Intelligence Report: Cost-Containment Expertise

Michael Zeis, December 18, 2013

Vincent G. Capece Jr., president and CEO of Middlesex Hospital, a 180-staffed-bed nonprofit community hospital in Middletown, Conn., relies on productivity standards to optimize staffing levels. "Labor represents the largest percentage of our operating expense, but it's our most vital resource because we are the people who deliver care.

Our organization is the people. Our goal is to try to accomplish the expense reductions we have planned without having any layoffs. Instead, we're trying to manage much more tightly than we have in the past. Our managers get detailed reports on a shift-by-shift basis as to how many resources they're using, labor resources in particular, and how those resources compare to the resources they should be using. They have to explain variances."

Watch supply chain

Purchasing and supply-chain efficiencies are the most common nonlabor process-related cost-saving techniques, providing the highest-dollar-value reductions for 25% of respondents. In addition, nearly one-fifth (19%) see their biggest nonlabor cost savings through improved utilization of clinical resources—using tactics such as tighter inventory control and keeping close tabs on the use of lab services and imaging services.

Louis Papoff, CFO for physician services for the Chicago and Detroit markets of Dallas-based Tenet Healthcare Corporation, summarizes the economics of inventory. In addition to the outlay for the supplies themselves, he says, "You incur expenses for the storage of inventory. Additionally, you incur staffing expense to manage that inventory, and excessive inventory negatively impacts cash flow."

Inventory control initiatives depend on staff buy-in, so, as with labor efficiencies, communication and physician alignment can be keys to success.

Michael Zeis

Michael Zeis is a research analyst for HealthLeaders Media.

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