If your hospital or health system is feeling revenue pressures, you are not alone. Declining inpatient volumes, new care competitors, rising salaries, and continued downward pressure on reimbursements have sent hospital executives scrambling to transform their organizations from both cost and revenue perspectives.
Organizations are taking cost transformation more seriously, as evidenced by the latest Kaufman Hall/HFMA survey: The State of Healthcare Performance Improvement. In the report, just 4% say their organizations are not looking to remove costs versus 32% who expressed that sentiment a year ago. However, target cost reductions remain modest, at between 1%-5% of current costs. That’s far less than recent cuts in Medicare payments.
To compete with traditional rivals and non-traditional healthcare upstarts, health systems must understand costs at a foundational level and make more-informed decisions that improve efficiency and minimize waste. Technology can dramatically simplify this otherwise challenging task.
Inpatient volumes decline, while labor costs rise
Health system revenues are being buffeted at the top line by declining inpatient volumes and at the bottom line by wage pressures. When asked to name the most-challenging revenue pressures, 30% pointed to declining patient volumes at the inpatient level. Downward pressure on commercial insurance rates was cited by 27% percent of respondents, while 19% named the increasing percentage of Medicare and Medicaid patients.
What can hospital leaders do to maximize revenue even as inpatient volumes and reimbursements decline? Leverage modern contract management, cost accounting, and decision support solutions to access reliable and trusted data and identify opportunities to improve cost and quality outcomes. These solutions can help leaders understand costs, deliver value, improve contract negotiations, and more.
Moving to the bottom line, 47% cited pressures from salaries and wage inflation. Labor represents up to 60% of a health system’s costs, which can complicate cost transformation efforts. The second-highest response was the capital required to fund strategic growth efforts, cited by 23% of respondents.
Access to capital will continue to be key as health systems work to counteract competitive threats and develop the more convenient and lower cost healthcare services that consumers increasingly demand.When asked to name the area requiring the greatest investment of organizational resources over the next three years, about a quarter pointed to the expansion of primary and outpatient services networks, and more (one-third) were focused on capital projects and new facilities. This is another area where technology can be beneficial — healthcare-specific capital planning and tracking technology helps leaders determine the right capital investment to support growth and care delivery, prioritize capital requests, and easily monitor projects, including measuring variance against the budget.
Technology fuels required foundational approach
To compete on access, convenience, and price in a rapidly changing healthcare marketplace, hospitals and health systems must invest in technologies and strategies that help them understand and ultimately transform their cost structures.
The foundational nature of these required changes means that health systems must look beyond traditional focuses on labor, productivity, and supply chain initiatives. True cost transformation and operational innovation opportunities have remained relatively untapped at many health systems. Examples of those opportunities include unwarranted clinical variation, service line distribution, and portfolio rationalization.
Almost 75% of respondents indicate that they will be investing in technology to help in their cost transformation efforts during the current calendar year (30%) or in the next one to two years (43%). That points to a strong recognition of the need to maximize value of core systems, such as budgeting and forecasting solutions, while deploying more sophisticated technology and analytics to identify cost saving opportunities.
To truly transform costs, health systems need to develop a clearly articulated vision of the future, identify steps they’ll need to take to get there, and implement sophisticated technology that can help make that vision a reality.