Healthcare finance leaders share 7 cost-cutting strategies

Hospitals and health systems increasingly face financial pressures from dwindling reimbursement, increasing competition, deteriorating payer mix and other factors.

Due to these pressures, reducing costs is at the forefront of healthcare finance leaders' minds, whether they are at a rural, nonprofit, urban or safety-net organization. 

Here, executives from various types of facilities discuss seven strategies to reduce costs.

1. Revisit staffing plans. John Ulberg, senior vice president and CFO of NYC Health + Hospitals, New York City's public healthcare system, recommended revisiting staffing plans every few years. "Staffing is the single greatest expense for hospitals, and innovation can lead to changing staffing needs," he said. "The staff you required 10 years ago may not be the right staffing mix for today. You may be able to eliminate redundant positions and, rather than recruiting in a tough job market to fill today's gaps, reassign highly qualified staff to fill those gaps. Improving financial performance is just one of the benefits."

2. Assess labor and nonlabor expenses. Healthcare organizations should examine their labor expenses regularly, according to Randy Safady, executive vice president and CFO of Irving, Texas-based Christus Health, a Catholic, nonprofit system with 600 care centers. "Every single department in every single hospital in Christus is looked at every week to see how they're performing on the actual costs," which include contract labor and overtime," he said. Mr. Safady also recommended looking at nonlabor costs annually to assess where cost-cutting might be appropriate.

3. Engage employees. Employee engagement is an important part of a healthcare organization's cost-cutting plans, said Cory Reeves, CFO of Calhoun, Ga.-based Gordon Hospital, a 69-bed community hospital that is part of Altamonte Springs, Fla.-based Adventist Health System. Hospitals should go to employees "not with a pre-set [cost-cutting] agenda as much, but [with information on] where our costs are, what are our opportunities," he said. "They'll have some ideas of their own that will add to it." Additionally, Mr. Reeves advised hospitals to ensure employees know why the organization needs to reduce costs, whether it's due to an existing financial crisis, changing reimbursement models or something else.

4. Eliminate unnecessary expenses. Atlanta-based Piedmont Healthcare, an 11-hospital, nonprofit organization, has a Strategic Transformation and Resource Stewardship program, which aims to eliminate unnecessary expenses and improve patient care. Piedmont Healthcare CFO Michael McAnder said the best strategy implemented in the last four years of this program was not any single initiative, but instead the system's parallel program called Quality and Performance Improvement. QPI is a curriculum based on methods such as Lean Six Sigma designed for process improvement, which results in eliminating unnecessary spending. "At Piedmont, we expect our leaders to be able to identify and eliminate waste as part of their day jobs," said Mr. McAnder. "We teach them about the eight types of waste, which includes variation in supplies, processes and unnecessary duplication of effort throughout the company. We have invested in the training and have given them a toolbox to do this kind of work on an ongoing basis."

5. Focus on growth opportunities in patient care, as well as expenses. Hospitals can achieve expense optimization by focusing on growth opportunities in patient care and ensuring expenses grow at a slower pace, according to Jennifer Alvey, senior vice president and CFO of Indianapolis-based Indiana University Health, the largest network of physicians in Indiana and a partner with Indiana University's medical school. "It is easier to find efficiencies and opportunities for improvement with growth plans than it is when you are just maintaining your business," she said. "A focus on investing in key priorities in line with your mission and strategy is more optimal than trying to be everything to everyone in a very uncertain environment."

6. Deploy a care management strategy. Chicago-based Cook County Health and Hospitals System, a safety-net healthcare provider, deploys a coordinated care management strategy, which focuses on quality and outcomes. This strategy is one way to reduce costs by achieving a healthier community, according to Doug Elwell, the system's deputy CEO for finance and strategy. "With an aging population and an increasing number of people with chronic medical conditions, it is imperative now more than ever that a collaborative team works with patients to actively coordinate care plans, concentrating on safety, timeliness and cost effectiveness," he said. "Coupled with prevention, nutrition and wellness services, the care management strategy enables us to monitor patients with acute and critical conditions to provide disease management support, help with medication coordination and compliance, and provide access to community resources — which together lead to reduced costs through decreased inpatient and emergency department utilization for those with preventable and manageable conditions."

7. Use budget reporting. Bolivar, Mo.-based Citizens Memorial Healthcare, a fully-integrated, rural system comprising Citizens Memorial Hospital and Citizens Memorial Health Care Foundation, keeps managers updated on whether their departments are hitting staffing and budget targets. Within two or three business days after each bi-weekly pay period, managers receive departmental reports based on volume. Manager evaluations include quality and service components, but they also have a finance component showing how well managers meet their staffing targets, as well as their overall budget performance, according to CFO Gary Fulbright. He said he believes this reporting strategy is critical and can be used at various healthcare organizations to ensure managers have timely information to make any necessary cost-cutting decisions.


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