Between reimbursement reductions and shifts in patient volumes, hospitals face up to a 25 percent decline in revenue over the next decade, which makes legitimate, sustainable cost cutting a much higher priority for healthcare leaders.
At the Becker's Hospital Review 4th Annual Meeting in Chicago on May 10, Curt Bailey, partner at Booz & Company, discussed why it's imperative for hospitals to look at transformative cost reduction initiatives and how hospitals can make it a reality.
Mr. Bailey emphasized that hospitals should dig into sustainable cost reduction measures now so it doesn't lead to reactive cost cutting, which usually leads to haphazard layoff notices. "Reactive cost cutting is very wrenching," Mr. Bailey said. "Healthcare is predominantly labor-based, but we are empathic community that doesn't like having to take out labor costs unless we absolutely have to. Hospitals need to take costs out but do it in a way that is much more humane."
Booz & Company estimates hospitals can find 15 to 20 percent of cost savings that will not affect patient quality or patient experience in a negative way. The difficulty, Mr. Bailey said, is solving both technical and emotional challenges. Emotional challenges are especially difficult because many see cost reduction as "distasteful."
Mr. Bailey said hospitals and health systems have traditionally relied on the following cost cutting efforts, though often times they don't yield enough savings or are done in a way that is not "transformative" or sustainable:
• Supply chain cost savings (69 percent)
• Decrease in capital spending (68 percent)
• Layoffs (66 percent)
• Decrease travel and training costs (60 percent)
• Process improvement (49 percent)
• Cut or decrease in benefits (45 percent)
• Decrease salaries (23 percent)
In order to be successful in cost reduction, hospital executives need to focus on a handful of "critical success factors," Mr. Bailey said. These include setting and sticking to aggressive targets, engaging physicians from the beginning, using attrition instead of layoffs when possible, clear communication to stifle or prevent rumors and a "laser-like" focus on the plan.
At the Becker's Hospital Review 4th Annual Meeting in Chicago on May 10, Curt Bailey, partner at Booz & Company, discussed why it's imperative for hospitals to look at transformative cost reduction initiatives and how hospitals can make it a reality.
Mr. Bailey emphasized that hospitals should dig into sustainable cost reduction measures now so it doesn't lead to reactive cost cutting, which usually leads to haphazard layoff notices. "Reactive cost cutting is very wrenching," Mr. Bailey said. "Healthcare is predominantly labor-based, but we are empathic community that doesn't like having to take out labor costs unless we absolutely have to. Hospitals need to take costs out but do it in a way that is much more humane."
Booz & Company estimates hospitals can find 15 to 20 percent of cost savings that will not affect patient quality or patient experience in a negative way. The difficulty, Mr. Bailey said, is solving both technical and emotional challenges. Emotional challenges are especially difficult because many see cost reduction as "distasteful."
Mr. Bailey said hospitals and health systems have traditionally relied on the following cost cutting efforts, though often times they don't yield enough savings or are done in a way that is not "transformative" or sustainable:
• Supply chain cost savings (69 percent)
• Decrease in capital spending (68 percent)
• Layoffs (66 percent)
• Decrease travel and training costs (60 percent)
• Process improvement (49 percent)
• Cut or decrease in benefits (45 percent)
• Decrease salaries (23 percent)
In order to be successful in cost reduction, hospital executives need to focus on a handful of "critical success factors," Mr. Bailey said. These include setting and sticking to aggressive targets, engaging physicians from the beginning, using attrition instead of layoffs when possible, clear communication to stifle or prevent rumors and a "laser-like" focus on the plan.
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