Sea change
To meet the challenges of massive cuts to Medicare, hospitals must respond with massive changes in their operations, says Mr. Kneipper. “[Medicare cuts] are a permanent change in the business that these providers are in, so they can’t just respond by tinkering on the edges. Hospitals are going to have to make a much more dramatic change in the business model.” Healthcare organizations cannot rely on small changes, such as layoffs, that may only create a small percent of savings. Instead, hospitals should restructure their care delivery business model.
Mr. Kneipper calls this process “disruptive innovation,” a term coined by Harvard Business professor and author Clayton Christensen to describe a process by which services start at the bottom of a market and then constantly move up to eventually displace competing services. “It will be disruptive, but effective,” Mr. Kneipper says. Two ways for hospitals to use disruptive innovation are to focus on core services and invest in technology.
Core services
Mr. Kneipper suggests hospitals focus on their core services — patient care — and get out of the business of providing non-core services, such as back office services. Each hospital needs to evaluate its own core services because each facility is unique and excels in different areas. “It is increasingly unlikely that healthcare providers can be all things to all people,” Mr. Kneipper says. “They should focus on what they’re good at and get rid of services that are not cost effective to continue to provide internally.”
Instead of continuing to provide non-core back office services themselves, hospitals can transfer those services to third party experts who can centralize non-core services to reduce costs and improve their efficiency. “Some people are starting to look at IT, HIM, supply chain, revenue cycle and billing and collecting. Those functions of course facilitate the patient care process, but are not something a hospital necessarily has to do or can afford to do,” Mr. Kneipper says.
Hospitals also need to consider whether it is clinically and financially prudent to continue to provide all of their core patient care services. However, reducing services to core areas should not interfere with hospitals’ obligation to the community to provide access to quality care. Hospitals need to coordinate with each other to ensure that any patient care service that is cut at one hospital will be provided by another. Mr. Kneipper says healthcare should focus more on delivery of care from a regional perspective instead of an individual provider perspective. “It will require people to give up [part of] their own turf for the betterment of the community, but that’s what they’re in the business for,” he says.
Technology
Innovations in technology, such as electronic medical records and telemedicine, can also help hospitals save costs by facilitating the sharing of information and resources and by improving efficiency. “If you envision the new world, eventually we’re going to have electronic medical records operating in every hospital and physician office, and that’s going to dramatically change the quality and safety of care and the efficiency of delivering care,” Mr. Kneipper says. Technology’s change of how hospitals document and transmit information — a change in the way they do business — has begun to achieve cost savings and exemplifies why hospitals need to change their business model to remain solvent in the future.
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