Cost and Revenue Strategies

Jonathan Bees, June 1, 2017

Healthcare executives who have embraced the task of determining the true cost of providing care at their organizations are in a better position to offer transparency, and see doing so as a competitive differentiator in the healthcare industry.

This article first appeared in the June 2017 issue of HealthLeaders magazine.

In an ideal world, business leaders are able to maintain financial growth and stability simply by driving down costs and preserving or even increasing revenue through conventional means. However, the healthcare industry—with its mix of third-party payers, for-profit and nonprofit entities, and increasing reimbursement pressures—creates unique challenges for its leaders.

Note that the healthcare industry is making steady progress—the transition from fee-for-service to value-based care encourages healthcare organizations to embrace a financial and clinical mission of providing high-quality care at more affordable costs.

According to the 2017 HealthLeaders Media Cost and Revenue Strategies Survey, for example, 49% of survey respondents say that the transition from fee-for-service to value-based care has either significantly improved or somewhat improved their cost containment efforts, and only 24% say that this has significantly hindered or somewhat hindered their efforts. 

However, while positive change is being achieved through healthcare reform efforts, progress is moving at a slower pace than many would prefer. In the interim, traditional methods such as driving down costs through purchasing and supply chain efficiencies and maximizing revenue collection through disciplined revenue cycle practices remain effective strategies.

Further, initiatives focusing on process redesign and care standardization, to name just two, are also yielding positive results. But one issue that remains an obstacle is the industry’s inability to determine the true cost of delivering care.

True cost of care

Survey results reveal that the biggest barrier to achieving sustainable cost reductions is the lack of data on the true cost of care (58%). This is followed by a closely grouped series of responses that cover a range of different areas: insufficient integration with care partners (45%), lack of technology in place to achieve goals (34%), with lack of patient engagement in their care (33%) and regulatory compliance (33%) in a tie. Responses are fairly evenly spread across most of the factors, an indication that achieving sustainable cost reductions touches on all aspects of provider organizations.

While most providers recognize the need to determine the true cost of providing care, actually being able to collect and analyze this data is another matter. For example, 36% of respondents say that they can determine the true cost of care for all (6%) or most (30%) care provided, and 51% say they can do this for some care provided, but 13% are unable to determine the true cost for any of the care they provide.

These results are nearly identical to last year’s survey: 6%, 29%, 51%, and 15%, respectively, and more improvement will be needed for providers to succeed in controlling costs and delivering value.

While responses for unsupportive organizational culture (23%) finish near the bottom of the response list, it remains a point of emphasis for most providers due to the critical role it plays in the implementation of cost containment initiatives. 

"The most important opportunity that we deal with is culture change and change management," says Chad A. Eckes, MBA, executive vice president of corporate services and CFO at Wake Forest Baptist Medical Center, an integrated health system in Winston-Salem, North Carolina, that operates more than 1,000 acute care, rehabilitation, and psychiatric care beds, and offers outpatient services and community health and information centers. Eckes also is the lead advisor for this Intelligence Report.

"We have the data and technologies in place. We know all of these things. We don’t think it’s going to adversely impact quality or safety. The biggest thing is getting people to standardize their approach to doing things and realize that cost management and reducing some of the waste is as important as the rest of their job."

Price transparency

Price transparency is increasing in importance for the healthcare industry as patients have become more actively involved in the process of being healthcare consumers, and in response to the growing use of high-deductible plans.

For example, survey results reveal that 40% of respondents are able to provide price transparency to patients for all (12%) or most (28%) care provided, 41% say they can do this for some care provided, and 18% are unable to provide price transparency for any of the care they provide. 

Jonathan Bees

Jonathan Bees is the senior research analyst at HealthLeaders Media.

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