Staying on Top of Hospital Costs: 3 Things to Know

Here are three ways hospital executives can reign in and maintain control of hospital costs.

1. Make sure your records don't accumulate unwanted depreciation.
If a piece of equipment or other asset is no longer in use, or in existence, it should be physically disposed of and removed from the books.  For instance, if the hospital once owned a building and it wasn't remove from the records when it was replaced or sold, the hospital may have paid several years worth of insurance on the old building.  In addition to placing a strain on the hospital's finances, this carries accumulated depreciation on the hospital balance sheet making it appear older than it really is. "Having fully depreciated assets, such as old MRIs, on the books make hospitals seem like they are dated and worn," says Adam Lynch of Principle Valuation. "You have to clean them out."

For one client, Principle Valuation identified $31 million in disposals to remove from the books, and almost all of it was fully depreciated. When the disposals are removed, the hospital's books more accurately reflected their real situation. "Taking care of the books puts you in the best light," says Mr. Lynch.

The amount of expensed and accumulated depreciation effects a hospital’s financial statements. For audit purposes it is important that processes and procedures are in place to maintain an accurate asset record.  In addition, when hospital or health system executives are seeking debt financing, financial intermediaries, capital sources and rating agencies scrutinize the financial statements impacting the cost of capital and possibly access to capital.

2. Examine and revise agreements with physicians. Ensure the right on-call arrangements are in place to guarantee adequate physician coverage for emergency and inpatient departments. "This includes both per diem on-call pay, which usually takes the form of a daily stipend, and activation payments, which are made only upon an actual call event requiring a physician's presence in the emergency department," says Kate Lovrien, a strategist with Kurt Salmon's Healthcare Strategy Group.

Also examine the surgeons who are receiving compensation for medical directorships. These positions, which include stipends to oversee specific programs, services and departments, and achieve certain metrics, will help incentivize improvements to clinical quality. Making a substantial portion "at risk" is important to provide incentive to achieve the desired outcomes. "Revise directorships to be more in line with the quality outcomes your organization wants to achieve," Ms. Lovrien says.

3. Make sure patients can pay. One of the most effective and inexpensive way to work with all accounts is through new dialer systems, according to a report from National Patient Account Services. Use credit-scored accounts to gain insight on the patients' credit when they enter the facility. You can determine the patient's ability to pay with their credit score.

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