5 Components to Profit Losses in Hospitals
This article was written by Lisa Miller.
The push towards price transparency and value based care continues, placing additional pressure on already squeezed hospital margins. For organizations seeking additional strategies to drive margin improvement, here are 5 ways your hospital is losing money – and how to stop it.
IT healthcare spend
Technology delivers significant innovation and enables improvements in patient care but many hospitals we work with at VIE Healthcare often unknowingly pay too much for their IT systems and contracts. Two key areas of overspending are:
- Ongoing payment for software licenses and subscriptions which are not utilized.
- Agreements for IT maintenance renewals for systems that are outdated or now redundant. By reviewing renewal terms on your IT spend, your hospital can negotiate significant cost savings.
Close scrutiny of your contracts by an experienced healthcare consulting provider can help to identify cost savings and create a sustainable cost management strategy in what is often a difficult area for hospitals.
A new study from the Journal of the American Medical Association suggests that the annual cost of waste in healthcare ranges from $760 billion to $935 billion – roughly 25% of all health care spend. 
The annual cost of waste in healthcare ranges from $760-$935 billion – 25% of all healthcare spend. Click To Tweet
The largest area of spend for waste lies in administrative costs according to the report. In 2017, one AHA study suggested the cost per patient in this area was the equivalent of $1200.
One key area of administrative services where significant cost saving opportunities can be found is in supply chain management. Healthcare organizations can save up to $11 million every year in this critical area by working with a provider which understands best practices in this key area.
Cost savings in the OR
Cost savings in the OR can be realized by increasing the cost awareness of your physicians, often by the simple inclusion of pricing information on items in the OR.
Rather than choosing implants based on familiarity and previous use, for example, physicians can make decisions around implant selection based on the price data immediately available to them. As physicians become more engaged, they are also more productive, also resulting in increased patient satisfaction and patient referrals for your hospital.
Our recent research report Cost Reduction in the OR provides more in-depth analysis and insight into this area.
A further area for potential cost savings is in telecommunication cost management. In our experience, four out of five telecommunication invoices contain errors in areas such as:
- Non-compliant contract pricing.
- Products which are not being utilized.
- Billing services for locations which no longer exist or are incorrect.
- Products and services which are off contract.
- Erroneous fees for taxes and surcharges applied to hospital bills.
Consistent monthly telecommunication costs do not guarantee that your hospital is being billed correctly. It is essential to analyze this data on a monthly basis and review all of your telecommunication contracts annually.
Engaging telecommunication expense reduction experts enables you to make data driven decisions around spend and realize significant cost savings in this overlooked area.
Line item details in your purchased services spend
Major cost savings are available within the line item details of purchased services invoices. Unlike other areas of spend, the only way in which your hospital can determine whether your purchased services invoices are correct is through line item analysis.
For most health systems, this is a time consuming, resource heavy task and most hospitals approve invoices for payments if the monthly spend hasn’t increased significantly.
Line item analysis of your purchased services invoices enables you to confirm vital information such as:
- The amount billed reflects the agreed contract rates on each item.
- All of the items your hospital is paying for are covered by a contract with your vendor.
- All hourly rates are correct.
On average, we find that up to 30% of hospital purchased services spend is either not detailed on the contract or does not match contract pricing.
Our groundbreaking Invoice ROI™ technology analyzes and identifies major cost savings available in the line item details of your purchased services invoices, guaranteeing margin improvement.