8 Out-of-the-Box Ways Hospitals Can Cut Costs

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Creative cost-cutting is more than alliteration. It can bolster an organization's bottom line, enhance engagement and increase operational efficiency. Thriftiness is not unique to any business, but hospitals face a particularly pressing question: how do they save costs while preserving patient safety and quality of care?

Fortunately, other hospitals are leading by example, revealing lesser-known opportunities for hospitals to save. Some ideas involve a minor tweak to supplies; others require a change in mindset. All, however, serve as inspiration to look within your organization and find the dead weight. Here are eight ideas on methods for hospitals to creatively cut costs and become a fitter workplace.

1. Cut food waste in half by weighing it. Six Iowa Health System hospitals identified cost-saving opportunities in their kitchens. The hospitals adopted a program to reduce the amount of unused food thrown away, an effort that has sparked lively staff collaboration. By partnering with a food waste tracking company, the hospitals installed ValuWaste tracking systems. Before throwing food away, kitchen staff weighed its submitted reasons for disposal. Staff then tracked the information and adjusted production practices accordingly. Even more impressive, for both financial and economical reasons, is the amount of food saved: Iowa Methodist Medical Center and Iowa Lutheran Hospital in Des Moines, Iowa, have cut their food waste in half since adopting the program in Jan. 2008.

2. Properly sort hazardous from non-hazardous waste. Approximately 70 percent of hospital waste stems from operating rooms and labor-delivery suites, according to Johns Hopkins researchers. One strategy to cut waste while preserving patient safety is for hospitals to become more stringent when segregating operating room waste. Johns Hopkins researchers say up to 90 percent of red-bagged material, or pathologic waste, does not meet criteria for red-bag waste, which is much more costly to process. By properly separating hazardous from non-hazardous waste, hospitals can decrease waste volume by 30 percent. Washing and reusing surgical scrubs and jackets is another change that can reduce medical waste by up to 20 percent, according to Johns Hopkins researchers.

3. Consider the financial benefits of a smoke-free workplace. It's a trend sweeping the hospital industry, with some organizations even shifting to smoker-free employment policies. Controversy aside, a nicotine habit does detract from a hospital's bottom line. About one in five Americans smoke, and employees who smoke cost an average of $3,391 more per year due to healthcare costs and lost productivity, according to a New York Times report. Along with promoting a healthy lifestyle, hospitals may want to consider the financial benefits of adopting a smoke-free campus.

4. Reassess administrative costs. Since hospitals are facing constrained resources, they do not spend as much time looking at administrative costs. "Hospitals are spending millions on these costs," says Bart Richards, a managing director with The Claro Group, a business consulting firm. Like any commercial entity, hospitals have banking relationships, which can be a source of cost-trimming. "If you can go to the banks in a very focused manner and apply good negotiation techniques, you can reach better deals than what you have in place. Also, this won't directly affect patient care," says Mr. Richards. Other administrative costs that may be trim-worthy include document management. "IT is a great example," says Mr. Richards. "Large organizations spend a lot on IT. To make costs more variable, hospitals may want to consider outsourcing an IT department." Paper management is also an issue: for every dollar a hospital spends on printing, it takes another $9 to maintain it, according to Pamela Morin of Reliable Technologies. Hospitals may want to consider a managed print services plan, which addresses all costs associated with printers, such as maintenance kits, technician labor and parts.  

5. Save money lost on denied claims by making changes over the weekend.
Since denied claims involve real dollars, hospitals may want to examine and categorize them more closely. Jay Arthur, author of Lean Six Sigma for Hospitals, helped a hospital save $380,000 a month by categorizing lost claims. His team first identified the largest group of denied claims: those denied for lack of timely filing within 45 days. He then categorized claims by insurer to find one small insurer accounting for 64 percent of denied claims. With these two findings, the hospital instituted changes over the weekend that eventually helped them save a significant amount of money per month.

6. Make smart switches. Sacred Heart Hospital in Eau Claire, Wis., made a series of small swaps to save big bucks. By switching from bottled soda to fountain drinks in the physicians' lounge, the 344-bed hospital saved $24,000 in one year. The hospital saved $50,000 more by switching its subscriptions to medical and education journals from print to online. Finally, by switching to a new vendor, Sacred Heart saved $15,000 in one year on trash can liners. The hospital was able to trim costs without interfering with patient safety or employee satisfaction, as the same materials, services and supplies were still available.

7. Standardize and centralize operating and supporting functions. Sometimes going back to basics can be one of the most innovative strategies of all. "Although hospitals and systems formed with the intention of integrating and reducing costs, redundancies often remain in multi-hospital systems," says Joe Kuehn, partner with KPMG LLP’s Performance and Technology services advisory practice, who focuses on healthcare. Health systems often do not realize the amount of redundant technology, business processes and organizational structures are still in place within and across their member hospitals. Even standardizing and reducing the number of supply and service vendors remains an opportunity at many hospitals and health systems. Healthcare providers also have additional opportunities to centralize operational and clinical functions, such as nurse scheduling and transcription. "I'd recommend hospital leaders take an internal view and examine three or four different functions in the hospital, says Mr. Kuehn. For example, he suggests hospitals consider how many vendors they use and for what products and services. Can the number of vendors be consolidated and pricing and other terms improved? “By assessing a system's ability to standardize, centralize and eliminate redundancies, hospitals are able to reduce wasted spending and standardize operations," says Mr. Kuehn.

8. Reward and recognize employee ideas for savings. In 1998, Indiana University Health Goshen kicked off a program called The Uncommon Leader, where colleagues (the hospital's preferred title for hospital staff and employees) submit ideas to improve quality, save costs, generate revenue and improve patient care as part of their annual review. Colleagues then receive a certain percentage of the savings generated by their idea. Since the program began, the hospital has generated more than $35 million in gain share and cost-cutting ideas. It saved $6.3 million in 2010 alone. Ideas submitted include changing the type of napkins used on patient trays (saved $4,000), switching from disposable paper gowns to cloth gowns for patients in the GI department (saved $22,000) and ordering a large quantity of a generic drug being discontinued to delay the purchase of a higher-cost name brand drug (saved  $460,000). Indiana University Health Goshen's CEO, Jim Dague, says the daily focus on efficiency has strengthened the hospital's adaptability in the wake of healthcare reform, and the hospital has not laid off a "colleague" in 17 years.

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