Across the US, hospitals are facing unprecedented financial challenges.
In Congressional testimony in April 2023, Ashley Thompson of the American Hospitals Association provided several sobering data points:
- Overall, US hospital expenses jumped 17.5% between 2019 and 2022, far outpacing Medicare reimbursement rates, which rose 7.5%.
- Labor expenses totaling half of the average hospital’s budget, soared 20.8% between 2019 and 2022. Costs for contract labor skyrocketed by 258%.
- Drug expenses per patient increased by 19.7%.
- Hospital supply expenses per patient rose 18.5%, outrunning overall inflation rates by nearly 30%.
Not surprisingly, these financial challenges triggered a wave of closures, shutdowns and bankruptcies across the country. But even amid the bad news, there’s hope. Today, hospital leaders (with the help of experienced outside experts) are becoming more adept at identifying signs of financial stress within their organizations and reacting before a worst-case scenario occurs.
Here are five considerations for improving a hospital’s financial performance and long-term outlook.
- Perform a bespoke assessment
While many healthcare organizations face similar challenges, there’s no one-size-fits-all approach to addressing these challenges — even among sister hospitals in the same network.
Any assessment should begin with a review of the entire operation: clinical, quality, financial and other functions. The evaluation’s goal is to identify the financial drivers of where the hospital’s been and where it’s heading — and to lay the foundation for a comprehensive plan that best fits the organization's needs.
- Adopt a methodology and set KPIs
Hospital leaders and their outside consultants must embrace a formal performance improvement (PI) methodology to maximize the potential for sustainable, long-term gains. Many clinical and/or quality teams may already utilize Agile, Lean, PDSA or similar solutions. The overall performance improvement process can become more efficient by adopting the same PI methodology (in a lighter version) for business operations.
Following this decision, the team needs to define priorities with measurable KPIs. Almost every financial performance improvement plan will require difficult decisions, including (but not limited to) staff reductions or furloughs, reducing or eliminating services and/or divesting assets.
- Be laser-focused on expense reduction
Decision-makers and consultants should focus on repeatable solutions for reducing expenses. This can begin with finding improvements that cut overhead costs that will quickly drop to the bottom line. Another tactic is performing an evaluation of contracted services across the entire revenue cycle, revising the terms and implementing placement strategies to reduce costs.
High labor costs are another factor that bears analysis — requiring hospitals to be more strategic than ever about staffing. Any reductions should be performed with a scalpel, not a sledgehammer.
- Drive revenue through smart investing
Improved revenues can result from investing where it makes the most sense strategically. Experienced outside experts can pinpoint where to find that right balance. For example, some hospitals and consultants have found that adding case management staff to departments can help simplify admissions and expedite discharge planning.
Another common strategy for optimizing revenue is ensuring certain charge-capture information is collected upfront and accurately. Outside experts can determine the types of coding and billing problems that staff are experiencing and pinpoint their root causes.
Overall, a careful review of clinical documentation integrity (CDI) performance can help eliminate detrimental behavior patterns, such as clinicians failing to respond quickly to queries or an individual who consistently declines to accept questions when clarification would yield a higher rate.
- Underscore the importance of accountability from the top
Even the best strategic performance improvement plan will never achieve maximum impact unless the impetus to change “business as usual” comes from the top of the organization. The C-suite must buy into this evolution and hold each other and their managers accountable.
The best outside consultants can act as mentors, coaches, analysts and idea generators. However, the hospital must ultimately own these changes starting at the executive level because these leaders are the ones who must implement the changes. They’re the ones who should be hardwiring these improvements into the organization so that people don’t revert to prior behaviors.
In conclusion, the losses being experienced by many hospital and health systems today is unprecedented. Stopping the hemorrhaging, stabilizing the patients and getting them back on their feet won’t be easy.
Fortunately, many leaders have already embraced this most difficult of cases. They’re working diligently with experienced consultants to design and implement PI plans to lessen the financial pain and find ways to be more efficient and effective that will eventually result in a US healthcare system that’s healthier than ever.
Read the full article here.
Doug Barry
Principal, Healthcare Transformation
Cheyenne Holland
Managing Director, Healthcare Transformation
cheyenne.holland@mazarsusa.com