Driving cost savings in hospitals: Six questions for leaders
Managing a global pandemic has been costly for hospitals – many of which need to optimize at speed to sustain operations in the near future. VIE Healthcare founder and CEO Lisa Miller outlines six areas which can help hospitals save costs and improve their bottom-line.
VIE Healthcare is a New-Jersey-based consulting firm that helps healthcare businesses cut costs and boost margins through various optimization strategies. Since launching in 1999, the firm has saved over $750 million for its clients.
Lisa Miller is a former healthcare sales and marketing executive who founded VIE Healthcare over two decades ago, and has been running it as chief executive ever since. Covid-19 is likely the biggest challenge the health industry has faced in this time, although Miller suggests the pandemic has also paved the way for much-needed change.
“I urge every hospital to implement internal competencies and accountabilities to drive success, to recreate, rebuild and to place their organization in a stronger financial position than ever before,” she said.
Miller crystalized her vast expertise into six points for hospitals to consider going forward.
Is the pricing right?
Pricing of services can be tricky, given its reliance on market value. Researching external benchmarks is key to finding the right price – and this should be done regularly to update vendor agreements. “Don’t wait for the contract renewal date,” stressed Miller. “I suggest reviewing in year 3 a five-year agreement and in year 2 – or even in the first year – a three-year agreement.”
Aside from this, aligning the cost base with reimbursements is an effective optimization strategy.
Do you have the right utilization?
As it stands, hospitals look at past utilization patterns to set their procurement strategy – and ultimately determine their cost-base. “Management fees, non-labor costs, and supplies may be bundled together based on a historical standpoint, not from utilization,” said Miller.
Utilization can change in real time, making these historical calculations redundant. The challenge is to obtain real-time visibility into line item spend, so that costs can be adjusted accordingly. “For some organizations, it can take up to two years before these patterns are recognized,” she said.
Do you have systemized data analytics?
Data analytics can provide such a real-time picture at speed – and with unrivalled accuracy. The devil is in the details when it comes to cost-optimization, which means sifting through invoices, contracts and vendor agreements.
Technology can do this with zero error, and identify insights that might be missed by the human eye. And it can do so in real time. “Don’t rely on data that is twelve months old. To capture the true value of data, narrow your focus to review trends on a monthly basis.”
Do you have a culture of cost awareness?
“Adopting a culture of cost awareness requires transparency in costs," Miller said. "This can take the form of creating a program to enable employees to understand and see for themselves the costs involved.”
Tools such as scorecards and feedback systems can help doctors stay aware of the supplies they use, without influencing the quality of patient care. Data analytics technology can play a key role here too.
Have you adopted cost innovation?
Costs can be rearranged innovatively to extract the most value. Shifting the balance of insourced versus outsourced products and services is one strategy, backed up by experiments with the latest in technology.
Hospitals can also build new collaboration models with vendors to share risk. “Under this model, providers receive performance-based incentives to share cost savings. These are also combined with disincentives to share the excess costs of healthcare delivery.”
Do you have a disciplined approach to cost management?
Strategies are pointless without the discipline to implement them. To meet all the above objectives, hospitals need to maintain a detailed overview of costs, topped off with monthly reviews on utilization and quarterly reviews of vendor agreements.
“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,” concluded Miller.
