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Automation and the Healthcare Cost Curve

Philip Betbeze, for HealthLeaders Media, April 30, 2012

This article appears in the April 2012 issue of HealthLeaders magazine.

Automation, the use of labor-saving devices and information technology to reduce or eliminate the need for human labor, has yielded exponential savings in dozens of industries. But why is healthcare historically a slow adopter of potentially labor-saving, and thus cost-saving, techniques and technology? For one reason, there was no urgency. Productivity in healthcare, in the sense of wringing out incremental savings in labor, has lagged far behind the rest of business largely because competitive pressures present in other industries simply didn't exist in healthcare. But with margins being threatened as never before, many new contracts with commercial insurers depend at least partially on efficiency, meaning healthcare providers must improve labor utilization.

Automation, either full or partial, of various jobs can be a productive tool for healthcare organizations looking to cut costs, and proven solutions and technology are enticing.

Save labor, save money
There are two ways to save on labor costs: Make your current workforce more efficient, or eliminate the need for a human to fill a job altogether. Either way, the effect on the bottom line is similar.

Labor costs are clearly one of the top concerns in healthcare. In fact, in the HealthLeaders Media Industry Survey 2012, Senior Leaders Report, labor costs are ranked as the No. 1 cost driver by 33% of senior leaders, and 59% put it in the top three. Second in the list of 12 choices was government laws and mandates, with 24% designating it as the top driver, and 56% including it among the top three.

John Dragovits, chief financial officer of Dallas-based Parkland Health & Hospital System, came to the industry from the healthcare IT world. Having seen the benefits of automation on cost control, he's a big believer. Parkland has completely automated its hospital pharmacy, with a robotic pick-and-pull system that can locate, prepare, and package pharmaceuticals for individual patients. Parkland also reduced the number of people needed to staff the center to furnish the orders. Dragovits says healthcare needs to do a better job in areas such as automation because that lack of innovation is partially responsible for the unsustainable cost curve of healthcare inflation.

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