9 Ingenious Ways to Cut Costs at Your Hospital

When it comes to the cost side of a hospital's financial equation, there are two rudimentary routes executives can explore.

They can either find better ways to spend their money, or they can probe different areas of the hospital to see where costs and expenses can be trimmed.

Several creative cost-cutting techniques have been detailed over the years — curbing food waste by weight, switching from bottled soda to fountain drinks, properly sorting hazardous from non-hazardous waste and more. However, as hospitals continue to evolve, new opportunities to save money are poking their heads to the surface.

Here, several hospital leaders detail nine unique ways hospitals and health systems can cut costs to become a more financially stable organization — and many of them involve newer, progressive and "green" measures.

1. Rework shipping strategies. A component of hospital finances that may routinely be overlooked are shipping costs. Mark Bogen, CFO of South Nassau Communities Hospital in Oceanside, N.Y., says a few years ago, his hospital's inbound shipping costs averaged around $500,000 per year. However, South Nassau saved $75,000 simply by leveraging its buying power with carriers.

"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."

Furthermore, hospitals can save thousands by reducing overnight shipping for operating room supplies, he says.

2. Implement a wellness and disease management program for employees. Laura Zehm, CFO of Community Hospital of the Monterey (Calif.) Peninsula, says she and the rest of her peers have consistently asked themselves how they can find innovative ways to save money at their 284-bed independent hospital. In 2008, they turned their attention to the hospital's health benefits plan, which increasingly ate up more of CHOMP's budget.

"I found myself sitting at board meetings saying, 'Yeah, healthcare costs are going up, employees are getting older, but there's nothing we can do about it.' That's something you never want to say to your board as a CFO," Ms. Zehm says.

CHOMP turned to the Asheville Project as a model to implement a new wellness and disease management program for its employees. The Asheville Project was an effort by the city of Asheville, N.C., a self-insured employer, to provide better oversight and education to its employees for chronic health problems, such as diabetes and asthma.

Ms. Zehm says employees receive financial incentives in the form of lower health insurance premiums if they are active participants in the wellness program and complete or show improvement in tasks in five main wellness categories. For example, if a diabetic employee enrolls and participates in diabetic coaching and gets his or her biometrics checked, the individual's health premiums will go down.

Many other hospitals and health systems are engaging in these types of wellness initiatives, and there are very significant savings to be found, Ms. Zehm says. In 2009, CHOMP's per-member, per-month health costs were $705.65. In 2012, that figure dropped almost 15 percent to $602.25 per member per month. "We're making it easier for employees to [take care of themselves], and it has saved us millions of dollars per year," she says.

3. Improve landscaping irrigation. Many hospital CFOs and financial leaders may feel like they have hit a wall when it comes to finding new cost savings. There are only so many items and processes that can be cut or altered, right?

For Kay Winokur, RN, vice president of quality, safety and accreditation at Beaumont Health System in Royal Oak, Mich., that simply isn't true today. Ms. Winokur, who also is a LEED green associate, recently helped Beaumont create "kaizen" teams specific to energy and water reduction opportunities. "Kaizen" translates to "improvement" in Japanese, and Beaumont's kaizen teams — which are all led by various Beaumont employees — scour the main campus every month to find quick and sustainable savings.

One of the first initiatives from Beaumont's kaizen teams was to redirect and cut back usage of the health system's irrigation system.

"With our landscaping, we found some plants that we removed and perennial plants that were dying anyway, but we were still watering [those areas]," Ms. Winokur says. "So we turned off the sprinklers in the area, and that saved 500,000 gallons of water every year. Unless you go out and walk, you won't notice these things."

In addition, the teams changed out sprinkler heads on two of Beaumont's campuses to low-flow models, which saved more than $180,000 during the six-month watering season.

4. Remove and reduce lighting. In recent years, Beaumont has committed to investing in energy efficient lighting and fixtures. While this may seem like a financial drain instead of a balance sheet saver due to the initial upfront costs, Ms. Winokur notes she and her teams found ways to reduce inefficient lighting with little to no cost at all.

At Beaumont, leaders have reduced the number of bulbs in multiple-light fixtures where possible, eliminated unneeded lighting in areas like chart racks that are now digitized and installed switches in rooms and areas where lights do not need to be on at all hours of the day.

