Margin growth depends on cost-cutting through modernization: 4 opportunities

Cost-cutting is often seen as a necessary strategy to sustain day-to-day operations of hospitals and health systems. Today, $130 million of $1 billion in revenue is seen as the average amount of cumulative cost reduction needed to maintain a 4 percent operating margin through 2024, according to Moody's Investors Service.

Successful cost-cutting strategies don't exist in a vacuum, but are tied to future growth opportunities, two experts said during a Feb. 18 webinar hosted by Becker's Hospital Review and sponsored by Optum. The experts were:

  • Mark DeRubeis, CEO of Monroeville, Pa.-based Premier Medical Services
  • Eric Young, vice president of Optum Advisory Services

The experts highlighted four areas of strategic focus to boost margin growth: consumerism, clinical innovation, strategic partnerships and cost-cutting.

Consumerism

Today's healthcare consumers are looking for ease and convenience. Seventy percent of consumers prefer digital solutions to in-person solutions.1

"If we're going to take better care of people, manage their chronic disease, prevent readmission, prevent unnecessary admissions, well then, by definition what I'm saying is we don't need as much stuff in the hospital," Mr. DeRubeis said.

Traditional in-person hospital visits, for instance, are facing stiff competition from retail medicine and digital alternatives that offer on-demand, low-cost care. The experts shared three opportunities healthcare C-suite leaders can leverage to meet consumers where they are and provide them with a personalized, memorable experience:

  • Predictive modeling to map staff augmentation 
  • Home monitoring, telemedicine and other digital tools to extend the virtual reach of their organization and free up staff resources 
  • Care managers to support at-home care and improve care coordination

Clinical innovation

Across the healthcare ecosystem, a universal opportunity for margin growth lies in improved data integration and exchange among physicians. Shared intelligence creates efficiencies across an entire organization, making care decisions more accurate and clearing low-value activities from physicians' plates.

Any use of new data tools and technology must be led by physicians and integrated within their workflows, the experts said. Hospital executives are responsible for supporting physicians with the data infrastructure to engage in cost-cutting and quality interventions. Physicians can then scale the data systems to identify high-cost and low-quality encounters, analyze length-of-stays and document organizationwide patterns.

"The key factor for success with care variation is the ability to scale," Mr. Young said. "Savings, quality and improved outcomes only occur when evidence-based guidelines can be translated into clinical practice and scaled across the ecosystem."

Strategic partnerships

Strong hospital C-suite leadership isn't the only thing needed to improve margins. Today, the combined strength of strategic partnerships is often required to drive growth. Strategic partnerships can combine insight to help define what interventions and strategies will be the most advantageous for a health ecosystem and they can expand access to the resources and care settings that best serve the market.

Revenue cycle outsourcing is one strategy healthcare executives look to when transforming business operations with a partner. In fact, 80 percent of hospital leaders are considering outsourcing their full revenue cycle.2

According to the experts, outsourcing can help organizations:

  • Increase consumer access to resources and settings 
  • Respond to seasonal and market shifts
  • Gain relief from cost pressures like training and technology upgrades

"No one can do it alone. It's a big task to redefine your workforce, build the right kind of infrastructure and find the talent you need," Mr. Young said. "Consider partnerships that can complement your core capabilities, let you focus on your strengths and dramatically reduce your risk."

Cost-cutting

The U.S. health system is full of unnecessary, costly activities that aren't value-driven. Administrative complexity alone adds an estimated $265.6 billion in annual waste to the system.3 Another $362 billion in annual medical costs could be saved if payment integrity efforts were improved and overpayments decreased, according to the experts.

"The health system as a whole is challenging all of us to eliminate unnecessary activities that don't add value. We need to do more with less — and we need to do it better," Mr. DeRubeis said.

Replacing low-yield and time-consuming tasks with tools that automate and support shared decision-making can reduce wasteful, burdensome rework for staff. Smart technologies can improve productivity and improve talent or infrastructure shortages that may be limiting growth.

"Looking backward you can obviously measure KPIs and compare your performance against goals and benchmarks," Mr. Young said. "Looking forward you can calculate future costs and predict savings, quality improvements, and growth."

For more information about the partnerships Optum offers, click here.

1 Cofdina J, Jones EP, Kumar r, Martin CP. Healthcare consumerism 2018: An update on the journey 
2 Optum360. Black book survey results infographic
3 Shrank WH, Rogstad TL, Parekh N. Waste in the US Health Care System: Estimated Costs and Potential for Savings. JAMA. 2019;322(15):1501-1509. doi:10.1001/jama.2019.13978.

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