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Back to Basics

Jim Molpus, for HealthLeaders Magazine, February 3, 2009
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The first cuts usually come in curtailing nonclinical areas, including but not limited to forced reductions in administrative overhead. Then the loss-leading services become vulnerable as hospitals retreat to the core revenue generators.

After that, it's time to dig into the books, says Bigalke.

"You really have to step back and challenge the status quo about the way you have operated your hospital in the past and not wait for the crisis to get any worse," Bigalke says. He recommends clients look through their contracts with third parties in more detail than they may have in the past or explore upside opportunities in pay-for-performance programs. "And are you working with your chief medical officer to make sure you are not merely focused on the admission and discharge process but you are really thinking through how to engage that patient in the care you are providing and how that fits into your revenue cycle during that large period of time when they are inside the hospital?"

And those systems forced into layoffs may ultimately discover a more long-term view of staffing, he says, as many healthcare organizations have simply "grown into the size they are" without much downward pressure to qualitatively evaluate personnel. "I don't think there are too many organizations in America that when they hit a difficult challenge do not find that they have capacity to adjust their labor force. It is just human nature. It is easier to hire than to fire."

It is difficult to cut labor without that having an effect on services. Those services without strong revenue lines may become particularly vulnerable, says Ken Rodgers, director for public finance at Standard & Poors.

"The communities want hospitals to be all they can be, so to speak," he says. "In reality, when times get tough that is when the guys in the green eye shades in the hospital get elevated a little bit in stature, and they point out to the various constituencies that certain service levels might have to be changed or reduced." Gerontology and psychiatric services may be among those with great need that could become vulnerable for reduction, he says.

Bill Holman, CEO of Baton Rouge (LA) General Medical Center, says being strict on staff levels is only the first step. "We have been very aggressive about questioning every vacancy and are not filling positions that are not essential to patient care or that do not directly contribute to revenue," Holman says. "Still, we recognize that we will not be able to weather this era solely through reductions, so we are working on projects to partner with physicians and increase volume."

For a fortunate few who have the strength in the market, or just a high tolerance for risk, the downtown has created new opportunities for partnerships or consolidation, either with medical groups or hospital to hospital. "Will it force realignment?" Umbdenstock asks. "Yes, I think that will speed up, too." Smaller or independent hospitals may get squeezed into realignment to weather group purchasing or contracting, Holman says.

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