7 Ways Hospitals Can Trim Their Labor and Operational Costs

When it comes to a hospital's finances, most CFOs are awaiting decisions on just how much Medicare or Medicaid reimbursements will be cut. While cuts to those government-sponsored programs are out of the hospital's control, there are ways a hospital can make its ledger trimmer from its own cost-saving initiatives.

Mark Bogen, vice president of finance at South Nassau Communities Hospital in Oceanside, N.Y., says there are numerous areas where a hospital can manage and reduce its costs without thinking about Medicare or Medicaid, and he shares seven ways hospitals can save money within two of the most prominent areas: the labor force and the backend operations.

1. Monitor overtime pay. Mr. Bogen says a hospital's labor force is the single largest item that impacts the hospital's budget. At South Nassau, the payroll is $180 million per year, which is more than 50 percent of its total operating budget. Even if the payroll is off by one tenth of one percent, it would still lead to $180,000 in wasted money, he says. One way to keep the payroll in check is by monitoring overtime pay. Hospitals are working at all hours of the day, but over-scheduling staff members can lead to higher-than-desired overtime wages and empty work hours. "What you find in most hospitals is that it's easier to staff up when volume goes up than it is to staff down when volume goes down," Mr. Bogen says. "Staffing is certainly an area that needs to be managed, especially in light of the fact most hospitals today have static or reduced inpatient admissions."

2. Review on-call and all formal pay policies. Hospitals naturally have to have all clinicians on-call. If on-call pay policies have not been reviewed in a while, though, a hospital may want to assess and adjust them to reflect the hospital's current needs. "One of our departments had an on-call policy where if you have to call someone in, as long as they work a minimum of an hour, they got paid for four hours of time," Mr. Bogen says. "It's really important to review not only what the formal pay rules are, but also why the particular pay rules were established years ago."

3. Find the right mix of staff members. Layoffs have been rampant throughout the hospital industry, as there were 13 mass layoffs in August alone. However, hospitals do not have to lay employees off to save the labor budget, Mr. Bogen says. Having more per diem and part-time employees could keep employment figures steady, but it would guard against both staff shortages and superfluous overtime pay.

4. Renegotiate inbound shipping rates. Mr. Bogen says South Nassau's inbound shipping costs averaged around $500,000 per year, with $300,000 of that related to deliveries for operating room supplies. Hospitals should work with their materials management team to find different vendors and suppliers to lower shipping rates. South Nassau was able to save $75,000 by leveraging its buying power. "The problem is [shipping] doesn't get separately coded, and it gets buried in hospitals' general ledger, so you don't have a good idea of how much you're spending on in- and outbound delivery," Mr. Bogen says. "But you need to take advantage of those situations where vendors are having difficulties closing sales. If they ain't crying, we ain't buying."

5. Reduce overnight shipping in the OR. ORs are unique parts of the hospital that require very specific supplies and par levels, but that doesn't mean its inventory process should get out of hand, Mr. Bogen says. Reducing overnight charges on shipping is one way hospitals can minimize costs, but this is a point that has to be talked over with surgeons, nurses and all other OR staff.

6. Try to standardize supplies. Physicians, nurses and other clinicians all prefer certain supplies and products over others, but standardizing certain supplies to reduce costs can make the inventory process much simpler and cheaper, Mr. Bogen says. "Try to make things standardized, maybe things that a particular nursing unit prefers, for example, unless there's some big clinical rationale to go outside that standardization," he says.

7. Train the revenue cycle team to be "pit bulls" with managed care contracts. Backend collections are critical for any hospital, and Mr. Bogen says having a persistent team that understands what needs to be collected — and who is responsible for payment — will lead to less bad debt and more accountability. This is especially important for managed care contracts, which he says can be very convoluted. "Have your revenue cycle team be pit bulls who won't let something go until it's adjudicated in a fair and timely manner," Mr. Bogen says.

Related Articles on Hospital Finances:

5 Reasons to Take ICD-10 Seriously Today
From Stable to Negative: 6 Reasons Behind Gloomy Non-Profit Hospital Outlooks
5 Ways Hospitals Can Improve Point-of-Service Payments

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