Skip to main content

Sleuthing for (More) Savings In Your Budget

 |  By kminich-pourshadi@healthleadersmedia.com  
   January 18, 2010

It will likely come as no surprise to most of you that in the last two years HealthLeaders Media conducted its annual CFO survey, cost reductions ranked high on the priority list for financial leaders. And, as things continue to simmer in Washington over the merger of the house and senate healthcare reform bills, it seems highly likely that cost cutting will remain a focal point for this year and beyond.

However, when it comes to decreasing cost every facility takes a different tack. For instance, at New York University Langone Medical Center, the focus is on maximizing revenues from recruitment, and retention while they remodeled their revenue cycle processes (charge capture, coding, and documentation) to find longer-term savings. Meanwhile, last week I spoke to a CEO at a 185-bed North Carolina Medical Center and they recently merged with a larger health system to create economies of scale.

Most CFOs are finished with the quick fixes, and now they are thinking long-term. But where do you begin? I touched based with William Hejna, fellow at Noblis Health Innovation, a nonprofit science, technology, and strategy organization headquartered in Falls Church, VA, to get a few more ideas on where to look when you're sleuthing for savings.

Tip 1: Consider the scope of your services. Hejna recommends taking an inventory of the services offered internally and externally. Once you have the list, review the cost of each and ponder ways to trim cost before cutting a service. Next assess the list for possible services to cut with a weather-eye on how this offering impacts your organization's mission, not just the bottom line. "You have to look at the list and then take a step back and be objective about it," he says.

Tip 2: Look back to move forward. If your list of services looks more like a wine list at a five-star restaurant, it may be time to really assess what services are being used versus those that are in demand for your market. "The reality is we are good at deciding what the next service we need to add, but we aren't good at looking in the rear view mirror and saying what don't we need any longer," says Hejna.

He suggests looking at what the hospital's top five priorities are, and based on that, assess which services no longer fit into the plan. This exercise takes a great deal of objectivity by the facility leadership, he notes, and in some instances it may be wise to bring in an objective third party to do this assessment. In some instances you may be able to restructure a service to benefit the organization. You want to optimize the services you have, when possible, but you have to be willing to let them go when necessary.

"Hospitals need to take a hard look at the revenue cycle processes," says Hejna. "If you can redesign the revenue cycle and find a way to improve the revenue stream to add to the hospital's bottom line, that's a lot easier than cost reductions."

Tip 3: Supersize profits by rightsizing. Since the 1980s, the healthcare industry, not unlike the fast-food industry, has supersized. It started with healthcare facilities in which ORs ballooned in size by 53% and acute-care patient rooms grew by 77%. But beyond large rooms, some reporting organizations estimate that as many as 14 states have more inpatient beds than population data suggest they'll need for the next two decades. This is "wrongsizing" on a huge scale, especially when coupled with the anticipated dearth of physicians to work at these facilities.

Hejna suggests that financial leaders ensure the services a facility offers are "right-sized" to meet the demand of the area. For instance, that could include revisiting physician services arrangements, decreasing or increasing employed physicians, or scaling back on physician alignment. Rightsizing isn't about layoffs, it's about ensuring you have exactly what you need to make your facility operate perfectly—no more and no less.

Tip 4: Eliminate process waste. Everyone from your maintenance workers to your CEO needs to be operating at optimum efficiency. Toyota's Lean Efficiency offers one methodology to try; there's also Six Sigma. Both of these credos are long-term fixes to solving the wasteful mindset that pervades many facility staff. "You have to take the whole care delivery process and be sure it is as efficient as possible—from a cost standpoint, that's where you'll squeeze out the most value."

Tip 5: Know when to stop cutting. Not unlike someone who finds success in weight loss, knowing when to stop trimming the fat is important. If your facility becomes too emaciated you could damage some greatly needed services. Hejna says to always be mindful of your mission when approaching cutting.

"Cost reduction is all about anticipating need, and that flows from the analysis of demand and being able to predict, at least annually—quarterly is better—what your volume is going to be," he says.

Actualizing sustainable savings for your hospital over the long-term requires financial leaders to become comfortable with being uncomfortable. You must challenge the existing way your hospital does business and you must encourage your staff to embrace these changes too. Thankfully, the more often you do challenge the existing budget and then measure the process and progress of your changes, ultimately you will see there is intrinsic value—translation: money—in doing so.


Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
Twitter

Tagged Under:


Get the latest on healthcare leadership in your inbox.