Even before a hospital shows signs of financial distress, the responsible action is to take a head-to-toe look at hospital operations to fully address financial and performance issues.
Hospital leaders may recognize the need for improvement but may not know where to turn. Since operations span the entire hospital, a head-to-toe operational assessment may be warranted to fully address financial and performance issues.
Following are high-level best practice tips that serve as cost-reduction and revenue enhancement strategies, and can help redirect an ailing situation toward a partial or full turnaround.
Evaluate labor and its costs.
Labor costs typically account for 50 to 60 percent of a hospital’s operating revenue, so a thorough review of productivity is critical. While a productivity tool can help to set productivity targets, it also integrates a level of accountability toward helping to control labor expenses. Productivity standards, manager involvement, and executive oversight will move you toward your goals of greater efficiency while reducing labor costs.
Analyze supply costs.
Second only to labor costs, supply spend represents significant expense for hospitals. Often, small hospitals don’t have the negotiating power, so look to the expertise of a group purchasing organization (GPO), or evaluate whether you have the right GPO with your interests in mind. The right GPO relationship can mean supply savings from 10 to 14 percent.
One key area to look at is your supply inventory. Have quantities been adjusted based on volumes, or types of procedures such as those performed in orthopedics or the cath lab? It may be possible to work with vendors to be charged for supplies when they’re needed (just-in-time delivery) versus overstocking for procedures that may be scheduled; this practice helps to free up dollars for other purposes. Also examine inventory “turns,” the number of times per year that supplies are being replaced. Based on our experience, a reasonable level of inventory turn is 9 to 12 times per year.
Examine revenue cycle management.
Because the revenue cycle is a complex function, points in the process may be overlooked or broken. Your hospital may also face common challenges such as keeping your chargemaster current and competitively priced, and keeping up with each payer’s unique rates and payment methodology.
Additional areas to evaluate and address: ·
- Have managed care contracts been updated or renegotiated? ·
- Compare charges to reimbursement. Although you may be charging for an item at a fixed cost, it doesn’t necessarily mean that you will be reimbursed at that level.
Move ahead with greater confidence.
Your overall action plans should identify who is responsible and accountable for each area of evaluation and opportunity. The discipline of frequent review helps to ensure that you are not drifting off the plan and that progress is occurring across all areas. A new level of accountability across team members is one indication that you have arrived. Be mindful that it does take time and diligence to impact turnaround efforts.
CHC Executive VP & COO