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Sleuthing for (More) Savings In Your Budget

Karen Minich-Pourshadi, for HealthLeaders Media, January 18, 2010

It will likely come as no surprise to most of you that in the last two years HealthLeaders Media conducted its annual CFO survey, cost reductions ranked high on the priority list for financial leaders. And, as things continue to simmer in Washington over the merger of the house and senate healthcare reform bills, it seems highly likely that cost cutting will remain a focal point for this year and beyond.

However, when it comes to decreasing cost every facility takes a different tack. For instance, at New York University Langone Medical Center, the focus is on maximizing revenues from recruitment, and retention while they remodeled their revenue cycle processes (charge capture, coding, and documentation) to find longer-term savings. Meanwhile, last week I spoke to a CEO at a 185-bed North Carolina Medical Center and they recently merged with a larger health system to create economies of scale.

Most CFOs are finished with the quick fixes, and now they are thinking long-term. But where do you begin? I touched based with William Hejna, fellow at Noblis Health Innovation, a nonprofit science, technology, and strategy organization headquartered in Falls Church, VA, to get a few more ideas on where to look when you're sleuthing for savings.

Tip 1: Consider the scope of your services. Hejna recommends taking an inventory of the services offered internally and externally. Once you have the list, review the cost of each and ponder ways to trim cost before cutting a service. Next assess the list for possible services to cut with a weather-eye on how this offering impacts your organization's mission, not just the bottom line. "You have to look at the list and then take a step back and be objective about it," he says.

Tip 2: Look back to move forward. If your list of services looks more like a wine list at a five-star restaurant, it may be time to really assess what services are being used versus those that are in demand for your market. "The reality is we are good at deciding what the next service we need to add, but we aren't good at looking in the rear view mirror and saying what don't we need any longer," says Hejna.

He suggests looking at what the hospital's top five priorities are, and based on that, assess which services no longer fit into the plan. This exercise takes a great deal of objectivity by the facility leadership, he notes, and in some instances it may be wise to bring in an objective third party to do this assessment. In some instances you may be able to restructure a service to benefit the organization. You want to optimize the services you have, when possible, but you have to be willing to let them go when necessary.

"Hospitals need to take a hard look at the revenue cycle processes," says Hejna. "If you can redesign the revenue cycle and find a way to improve the revenue stream to add to the hospital's bottom line, that's a lot easier than cost reductions."

Tip 3: Supersize profits by rightsizing. Since the 1980s, the healthcare industry, not unlike the fast-food industry, has supersized. It started with healthcare facilities in which ORs ballooned in size by 53% and acute-care patient rooms grew by 77%. But beyond large rooms, some reporting organizations estimate that as many as 14 states have more inpatient beds than population data suggest they'll need for the next two decades. This is "wrongsizing" on a huge scale, especially when coupled with the anticipated dearth of physicians to work at these facilities.

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