On average, lighting costs are 16 percent of a hospital's total energy consumption, and switching to different lighting can save hospitals and health systems tens or even hundreds of thousands of dollars every year. For example, Chicago-based Resurrection Health Care is saving $900,000 every year just by making the switch from high-energy lamps and ballasts to more efficient ones.

5. Revamp the chilled water system. Hospitals have a lot of responsibility when it comes to keeping the patient environment safe and sterile, and chilled water systems — which are the backbone for air conditioning — play a central role.

At North Shore University Hospital in Manhasset, N.Y., executives and leaders decided to invest $8 million into a new chilled water distribution system. Neil Rosen is director of sustainable development and facilities services at Great Neck, N.Y.-based North Shore-Long Island Jewish Health System — the parent organization of North Shore University Hospital. He says although this was a large upfront cost for North Shore-LIJ's flagship hospital, it allowed the entire plant to more efficiently cool water and keep temperatures under control. He says the new system has resulted in annual savings in excess of $1.3 million — meaning these types of initiatives still have a reasonable return on investment for cost-conscious CFOs.

At Beaumont, Ms. Winokur says the health system replaced its chilled water system with a continuous loop design — saving more than $37,000 every year with an ROI of 16 months. Furthermore, the kaizen teams retrofitted numerous water fountains with spouts to fill water bottles specifically — while unplugging the remaining water fountain chillers — saving up to $14,000 annually.

6. Install solar panels in sunny areas. Solar energy has been around for a long time, but it is finally reaching a point where it is more economical for hospitals and health systems to invest. In fact, some hospitals may be able to apply for grants and rebates to offset the upfront costs — all while enjoying the cost savings.

In 2010, leaders at North Shore-LIJ's Southside Hospital in Bay Shore, N.Y., installed a solar panel system on the hospital's roof. The total project cost roughly $300,000, but Mr. Rosen says the hospital was able to receive a $270,000 federal grant from the New York State Energy Research and Development Authority. All in all, the project cost Southside Hospital less than $30,000, and the solar panels have saved the system almost $12,000 to date.

7. Replace inefficient sinks, toilets and urinals. When it comes to any business, hospitals included, bathrooms are rarely thought of as an area of cost savings. They serve one purpose very well and are often ignored unless a major issue arises.

However, Ms. Winokur says Beaumont has saved about $257,000 annually in water costs by converting their inefficient sinks, toilets and urinals to low-flow models. For hospitals willing to take the extra step, there are also waterless urinals available.

"Hospitals can emulate what we are doing and use that as a road map," Ms. Winokur says, adding that this and other initiatives have been the products of "interested employees."

8. Look closely into new recycling initiatives. Most hospitals and health systems today are involved in some type of recycling program, but there are many different types of recycling programs out there, some of which can lead to greater savings.

For example, Mr. Rosen says the 16-hospital North Shore-LIJ Health System has actually brought in more than $600,000 from its recycling program. "With little to no cost — just the bins, posters and education components — we have diverted 6,190 tons of waste from the landfill from 2009 to 2011," he says.

9. Use timers to heat coffeepot water only during business hours. Even an item as small and simple as a coffeepot was able to save Beaumont $34,000 per year, Ms. Winokur says.

Previously, the 1,070-bed campus of Beaumont's Royal Oak campus had 110 commercial-sized coffeepots, all of which heated water to make coffee around the clock. However, many employees in those areas with a coffeepot are gone in the evenings and on weekends, which led a kaizen team to suggest using timers on all coffeepots. Now, coffeepots are shut down when employees leave for the day, and they restart an hour before employees arrive in the morning.

"We wouldn't have gotten [this saving] if we didn't go and observe," Ms. Winokur says. "Look at everything that is plugged in and draws energy and ask if you need it 24/7. Can it be powered down?"

More Articles on Hospital Finance:

Helping Turn Around an Essential Safety Net: Q&A With Grady Health System CFO Mark Meyer
7 Bad Habits of Hospital CFOs That Need to Be Broken
5 Issues Hospital CFOs Must Focus on in 2013

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