A new cost containment strategy for hospitals: Enterprise resource planning

Each year, hospital operating expenses climb 7.2 percent and outpace overall revenue gains, which are lagging behind at an annual 6 percent growth rate, said Mark Weber, senior vice president of healthcare development at business software producer Infor, during a Dec. 6 webinar sponsored by Infor and hosted by Becker's Hospital Review.

Variable operating expenses like healthcare policy changes, eroding margins, staffing shortages and consumerism have left hospital CFOs rethinking their approach to cost containment, Mr. Weber said.

Hospitals have historically generated cost data from claims processing solutions and EHRs. However, these technologies have been limited in their ability to integrate and apply clinical and cost data. Subsequently, healthcare systems are moving toward business management tools widely adopted in other industries, such as enterprise resource planning and process manufacturing-based cost models, to better understand what drives revenue and quantify opportunities to reduce costs, Mr. Weber said.

In the healthcare setting, ERP as a business management solution aims to provide hospitals a holistic and interactive view of their operational activities. Factors such as pharmaceutical and implant costs, revenue cycle management processes, wages and handling greater consumer out-of-pocket spending all play a part in generating the operational picture.

"ERP helps CFOs understand not only their complete cost picture, but also allows them to align procedure costs with diagnosis-related group codes as they're defined within the EHR," Mr. Weber said.

With more refined clinical data, hospital CFOs can drive greater efficiencies by identifying  causes of clinical variation among their providers. For example, if a CFO oversees 10 regional hospitals and is trying to determine which three hospitals are best equipped to provide the highest quality and lowest cost birthing care, using an ERP business intelligence solution can provide insights through organization- and patient-based data.

One of Infor's solutions, Healthcare Enterprise Analytics, considers supply, labor, equipment, facility and processing costs and relays them via a dashboard alongside key value indicators. Importantly, it also aligns cost data with clinical data pulled from an organization's EHR. The dashboard has specifics for five stakeholders: CEO, CFO, head of supply chain, chief human resource officer and CNO.

While these types of dashboards help healthcare executives visualize patient and operational data in real time, the future of cost containment will depend on process automation, according to Chuck Whinney, financial strategy director for healthcare at Infor. He told webinar attendees that hospital CFOs are beginning to think about the possibility of automation and artificial intelligence within the cost management realm, and how to use data in more prospective and predictive ways to determine operational activities.

"The combined holistic view of data is changing how healthcare finance will work in the future," Zan Miller, senior product director at Infor, said during the webinar. "We're on the precipice of refining how finance works within a healthcare organization, and what type of change management CFOs are going to need to embrace."

To view the webinar, click here.

To learn more about Infor, click here.

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