Hospital Turnarounds Start with an Operational Assessment

Challenging circumstances posed by the pandemic make it more important than ever for hospitals to focus on financial health.

The situation calls for innovation, and hospital leaders must plan for the future, even as they oversee the current health crisis. Improving operational and financial performance now will help ensure long-term sustainability for rural and community hospitals. 

The best way to begin an improvement initiative is conducting a comprehensive operational assessment and accompanying action plan. This effort can enhance performance in critical areas such as revenue cycle, supply chain, staffing and leadership. This path leads hospitals from survival mode to a strategic mindset so they can do more than keep the doors and ER open. 

Tackling an operational assessment may seem daunting, especially in times like these. 

We suggest beginning the process by evaluating areas with the largest potential savings which include contracts, staffing, and supply costs.

Outsourced contract review

A good place to start is to examine outsourced contracts, as some may have been in place for years and can be renegotiated or even eliminated. Then, move on to the following cost-reduction and revenue-enhancement strategies, which can help ailing hospitals get turned around and headed toward long-term sustainability.

Evaluate labor costs

Labor’s share of total hospital expenses has increased in the last 10 years, and a tightening labor market and other factors continue to drive up costs. A thorough review of productivity is critical in order to manage costs that are controllable. A productivity tool can help set productivity targets and also assign accountability for meeting those targets and controlling labor expenses. Productivity evaluation also indicates the right level of staffing by shift and day for improved efficiency.

Analyze supply costs

Second only to labor costs, supply spend is a significant and growing expense especially for small hospitals. While a group purchasing organization (GPO) can help curb expenses, it’s advisable as part of an operational assessment for hospitals to evaluate whether their current GPO offers geographically diverse resources, the best service and competitive pricing. In CHC’s experience, the right GPO relationship can deliver supply savings from 10 to 20 percent. Much has changed with supply chain over the last 9 months, and it’s critical to partner with a firm that will give community hospitals the service, innovative sourcing, and savings they deserve.

Examine revenue cycle management

Because the revenue cycle is a complex function, it’s common for points of the process to be broken. However, this also means there are many opportunities for improvement. One challenge is keeping the chargemaster code compliant and competitively priced. Another is keeping up with each payer’s unique rates and payment methodology. A review of these areas ideally should take place quarterly or at least annually.

Additional areas to evaluate and address:

  • Check to ensure insurance contracts have been updated or renegotiated.
  • Compare charges to reimbursement. Charging for an item at a fixed cost does not ensure reimbursement at that level. Depending on the managed care plan, or Medicare or Medicaid, reimbursement could equate to 25 cents on the dollar.
  • Consider how the current healthcare landscape could impact your organization’s long-term sustainability.

An operational assessment forms the basis for an action plan, which should identify who is responsible for the steps and results. Although an operational assessment at first may seem like a daunting undertaking, frequent review thereafter ensures accountability and progress across all areas.

Get more information

Learn about CHC Operational Assessment services.

Take a quiz to assess your hospital’s operational performance.


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