growing revenue. According to the accounting firm Deloitte & Touche, LLP, for hospitals, it takes $11,700,000 in new revenue to have the same impact as $100,000 reduction in operating costs.

Given this fact, the first place that hospitals can look to trim costs is in supplies, which represent 20% to 40% of their expenses. Another benefit to reducing supply costs is that reducing supply expenses doesn’t typically involve laying off employees.

Many hospitals are already working with group purchasing organizations to leverage purchasing power and cut costs on commodity items. However, in order to continue to find savings, hospitals need to work with their physicians to reduce costs on medical devices. Physicians can also help with negotiation efforts, as well as utilization issues.

Of course, hospitals can simultaneously implement strategies to improve their top line. One thing hospitals can do is improve patient documentation and record the right information about the severity of the illness and underlying complications that patients may have, which can have a direct impact on Medicare reimbursement.

For example, 60-bed Beauregard Memorial Hospital in DeRidder, LA, has been able to use a quality documentation tool to improve the accuracy of its documentation. As a result, the hospital was able to increase revenue by $247,000 in four months, and it estimates that reimbursement will increase by $600,000 in FY 2008.

While the financial landscape is uncertain, there are steps hospitals can take to increase their bottom line.

Many times, these steps save money, improve the quality of care the hospitals offer, and preserve employee jobs. That’s good news—for a change.


Scott Downing is executive vice president of supply chain management at VHA Inc. He may be reached at sdowning@vha.com.
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