Effective Cost Management
This article was written by Lisa Miller.
Change is recognized as the one constant factor in the healthcare sector. Sometimes that change is impossible to predict, as the COVID-19 pandemic has shown. Our two part blog series on finance and budgeting, summarized below, offers proven strategies and considerations to manage your hospital’s finances in a period of change.
As the COVID-19 pandemic has pushed the national median hospital operating margin to -8 percent, I also encourage you to consider our COVID-19 response for hospitals as part of your immediate strategy.
Finance and Budgeting Challenges in the Evolving Healthcare Organization – Part 1
Financial sustainability must embrace numerous trends and challenges. This blog contains an eleven point list, which includes the following points:
- Quality, including patient safety, hospital acquired conditions and medication errors.
- Regulatory and compliance requirements.
- Reimbursement, new payment models and readmission penalties.
- IT challenges and future trends.
- External partnerships and population health initiatives using Social Determinants of Health to identify, prevent and control chronic conditions.
- Labor shortages and costs.
Creating a ‘’patient centered vision’’
In addition, a ‘’patient centered vision’’ must be created to adapt and respond to these myriad challenges. CFO insight is essential to develop a strategic plan that works.
Any budget must include an emphasis on operational performance, with positive operation margins and a return on investment.
- Each department budget is seen as crucial to the success of the entire health system.
- The organization needs to create and share data driven enterprise reports.
- An annual review of results is no longer a viable option.
Thought leadership is the key to addressing the many challenges facing health systems and ensure financial stability.
We recommend the following steps to begin your strategic plan:
7 steps for a strategic plan
- Step 1 – Dedication to routine open communication.
- Step 2 – Data driven: Is your data being effectively used?
- Step 3 – Ongoing reviews: Encourage department leaders to review the original plan, current data points and any variances on a monthly basis.
- Step 4 – Develop standard budget processes: These should be created throughout the enterprise and provide continuing education for department leaders.
- Step 5 – Utilize evidence-based process improvement strategies.
- Step 6 – Celebrate successes.
- Step 7 – Stay focused.
Effective Budget Management and Healthcare Innovation – Part 2
At VIE Healthcare®, we recommend the adoption of best practices from the business world to enable hospitals to maximize efficiency across their organizations. Effective hospital budgeting is often hindered by an industry which has been ‘’slow to adopt digital innovations ….’’ and faces issues such as:
1. “Unaligned budgeting units”
A ‘‘centralized innovation budget’’ can help to pay for digital innovation to benefit the whole organization and removes the cost of technology from individual departmental budgets. This can align with value-based care and bundled payment reimbursement. Hospitals are now recognizing the need for innovation.
As the CDC notes, telehealth has been vital in expanding access to essential health services during the pandemic. Recently, policy changes have also reduced barriers to telehealth access which is becoming essential to deliver acute, chronic, primary and specialty care.
Telehealth has been vital in delivering acute, chronic, primary and specialty care during the pandemic. Click To Tweet
2. “Rigid Annual operating budgets”
A “centralized innovation budget” concept will solve over budget issues which are created if new technology is needed. Open communication and shared data reporting must support this strategy.
3. “Separating operating and capital budget timelines and processes”
All organizations struggle with moving forward with digital innovation, including the level of investment required and the timing of implementation for AI, predictive analytics and so on. Healthcare leaders can learn from businesses that adopt extensive forecasting and designate a specialized team to review, analyze, and inform leadership about new digital innovations.
In addition, this blog offered the following:
5 ways to fund innovation on a budget
- Talk benefits, not savings.
- Start small, test the waters, measure, evaluate, and then expand.
- Make time for innovation.
- Organize for innovation.
- Look for novel funding sources.
The concept of a ‘’centralized innovation budget” dedicated to digital innovation is recommended as the best way forward.
Schedule a call now to implement an effective budget management strategy for your hospital.