3 Causes for Hospitals Missing Out on Cost Savings
This article was written by Carol Turano and co-authored by Lisa Miller.
Almost one in five US hospitals are ‘in bad shape’ financially, or at risk of closure, a situation exacerbated as many hospitals are missing out on cost savings which could drive margin improvement.
Most have been unable to address the rising cost issues across the healthcare sector and have been closing at the rate of 30 per year, according to the American Hospital Association. Many have highly negative margins and hospitals in rural areas are identified as more likely to be at risk of closure.
Most hospitals are unable to address rising cost issues in healthcare and have been closing at the rate of 30 per year. Click To Tweet
Driving Margin Improvement
Real strategies and solutions are essential to combat the relentless rise in expenses, as well as government and payer constraints which contribute to the flat revenues that we are regularly seeing across the sector.
VIE Healthcare® Consulting has been optimizing hospital operating margins and patient care through non-labor cost reduction strategies since 1999. We understand that the healthcare world is constantly in flux and apply our expertise to leverage change as an opportunity for growth.
One of our specialities is cost reduction and our process has significantly improved the operating margins and overall economics of our clients, saving them millions of dollars. Our experts navigate your procurement pitfalls while you stay focused on your core business and delivering quality patient care.
In the course of our work, we have identified a number of trends in the areas of margin improvement and three key reasons that means savings are often missed.
Product Creep occurs when your vendor launches a new product and the savings your hospital was expecting are booked onto the product it is replacing.
For example, technology is rapidly evolving and disrupting healthcare as new products and systems emerge on a regular basis. As the new technology is implemented, it is often accompanied by a price increase which was neither planned for nor expected by your hospital.
As another example, let’s say a hospital negotiates and agrees on price points with a vendor. The vendor then continues to innovate or enhance their product by incorporating new and innovative materials. This allows them to bypass the existing contract price points or shift utilization towards higher cost items. A good example of this is the use of Vitamin E treated liners/inserts in total joint cases. Typically, these are priced upwards of 40% higher than non-Vitamin E materials.
Essentially it is the same product, but the vendor is now charging a higher price and your hospital does not receive a higher reimbursement from Medicare, nor does it save costs or receive any benefit from the change in price.
In situations like this, Product Creep offers vendors a way to circumvent agreed pricing and charge more for a product that is of no additional benefit for your hospital.
In our experience, hospitals often incur new utilization that they haven’t accounted for.
An in-depth analysis of your hospital’s utilization costs can achieve major cost savings. However, this requires a deep dive into up to 12-18 months of invoice data against your contracts. Despite the significant and achievable cost savings it adds to your margins, hospitals are often unwilling or unable to take that step and analyze the detail.
For example, a total knee replacement comes with standard components but sometimes requires a revision component in a primary knee. In our work at VIE Healthcare®, we are seeing that 30-40% of primary knees have a revision component which is only used around 10% of the time, according to the doctors we work with.
We highlight this because a revision component is more expensive and often used by the vendor to charge for a higher priced item that is not required.
Another example we frequently see is in IT when a hospital purchases 2,000 licenses, but only uses 700.
In essence, utilization savings mean getting clear about what you really need and carrying out an exercise to validate exactly what items you really use – and how frequently.
Without line item analysis of your invoices, pricing errors may be missed. Click To Tweet
We know that analyzing vast amounts of data is both time and labor intensive. If this analysis is not carried out, however, it becomes expensive and can have a tremendous, negative impact on your margin and revenues.
Reliance on manual systems is also prone to human error.
For instance, when analyzing purchased services, we frequently find flat out mistakes on purchase orders (POs). These errors include adding items that weren’t previously there, duplicating charges or invoicing for products that the hospital had never had or used.
In one example, we examined a client’s invoice for implants that required specific screws. For each screw, the client was charged $825. When analyzing the line item details, we discovered that the hospital was charged twice for the screw.
VIE Healthcare® offers an unparalleled dedication to line-item analysis with its unique Invoice ROI™ process.
Our unique invoice reconciliation, contract optimization, business intelligence, and analytics platform offers real-time contract reconciliation and benchmarking performance provided on a monthly basis for outsourced purchased services.
Identify your missing cost savings and drive margin improvement with VIE Healthcare®
VIE Healthcare® stands at the forefront of healthcare innovation and optimization.
Since 1999, VIE Healthcare® has been providing leading-edge hospital performance improvement services including cost savings, financial, and operational consulting.
- Our team of experts analyzes the past 12 months spend of your 25 highest used items/or 50 highest cost items to provide you and your team with the data to capitalize on the savings available. Alternatively, we can carry out the work for your healthcare system to enable you to focus on delivering quality patient care.
- Our mastery and expertise have already saved our clients over $1 Billion implementing exclusive strategies to improve hospital operations, profitability, and patient satisfaction.
- Always ahead of the industry curve, we rapidly address your organization’s priorities using our proven methodology. As your trusted partner, VIE Healthcare® maximizes your profits and optimizes performance, so you can focus on delivering exceptional patient care.
- VIE Healthcare® can support your contract reviews and assist with agreement renewals of your outsourced services with the nation’s leading price benchmarking and contract analysis services.