4 Means of Sustainable Cost Reductions
"The consequence of issues with our financial viability could've been dire. If we couldn't eliminate the waste, we might have to do across-the-board cuts," says Burnette. "Those cuts are popular at hospitals, but we'd rather do targeted cuts. And we view layoffs as a last resort, as you have to maintain staffing ratios. So we were very interested in slowing the rate of growth and cost through Lean and other initiatives."
The Lean initiative was just the start. Over the last seven years, Denver Health has moved from low-hanging fruit to the long-term sustainable cost reductions that every financial leader seeks, Burnette says. She lists four measures for sustainability:
- Continually and fully engage organizational leadership on what costs need to be cut and the role each person plays in the process.
- Review each contract for every vendor annually. "The key is to look at your contracts and ask, ‘Why is this in here? Do we need it?'" says Burnett. "Look at the financial terms of the agreement, look for potential cost savings, and renegotiate."
For example, this past month Burnette and her team extended terms with two vendors. In return, one vendor made concessions worth $420,000 over the term of the contract. The second vendor gave Denver Health equipment and supplies, which meant avoiding the cost of purchasing those items—a savings of about $2 million in equipment and $1.3 million in supplies, she says.
- Install automated programs for electronic invoices and requisitions to maximize the billing system.
- Focus on the pharmacy, especially for Medicaid managed care members. "If you're not managing it, it gets quite expensive," Burnette explains. "We've done several Lean events around this area that have resulted in the average amount paid for a prescription decreasing significantly. Whereas in March 2010, the average per prescription cost was $76, by February 2012 it had dropped to $43, with a net savings in the millions.
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