Kaufman Hall Report Highlights Need for U.S. Hospitals To Accelerate Cost Transformation Efforts

Survey Results Show Lack of Good Data Is a Key Obstacle to Progress

SKOKIE, Ill. – September 18, 2017 – A new report released today by Kaufman Hall shows a significant gap between understanding in U.S. hospitals and health systems of the cost transformation imperative and commitment to making the needed cost reductions. As detailed in 2017 State of Cost Transformation in U.S. Hospitals: An Urgent Call to Accelerate Action, an overwhelming majority of hospital executives surveyed (96% percent) agree that transforming costs is a “significant” to “very significant” need, yet more than 50 percent of organizations do not have adequate cost reduction goals in place.

According to the report, 25 percent of executives said they have no cost reduction goals for the next five years, while an additional 26 percent have a goal to reduce costs by 1 percent to 5 percent – a range that is far below what is required to transform cost structures, and is unlikely even to keep pace with inflation.

Other significant findings include: Nearly 80 percent of survey respondents cite the need to proactively revise their cost structure to align with value-based care, and nearly 70 percent acknowledge that they must close the gap between their financial plan and current operating performance.

“Financial realities demand a new way of providing care,” said Walter Morrissey, M.D., Kaufman Hall Managing Director. “This is not business as usual, involving incremental change. To meet community needs under healthcare’s new business imperatives, and to participate as a provider of choice in narrow networks developing nationwide, organizations must have a strong value proposition and a cost position that is significantly lower than competitors.”

The report highlights that for most hospitals and health systems, achieving such a position will be a transformational undertaking, requiring an extensive effort to dramatically lower costs by 25 percent to 30 percent over a five-year period.

“Effort toward the cost reduction target recommended by Kaufman Hall must start now, not at a yet-to-be-determined future date,” added Morrissey. “It will involve initiatives such as reshaping the portfolio of services and businesses, redesigning the care model for improved effectiveness and efficiency, and reconfiguring the workforce—all of which have the potential to yield much, much lower costs.”

The report suggests that a lack of good data, as well as insight into costs and savings opportunities, may be the primary reason for the low cost reduction goals and limited progress at organizations. According to the Kaufman Hall 2017 CFO Outlook report, more than 90 percent of survey respondents believe their organization should be doing more to leverage financial and operational data to inform strategic decisions, yet the new Cost Transformation report indicates that only 25 percent have confidence in the accuracy of the data generated from their cost accounting solution.

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Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; cost transformation; treasury and capital markets management; and mergers, acquisitions, partnerships, and joint ventures.

Kaufman Hall software includes the Axiom Healthcare Suite, providing sophisticated, flexible performance management solutions that empower finance professionals to analyze results, model the future, and optimize organizational decision making. Solutions for long-range planning, budgeting and forecasting, performance reporting, capital planning, and cost accounting deliver decision support, reporting, and analytics within an integrated software platform. Kaufman Hall’s Peak Software empowers healthcare organizations with clinical benchmarks, data, and analytics to provide a higher quality of care for optimized performance and improved patient outcomes.