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Analysis

Hospitals Still Lagging on Cost Transformation Measures

By Jack O'Brien  
   October 16, 2018

Health system executives have to pick up the pace on implementing effective cost transformation initiatives, according to a new survey from Kaufman Hall. 

The focus on adequately addressing the rising cost transformation issues facing health systems has not resulted in significant progress, according to an annual survey from Kaufman Hall.

The healthcare management consulting firm reported that less than 20% of healthcare executives surveyed saw cost reductions exceed 5% in priority areas in 2017. Additionally, the report raised concerns on the lack of accountability measures in place to ensure that leaders have consequences for achieving cost transformation goals for their respective organizations.

Data from executives surveyed:
 

  • 32% saying that goal setting for cost reduction is absent in their organizations.
     
  • More than 70% indicating a lack of confidence in the accuracy of their current costing accounting solutions.
     
  • 12% increase reporting that their organizations have implemented processes to hold leaders accountable for cost transformation goals.
     
  • 56% witnessing effective use of clinical pathways, protocols, and guidelines to develop a common approach to treatment, a 9% increase compared to last year.
     
  • 73% saying cost transformation improvement targets have been distributed across the organization, up from 53% in 2017.

Lance Robinson, managing director of Kaufman Hall's performance management improvement practice, told HealthLeaders that while health system executives have focused on traditional areas of cost, like labor operations, they have overlooked other areas like service rationalization, clinical variation, length of stay, and integrating the physician enterprise. Robinson said those areas require immediate attention from hospital executives in order to sustain opportunities going forward.

"One thing I found surprising was that they're not actually holding people accountable to the targets that are set," Robinson said. "On the positive side, I think they have a good idea of what needs to happen. If you look at what factors are driving the need for cost transformation, like the move toward value-based care models and the advent of many disuptors in the industry, they need to be more price conscious and competitive."

The report added that the need to generate capital to fund strategic initiatives is also driving system executives to revisit their cost transformation goals. Robinson said that as factors surrounding the system change, such as labor market and supply chain operations, executives have to evolve their cost transformation goals as well rather than seeking a "shot in the arm" to fix organizational weaknesses. 

While focus still revolves around traditional areas like labor and non-labor costs, Robinson said leading health systems are analyzing ways to address clinical variation, service rationalization, and other areas that can create meaningful change to their capital structure rather than reducing costs "around the edges."

    Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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