3 Cost-Cutting Skills of Smart Hospitals

Jim Molpus, January 28, 2013

Every hospital with hopes of a future has a number they use to project the amount of cost they must squeeze out of their organizations in the next few years. The lucky few may have a number that is in single digits, but most healthcare organizations are looking at double-digit cost reduction to match shrinking reimbursement levels.

We asked the members of our HealthLeaders Media Chief Financial Officer Exchange for their organizations' estimated percentage reduction of operating costs for the next 3-5 years. The average was set at 11%. In our just-released 2013 Industry Survey: Strategic Imperatives for an Evolving Industry, cost reduction was rated as the third-highest priority by the 823 respondents, close behind patient experience and clinical quality.

What strikes me as one of the more telling responses to our survey was that while 92% rated reduced reimbursements as the top threat facing their organizations, only 4% rated reduced reimbursements as an opportunity. That paints a picture of an industry scared of a future of forced efficiency and competition on value.

Granted, no one in a regulated industry that has only the most tenuous ties to a retail economy likes looking at a future in which its income streams are chopped by a combination of market pressures and government cutbacks. Still, often the best and only time for corporations to make a significant leap in their market position is when the underlying dynamics of an industry shift. That's when there are opportunities for innovative players to make a stake. Whether it's Walmart or Target reinventing discount retail or Southwest creating a new category of airline, industries are reshaped by a disruptor that focuses on the "turn" and not the "down" in "downturn."

It takes a special vision to compete without a net in a healthcare market where service, quality, and efficiency all have to hum at the same time. I would wager that the same 4% of health systems who view reduced reimbursement as an opportunity also understand that their view of cost containment has to evolve. The axiom that you can't cut your way to growth has never been truer.

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