Despite Shrinking Budgets, Hospitals Maintain Infection Control Funding

A survey of 200 senior U.S. hospital officials found that in the face of sometimes severe budget constraints, providers across the country are employing sophisticated budget strategies to cut costs, making targeted investments to support growth, and emphasizing patient safety—all while preparing for the ramifications of new healthcare legislation.

The LEK Hospital Purchasing Survey was conducted in January 2010, and included 203 officials from hospitals across the United States. Individuals participating in the survey included CEOs, CFOs, COOs, materials managers, and purchasing directors. LEK Consulting officials said the survey was a response to healthcare market changes in the past few years.

"There's a combination of difficult economic times and a lot of uncertainty around government regulation in the industry," says Lucas Pain, vice president of LEK Consulting. "Our hope was to get a better understanding of how hospital administrators are managing the change and positioning themselves for success in the future."

The survey found that nearly two-thirds of hospitals decreased or froze spending last year, and most hospitals expect further cuts in 2010. These budget pressures have led to more aggressive negotiations with suppliers and payers, delays in facilities upgrades, capital expenditure freezes, longer equipment replacement cycles, and staff reductions, the survey found.

But despite these constraints, virtually no respondents cut their patient safety infection control budgets in 2009, and spending growth in these areas is expected in the future.

"As hospitals plan to differentiate themselves, patient safety will continue to be a key component of any initiative to establish a market niche or to enhance its reputation," Pain says. "Additionally, many insurance agencies are talking about reducing reimbursement for issues that can be attributed to patient safety, such as infections, that can be prevented."

Surveyed hospital executives anticipate that federal health reform will drive an increase in services and admissions for some areas, after observing a decline in both categories over the past 12 months. Other findings in relation to healthcare reform include:

• While hospitals predict reform will lead to increased overall admissions, they say many elective procedures will decrease.


• Senior executives believe the replacement of existing capital equipment and/or medical instruments is a catalyst for increases in current and future spending.

"New healthcare reform is dramatically changing the healthcare industry, and hospital executives realize that old business models no longer apply in today's healthcare landscape," says Jeffrey Stevens, vice president and co-head of LEK Consulting's global MedTech practice.

Also in relation to health reform, more than 90% of hospital purchasers believe that it will lead to increased IT spending as the need for physician order entry and EHRs increase.

Healthcare IT was indentified as one of the key areas in which hospitals have been increasing spending, and most respondents expect to increase their IT investments through 2014. Healthcare IT can also enhance patient monitoring and safety initiatives, which further supports the expectation of increased IT spending, Pain says.

"Additional IT systems will be put in place to both streamline operations and improve patient care," Pain says.

But while Stevens says that hospital executives are "cautiously optimistic" that their budgets will improve in the next five years, one size definitely does not fit all in the hospital budget process.

For example, supplies, purchases, and investments that are unlikely to generate significant short-term returns are more likely to be reduced or delayed.

"Not all departmental budgets are created equally within the hospital," Stevens says. "What we've seen is that hospitals have been making strategic trade-offs in the budget reductions on a department-by-department basis and that they are going to continue to make strategic trade-offs as budgets increase over the next five years."

To address these budgetary pressures, 61% of respondents said they were making focused budget cuts in specific departments. In addition, the survey found hospital executives have utilized multiple strategies to address budgetary pressures, including:

• More than 80% are pursuing more aggressive supplier negotiations


• 70% are delaying facility upgrades


• 65% report freezing their capital equipment budgets or conducting more aggressive payer negotiations


• 58% are delaying instrument replacement, laying off staff, or instituting hiring freezes

And despite the uncertainty in the healthcare market, hospital executives have not stopped looking to the future, the survey found. Respondents noted that the most important unmet needs for providers include competitive differentiation, increasing patient safety, and improving patient outcomes.

The strategic initiatives that were deemed to be of top priority for respondents to meet these needs include outsourcing, the separation of specialized services, mergers and acquisition activity, and a focus on complete personal health for consumers.

"While it's well documented that the healthcare industry has been cutting costs, LEK's new research uncovered innovative strategies that begin to differentiate hospitals in select areas while simultaneously bracing to support the projected increase in admissions caused by new federal legislation," Stevens says.