In a recent article, Wayne Ziemann, Partner at Schumacher Clinical Partners, discusses the five keys to reducing costs through strategic cost management.
The Value of Strategic Cost Management
The changing healthcare landscape has put cost management on the to-do list of all savvy healthcare executives. Even if their organization has a healthy margin, these executives know that their revenue is under pressure. They see the downward trends in payment and volume. They know that new competitors are targeting hospital patients. They know that high-deductible health plans and price transparency are giving consumers the incentives and tools to choose providers based on price. And they know that value-based payment will require that provider organizations manage costs while improving quality.
Keys to Strategic Cost Management
These payer, purchaser, and competitive pressures mean organizations will need to reduce costs to a degree that goes beyond any efforts to date. Given the scope of change needed, cost management needs to be not a project, but part of organizational DNA.
The following are five keys to achieving that critical goal.
1. Establish a Target Cost Position
With increasing pressure from payers and other purchasers for lower prices, organizational leaders are challenged to identify the cost position they need to occupy in order to be competitive for managed care contracts, narrow networks, and direct contracts with large employers. Setting this position requires an understanding of the organization's current cost position by cost center, service line, and administrative function in relationship to competitors in their market and national benchmarks. With that information in hand, the organization can set its target cost position in relationship to these benchmarks-for example, to be the lowest cost organization in its market.
2. Use Data and Analytics to Guide the Effort
The foundation of systematic cost management is data to understand cost drivers and to track progress toward goals. For cost management efforts to be embraced and pursued system-wide, data need to be accurate, trusted, and integrated from multiple sources. Data need to be organized to facilitate trending of key metrics related to volume, cost, and profitability for each service line.
Data should be detailed enough to support business decisions, but not so granular as to make collection and analysis unwieldy. The system should allow users to drill down to more detailed views and to customize reports based on unique queries. Cost data should be integrated into all cost-management activities, from setting and communicating goals, to tracking improvement initiatives, to celebrating successes.
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