As hospitals emerge from the impact of COVID-19, creating a proven strategy for hospital cost savings is mission critical. In this blog, I outline the 6 key questions for hospital cost-savings opportunities that you must be asking.
The Pressure to Make Cost Savings for Hospitals
As operating margins fall, we are witnessing an unprecedented pressure on healthcare organizations to identify cost savings. External dynamics are forcing every health system to track every dollar spent.
I urge every healthcare organization to implement internal competencies and accountabilities to drive success, to recreate, rebuild and to place your hospital in a stronger financial position than ever before.
At VIE Healthcare®, these are the six vital questions we ask to begin to create a cost-savings strategy and build a cost-opportunity score for our clients.
Question 1: Is the Pricing Right?
For many hospitals, the focus is on utilization over pricing, but in our experience, numerous opportunities exist to ensure your pricing is at the right level.
- Have you benchmarked from two or three external resources? A cross-section of benchmarking is critical to ensure you are securing the best price for your organization. One of those resources could be your GPO, but I strongly recommend exploring additional sources.
- Secondly, review all your vendor agreements in-term, every year to identify pricing opportunities; don’t wait for the contract renewal date. This is a key cost-saving discipline for every hospital. I suggest reviewing in year 3 a five-year agreement and in year 2—or even in the first year—a three-year agreement.
- Have you analyzed to reimbursement when possible? There are a number of areas in clinical services, for example, where you can map your cost to your reimbursement. Our experts at VIE Healthcare® can advise you on that process.
Question 2: Do You Have the Right Utilization?
Do you have insights into variations, standardization and conversions?
Areas for consideration include cleaning and environmental services, which you may have canceled or paused in response to the pandemic.
In many cases, these costs are based on a historical baseline and contract which only permits an increase of that baseline. Furthermore, management fees, non-labor costs and supplies may be bundled together based on a historical standpoint, not from utilization, which can have a significant impact on your overall costs.
Oftentimes, cost savings are missed simply because hospitals don’t have visibility into their line item spend, only different patterns of utilization that aren’t identified in real-time. For some organizations, it can take up to two years before these patterns are recognized.
Significant cost cutting opportunities exist in line item analysis of your purchased services spend.
Question 3: Do You Have Systemized Data Analytics?
The healthcare sector has been slow to adopt digital innovation, but it is essential to ensure the accuracy of the data you use.
Do you use multiple sources of data to ensure accuracy? Do you visualize data on a consistent basis operate on key metrics?
In our experience, many supply chain processes rely on a manual review of invoices and contracts, but technology is the only way to accurately review the immense volume of data available.
Don’t overlook the value of ‘’small data’’:
- Data accuracy: It is possible to profit from hospital spend data analytics by “measuring small” and then expanding your focus.
- Use “real-time” data: Don’t rely on data that is 12 months old. To capture the true value of data, narrow your focus to review trends on a monthly basis, in real-time.
Question 4: Do You Have a Culture of Cost Awareness?
Adopting a culture of cost awareness requires transparency in costs. This can take the form of creating a program to enable employees to understand and see for themselves the costs involved.
For instance, does your hospital use a scorecard and feedback system for physicians and surgeons in real-time so they are aware of the cost of the supplies and implants used?
As research shows, providing cost data to physicians can result in significant savings without compromising patient care. For many healthcare organizations, however, providing that information represents an additional challenge.
VIE Healthcare’s innovative “Physician Cost Awareness Program” provides a unique solution to this challenge by providing data in a simple, user friendly Cost Playbook, which empowers surgeons to make decisions based on both clinical and financial value.
Question 5: Have You Adopted Cost Innovation?
Cost innovation is essential to drive margin improvement and may include:
- Insourcing to outsourcing.
- Outsourcing to insourcing.
- Adoption of new technology to provide visibility of costs.
- Shared risk models with vendors.
For more insight into cost innovation, click here.
Question 6: Do You Have a Disciplined Approach to Cost Management?
This is a really important question for every health system. The signs of a disciplined cost management strategy include:
- Your hospital regularly captures cost savings, preventing those missed opportunities and ‘’leakage.” With technology such as Invoice ROI™, you have access to the line item details in your purchased spend.
- You dedicate time to review your utilization every month.
- You perform quarterly financial and operational business reviews with your vendors based on your data and you driving the discussions, supported by that data.
Your hospital’s financial recovery from COVID-19 requires a structured, rigorous and disciplined approach to a culture of cost awareness and continuous improvement. These six questions are your starting point.