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3 Insider Tips on Cutting Costs without Strangling Growth

Philip Betbeze, for HealthLeaders Media, July 25, 2014

Back to Wolterman. He knows of what he speaks. His 12-hospital system cut out $165 million in costs through a variety of strategies. But they didn't forget about investing in growth, and when well planned and executed, some of those strategies can achieve both growth and cost cutting.

Wolterman had three pieces of advice for those who are doing their best not only to shore up the balance sheet for today, but to ensure their organization's long-term future is bright. Here's what he said:

1. Don't be too consumed by cost cutting

"You can't cut enough costs to get yourself to profitability over the long term. You may get it for a couple years. But if you're not maintaining the revenue side, you're eventually down to core fixed costs and you can't get rid of them.

We cut out $165 million in costs about four years ago in an effort to get our cost structure down. All of that was administrative overhead and some nice, but not necessary things.

That jumped our profitability up. But if that's all we did and for the foreseeable future we let the market cut our revenues and volumes because of utilization going down, we would be in trouble. You can't just focus on one dimension of your plan."

2. Learn to cut costs by investing

"[You] fall short in not looking at other ways to cut costs. For instance, how to use evidence-based medicine to wring out costs from falls or hospital-acquired conditions. What about working on your pharmacy formularies and physician preference items that don't have good spend control?

Those can really help improve your system and can increase your margin. A lot of folks are just looking at traditional things that administrators can directly control, such as supply expense and headcount."

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