Bending the relentlessly rising healthcare cost curve is spurring organizations to think beyond tactical cost-containment measures to transformational approaches. During a session sponsored by Huron at the Becker's Hospital Review 9th Annual CEO + CFO Roundtable in November, Rick Roycroft and Vickie Monteith, managing directors at Huron, discussed key cost transformation strategies.
Three insights:
- Amid rising healthcare costs, health systems need transformational strategies. Over the next decade, healthcare costs are projected to continue to rise as reimbursements continue to shrink, competition intensifies and regulations change.
In this context, conventional approaches to mitigating costs are insufficient. With financial health a top concern, cost transformation is more relevant than ever. Year-over-year cost improvement efforts typically yield only modest savings that are eroded by increased labor costs. "For many organizations, this is a time to pause, reflect on how to redesign the future and shift the footprint of the healthcare enterprise as we know it," Mr. Roycroft said. "This is what the 'design for affordability' concept is all about." - Huron has an integrated method to deliver greater affordability. It has three "buckets."
a. Optimize. Health systems seeking rapid and incremental improvement in operational and clinical cost performance can use system-focused levers such as EHR optimization, 340B savings, revenue cycle improvements and more to target returns of 7 percent to 10 percent.
b. Reposition. For health systems seeking to drastically reposition corporate overhead structures and administrative expenses, and reduce care variation, targeted returns may be 10 percent to 15 percent. Levers include flexible staffing models, episodic care redesign, automation and more.
c. Redesign and reimagine. "This is where you're looking to fundamentally change your system by being consumer-focused," Ms. Monteith said. It involves changing system economics by redesigning the care model. Levers include service line rationalization, outsourcing, partnering and a greater focus on wellness. This approach can lead to permanently improved margins with targeted returns of 15 percent to 30 percent. - Lessons learned about designing for affordability can accelerate cost transformation. Huron has learned that organizations aiming to rein in costs through a 'design for affordability' lens need four critical elements:
- Data and analytics and data management systems to power strong cost accounting systems. Analytics turn data into actionable intelligence.
- Consumer insights that go beyond patient experience and clinical outcomes to include understanding behavioral patterns, clinical risk, patient preferences and patient activation and engagement.
- Care model redesign enabled by a willingness to disrupt provider-centric sites and services, reconfigure care delivery teams and define new care modalities based on where the organization needs to be rather than what it currently does.
- Organizational transformation driven by readiness to make changes at an enterprise level, challenge organizational culture and empower staff.
In this climate of increased competition and consumer expectations, reining in costs is imperative. Approaching it through the prism of consumer-focused service redesign is the surest path to sustained success.
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