Continuous Cost Improvement: Drive Sustainable Savings Without Sacrificing Culture
By Ryan Self, VP advisory services, Strata Decision Technology.
Health systems continue to prioritize lowering the cost of care as the waves of rising labor costs, volume volatility, and supply chain challenges persist. This time, hospital executives are coming to realize that establishing a continuous cost improvement program is key to improving margins for their organizations, but the question is how to integrate that broadly across an entire health system.
Cost reduction has gained a negative reputation within healthcare since it is often associated with staff cuts. Although cutting staff can provide temporal relief to an organizations’ bottom line, it rarely provides sustainable results and introduces new challenges when there are not enough bodies to complete the work that needs to be done, especially in an industry where lives are at risk. Shifting healthcare professionals’ perspective to view cost reduction as an ongoing opportunity to identify areas for improvement through collaboration with operational and clinical leaders will shift the stigma and allow for constructive efforts to take place that will benefit the organization in the long run.
Cost-saving programs can no longer be the sole responsibility of the finance team – they need to incorporate the individual operating departments and service lines. Historical messaging that implied each leader must take their fair share of a global labor reduction plan will not work, particularly with staffing shortages lingering in the industry. To be effective, the perception of the program must shift from one of top-down enforcement to bottom-up empowerment. Luckily, there are many hospital functions that can play an integral role in helping improve an organization’s margins.
The best way for an organization to approach its financial journey is to understand that cost improvement is not a one-time fix, but an ongoing process that must be ingrained in its DNA. Support from the CEO, along with the rest of the leadership team, is crucial to integrate financial enhancement programs. Without senior leadership on board, the efforts will fizzle out, and no one will be held accountable. A holistic approach to cost improvement involves the entire organization and allows for clear visibility and maximum savings potential.
Areas of opportunity
The Healthcare Financial Management Association (HFMA) recently conducted a survey with Strata Decision Technology that polled 185 healthcare finance, accounting, and revenue cycle executives. The survey revealed that although nearly 89 percent of participating healthcare organizations have some type of cost reduction program in place, only 6% characterize their program as extremely effective. The good news is that there’s a commonality among programs that reported successful cost improvement initiatives – a formal and ongoing process that is applied across the health system. When a system has the correct process in place, financial decisions become easier because advanced planning helps to avoid any major surprises down the road.
One of the keys to developing this kind of program is implementing technology that can help supply insight into an organization’s financial health. Technology gives organizational leaders the ability to unlock the lakes of healthcare data that previously had little to no functionality, as many organizations have both the clinical and financial data they need to improve operations, but they have yet to integrate the IT systems that allow them to do so. Standardizing existing data and using it to perform analyses allows for comparison and identifying opportunities for improvement. This kind of operational benchmarking is a defining factor in cost reduction strategies because it allows healthcare organizations to reflect internally, as well as benchmark their performance against others.