8 Strategies for Hospitals to Approach Cost Management

Hospitals and health systems that engage in cost management are looking to reshape and reduce costs, and there are eight main strategies that can lead to effective cost management opportunities, according to a March report from Kaufman, Hall & Associates and the Health Research & Educational Trust.

Cost management, at its core, involves two components: improving the planning and execution of current operations and attacking overhead costs and other costs that are "flying below the radar." Here are the eight strategies outlined in the report.

1. Understand the organization's readiness for cost management.
Conducting a cost management assessment that details a hospital system's thinking, alignment, operational planning, overhead management and other moving parts could determine if a hospital is actually ready to begin a large cost management initiative.

2. Define cost-reduction goals based on the organization's capital shortfall. Revenue streams are not what they used to be for hospitals and health systems, and all cost-reduction goals should aim to close the capital shortfall as much as possible. "The goals quantify the performance levels necessary to fund the organization's strategies and maintain its competitive financial performance," according to the report.

3. Use internal and external benchmarks to identify possible sources of savings.
Reviewing historical trends and applying global and departmental benchmarks and peer department comparisons can give a clearer picture of where possible savings could be.

4. Supplement benchmark data with other data analytics. Benchmarking data, while necessary and helpful, cannot map a cost management strategy alone. Using several data analyses, with input from medical staff and department managers, can hone in on cost-reduction opportunities.

5. Understand and focus on the key drivers of staffing and productivity problems. Inadequate plans, poor execution of staffing plans, unclear staffing roles, use of overtime and other staffing and productivity issues drive higher labor costs, which generally constitute more than half of a hospital or health system's operating expenses.

6. Drill down on staffing methods. Changing staffing methods could certainly keep costs in check, but it could also enhance the relationship between staff members and patient demand. For example, improved staffing in the operating room or emergency department will account for variations in patient volume but will still keep a strong semblance of patient contact.

7. Streamline overhead functions. Eliminating redundancies in human resources, accounting, revenue cycle, information technology, marketing, legal, materials management and other hospital functions can both improve operational flow and "yield large savings," according to the report.

8. Ensure cost-reduction targets are integrated with organizational plans and budgets. Inserting the cost management initiatives into the hospital's strategic financial plan, annual budget and operating plan can allow management to monitor progress and report results to the entire organization.

More Articles on Hospital Cost Management:

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The Uninsured and Net Returns: Q&A With DeKalb Medical CFO Diane Harden

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