3 Hidden Hospital Cost-saving Strategies

In an era when healthcare organizations are laser-focused on cost, obvious excesses in spending are long gone. That doesn’t mean the pressure to increase efficiency and reduce expenses has ended—it simply means that organizations have to look more closely at what they do, how they do it, and how much value they receive.

Today it’s possible for your facility to become still more efficient without sacrificing performance and morale, by encouraging people to be more innovative. Here are a few examples:

1. Outsourcing Contracts

Recent surveys have shown that numerous hospitals are not satisfied with their outsourcing contracts.  This often happens when contracts are awarded purely on price—which subsequently turns any vendor’s service into a simple commodity instead of a way to create value.

When outsourcing, the objective must be clear from the beginning. The economic benefit should be balanced with defined metrics for direct and indirect services related to the outsourced function. For example, hospitals often outsource environmental services, yet the hospital receives a publically reported measure indicating the “cleanliness” of a patient room. Since the function strategically supports the hospital’s brand and reputation, incentives should be established that improve the relationship and economic value on both sides of the contract. This win-win approach can be structured like a joint venture agreement, incorporating elements such as shared goals and defined criteria for success.  

Any agreement that is structured without creating alignment will eventually lead to dissatisfaction by one of the parties. Moreover, the buyer will incur the costs associated with disruption when operations are transferred to a new vendor—not unlike the costs associated with employee turnover.

2. Asset Utilization

Asset Utilization can be defined as the percent of time a specific asset is “Active” divided by the combined time the asset is “Idle” and “Active”. The most highly correlated variables of asset utilization are demand for the use of the asset and operational processes supporting the use of the asset. 

Today, if you were to walk into a modernized manufacturing plant you would observe a calm, planned and controlled environment. This is because industries have spent billions of dollars driving variability out of their systems. They know that variability is the nemesis of process control—the less variability inside a process, the closer the asset’s utilization capacity can come to 100%.

Creating a demand model can be highly illuminating as a way to reduce variability. You will discover demand is highly predictable and is usually correlated to time of day and/or season.   As an example, by building a supply/demand model for operating room use, it’s possible to uncover sources of variability that can be reduced through improved scheduling and/or staffing. 

In other cases, cost-saving initiatives at your facility may have created unintended consequences, such as a reduction in the number of environmental service workers required to turn over a patient room during peak times of admission. If patient transport positions were eliminated—say, that were used to help fill a radiology queue—the result could be underutilization of a highly valued asset by a workforce component that represents one of the organization’s lowest costs of labor.   

Similarly, patients are often idle in ER treatment bays waiting for tests to be administered or results returned, while others are stuck in the waiting room. Innovative solutions like parallel processing could enhance operational flow and significantly improve the ER treatment bay utilization.

3. Employee Engagement

“If you watch your nickels and dimes, your dollars will take care of themselves.” This adage, given today’s economic climate, has certainly become applicable. It’s time to seek out and identify small, yet repeatable savings. And your employees can help.

Many front-line workers see waste everyday that could be eliminated, but they go on living with it because they are waiting for “upper management” to address the issue. Why wait? Begin to ask how to reduce waste. A nurse manager at one hospital reported that they were able to reduce the costs associated with each newborn delivery by $100. Since this hospital delivered 10,000 babies per year, this employee identified an annually savings of $1 million. 

In nearly any organization, inefficiency increases expense. People are remarkably good at sensing inefficiency—and with a little encouragement, are more than willing to brainstorm ways to eliminate it. Talk with your vendors, your supervisors and your front-line employees. Chances are you’ll walk away with a long list of ways to remove hidden costs while improving your operations.

Dan Woods is senior vice president of Verras Consulting, a consulting firm helping healthcare providers find innovative solutions for containing costs while building sustainable clinical quality. He can be reached via email at djw@verrasconsulting.com.