John Johnston, vice president of QHR Consulting, offers six ways for hospitals to improve their bottom lines.
1. Reconsider premium payments for nurses. With the easing of the nursing supply in the recession, premium payment packages for nurses are, in many cases, no longer necessary, but many hospitals and health systems still have such policies in place. Review payment policies to determine if premium payments for nurses are still being offered by your hospital and determine whether or not they are really necessary.
2. Review use of ancillary services. With the current decline in inpatient volume, volume for ancillary services, such as physical therapy and wound care, may be down. "I walk around these departments and see three nurses and one patient," Mr. Johnston says. It may be time to cut back on hours of operation in these departments, he says. And because these services don't have to take unexpected patients from the ED, they can run on shorter schedules. He recommends reviewing volume of appointments for the past 6-12 months and, if volume has fallen significantly, opening the department for just half a day on two or three days a week.
3. Review overhead departments. Departments such as accounting, human resources, IT and education do not directly earn money for the hospital, making it difficult to determine how much they need to be cut back when revenues are down. This hurdle makes it all too easy for hospital budget-cutting to sidestep these departments and focus on areas where financial performance can be more easily measured, Mr. Johnston says.
One way to establish a budgetary target for overhead departments is to look up their percentage of operating revenue five years ago, when hospitals were still ramping up services, and compare it to the percentage now. The 2005 data would have to weighed against other considerations. For example, cuts in the IT department might have to be laid aside because a new CPOE system is being installed.
4. Understand the trade-offs. Whenever a department budget is shielded from cuts, such as IT in the example above, it means more savings have to be found in other departments. One way to mitigate this discrepancy is to see if the favored department can reduce spending in its large projects. For example, if the IT department is putting in a new CPOE system, how can it be used the most efficiently? Or perhaps an outside consultant is not needed for a particular step.
5. Be proactive with patient collectibles. When a patient is coming in for a new service, check to see if the patient has a balance due for previous services and ask about it. The goal here, however, is not to withhold care if the patient cannot pay the previous bill, Mr. Johnston says.
6. Have a self-pay discount policy. There should be a system-wide policy on discounts for uninsured patients and it should be fairly generous. Lack of generosity can do more harm than good for the hospital and can result in the hospital being deemed “cheap” by the community it serves. In addition, discounts for self-pay patients that vary widely within the same institution can be confusing for patients, especially when they compare bills with each other. For this reason, clear, concise, well-communicated policies are best.
Some hospitals offer a 5 percent discount, but no payor reimburses at 95 percent of full charges. Moreover, Mr. Johnston says that level of discount is not enough to incentivize a patient to pay the bill. Billing personnel should have some leeway in deciding the level of discount for each patient, but a default level is useful to have, too. "If a patient says, 'I'll pay 30 percent of the bill,' the billing officer should be able to have a fallback position," he says.
There is usually a limit on how low discounts can go, Mr. Johnston adds. Many managed care contracts have most favored nation clauses, which require that their members get the lowest discounts.
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Read more on hospital finances:
-8 Points on Improving Collections of Outstanding Balances From Patients
-Five Tips on Point-of-Service Collections