Savings in central operations. To try to achieve economies of scale, many health systems centralize functions such as administration, marketing, insurance, legal and housekeeping. But in many cases, these centralized services are not showing significant savings. “Include corporate as part of the cost management structure,” Mr. Whittlesey says. “You need to share the pain.”
Nursing levels the same. Nursing levels didn’t vary much between model facilities and others. “Nursing levels have been under the microscope for so many years, so that now it appears that more savings cannot be found here,” he says.
Savings in supplies. Here HMC found significant savings for model facilities. “This involves more than just getting the best price,” Mr. Whittlesey says. “Successful facilities built a culture of working with their medical staffs to achieve understanding on what products to use and for which patients.” These facilities used a system of “demand matching” for devices for spine surgery and joint replacement. For example, they may decide to use one type of artificial knee for a 40-year-old runner and another for an elderly patient. Rather than tell surgeons, “Here is what we’ll do,” hospital administration should ask them to come up with a plan and then agree to be measured by it, Mr. Whittlesey says.
Some savings in ancillary functions. In certain cases, model hospitals showed better financial performance in ancillary functions like surgery, radiology, ED, respiratory therapy, physician therapy, rehabilitation services, cardiac services and pharmacy. But compared with other categories, there was not as strong a correlation in these areas, Mr. Whittlesey says.
Low debts and other costs. In contrast to the model group, hospitals losing money on Medicare patients had a high depreciation load, heavy interest payments on bonds and a high IT cost structure. They may also have high employee benefits and high utility costs. These factors can cause an organization to lose as much as more than 20 percent on Medicare, but unfortunately, they cannot be altered, Mr. Whittlesey says.
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