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5 Cost Reduction Priorities for CEOs

Rene Letourneau, for HealthLeaders Media, November 11, 2013

"The thing we are struggling with at its core is the constant culture change of cost reduction. We've been very successful in some ways with cutting costs in the last several years, but I have people coming to me saying 'I did my share.' Other industries don't do that because they see the value in constantly picking away at cost. Vendors maintain their 20% margin because they are constantly looking at ways to reduce cost… We have to get to where people value cost reduction as part of what they do every day, whether it is on the doc side or the administrative side," Cawley says.

"There is no easy fix here," agrees John Popovich, Jr. MD, president and CEO at Henry Ford Hospital in Detroit. "It's a process. It starts with giving them the data and showing them the variability and working through it. … It's more about the process and the relationships and the data, all of that stuff has to go together. It's a secret sauce."

Developing Trustworthy Data
As Popovich notes, data is crucial to demonstrating the best areas for opportunities to reduce costs, and most CEOs echo the sentiment.

"It's going to require a deep investment in analytics," Cawley says of achieving ongoing cost reductions.

CEOs know physicians can be moved to change their behaviors when presented with data, but only if it is data they trust.

Doug Luckett, interim CEO at CaroMont Regional Medical Center and CaroMont Health in Gastonia, NC, says having accurate, trustworthy data to share with clinicians in conversations around cutting costs is his "top priority."

"I want to make sure we have a single version of the truth in terms of data integrity when we talk to our physicians about cost reduction," he says.

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4 comments on "5 Cost Reduction Priorities for CEOs"


Tom O'Brien, Sr VP Healthcare (12/12/2013 at 10:34 AM)
Two paths to success... 1) Cost must be at the transaction/process level. TDABC costing has been the best source for this (see Harvard Business Review, "The Strategy That Will Fix Health Care" by Michael E. Porter and Thomas H. Lee in the October 2013 - page 11) 2) Change management. EVEN if you have good data to share with the physicians a strong change acceleration process is key. Data alone will not get you to the finish line!

Rob Tholemeier (11/29/2013 at 11:56 AM)
One of the things I have been looking for is the use of activity based costing in HCOs, which seems to be almost unheard of. I do not see how you can effectively reduce costs unless you know them. In labor intensive industries, with high paid labors, it seems like the adoption of activity based costing is a pre-requisit. Rob Tholemeier Chilmark Research

Stefani Daniels (11/12/2013 at 1:39 PM)
Back on July 14, 2008 HealthLeaders Media published an article 'The Myth of Length of Stay." In it, I presciently entreated execs to stop their slavish focus on LOS and instead focus on cost per case...it is the last pool of untapped opportunities to drive costs down. The volume of excessive, wasteful, and duplicative interventions that physicians prescribed is well known to those of us who have been on the front line. I'm delighted that execs finally see the light - though not surprised it took so long.