Some people believe that too much emphasis can be placed on a hospital's financial bottom line at the expense of quality of care. However, that isn't the case at Saint Francis Hospital in Tulsa, Okla., where nonsalary expense reductions not only reflect a healthy financial outcome but also the pride, spirit and teamwork of hospital employees and physicians.
Once the brakes were applied to nonsalary cost hikes at Saint Francis, a dramatic turnaround occurred. Such increases had averaged nearly 15% in fiscal years 1992 and 1993. The turnaround in fiscal 1994 reflected a reduction in average length of patient stay, as measured by nonsalary expenses per adjusted patient day, as well as other cost reductions.
Admissions actually have increased in recent years, while nonsalary expenses per adjusted admission have decreased more than 18% in the past 21/2 years.
Such a turnaround can only occur through a concentrated effort by employees and physicians most closely associated with expenses and by appealing to the spirit of teamwork through the hospital.
This effort began just before fiscal 1994 with a hospitalwide orientation to the components of supply expenses, which were defined as the unit cost of items purchased, utilization of products in clinical and nonclinical applications, distribution and handling costs, inventory costs, and packaging and disposal costs.
By discussing these five components of supply expenses, most everyone could see they played an important role in controlling expenditures.
We began our cost cutting by evaluating the top 100 expense items, how they could be cut and by whom. Then a letter was sent to all major vendors, asking for their assistance by "partnering" with the hospital in halting the escalating cost of supplies.
The major suppliers of products and services to the hospital were asked to assist in improving our product pricing, selection and utilization. A different approach for almost every vendor was necessary to optimize opportunities for savings. The hospital staff maintained flexibility in dealing with the plans and programs of various vendors.
Next, a "management of supplies task force" was formed with members from surgery, radiology, laboratory, nursing, financial planning, administration, respiratory therapy, food service and material services. The task force generated much greater awareness of the nonsalary expense reduction efforts throughout the hospital.
The top 100 expense items were relentlessly pursued for cost reductions, a suggestion campaign was initiated among hospital employees, and vendor meetings were expanded to bring together purchasing personnel and staff who use the supplies as a team.
Also in fiscal 1994, the hospital began participating in the group purchasing program of Premier Health Alliance. This association soon became one of the more significant contributors to nonsalary expense reductions. The Premier purchasing and distribution contracts, and efforts to improve contract compliance across the country, resulted in sizable savings.
Cost cutting received an additional boost when McFaul and Lyons, a healthcare expense reduction consulting firm based in Trenton, N.J., was engaged in late fiscal 1994 by Saint Francis to review potential cost savings.
Task forces were established to evaluate and implement 115 nonsalary expense reduction recommendations made by McFaul and Lyons, representing $3 million in savings. In less than a year, 60% of the recommendations have been implemented.
In addition, numerous other cost-reduction efforts were pursued by staff, including:
Purchasing department buyers were coached to negotiate with vendors for reduced or stable prices at every contract/agreement renewal date. As necessary, the buyers involved the material services director and other department managers, and they sought administrative support. The buyers each generated weekly reports on cost reduction and cost avoidance in order to document their results.
A suggestion program was started to address needs beyond supply-cost reductions. With incentives provided for meaningful suggestions, input has continued from front-line employees for reducing supply costs.
The material services department, in conjunction with other departments, also focused on inventory control. Horizontal carousel systems were installed in supply and distribution and also in the nutrition and food services department, and a two-story vertical carousel providing supplies from the supply and distribution department to the surgery department was installed. These systems helped to reduce the amount of stock required at inventory sites.
One of the more innovative and productive efforts was initiated by the patient-care value analysis team. A "hunt for savings" with a safari theme was created by several nurses and other clinical personnel in the hospital. They generated excitement among their staffs and widespread participation.
Registered nurse Diane Sears, one of the organizers of the safari campaign, said: "This interdepartmental effort generated new thinking that enabled us to identify more cost-effective product alternatives while maintaining, and often enhancing, quality patient care. We also had great fun."
Employees respond best when they can see clearly the results of their efforts. When nonsalary expenses began to drop, this information was shared with employees throughout the hospital. They were amazed by the increases we had experienced in previous years, and they were very proud of the part they played in reversing these trends.
We are very pleased with our achievements in reducing expenses at Saint Francis Hospital. We are particularly proud of the teamwork expressed and generated by this endeavor. It is only through the combined efforts of the material services department and the many user departments throughout the hospital and our medical staff that we can effectively achieve reductions in supply expenses.