Could cost savings be hiding in plain sight?

As hospitals seek to recover from the financial blow of the COVID-19 surge, managing operating expenses has become more important than ever. It’s easy to focus on a single large cost center as a source of savings, but a more effective approach is to look across the organization for diverse opportunities to streamline.

For example, while it’s generally held that supply costs account for 30-40% of a typical health system’s operating budget, reviewing spend in other operational areas – like staffing, purchased services and telehealth – can sometimes offer substantial savings. Strategies for some of these expense categories are detailed below.

Labor costs can account for more than half of a health care organization’s operating budget. But health systems must balance any spend reductions in this area with the need to maintain quality of care and staff well-being. Done well, the focus is less about head count and more about defining true need – accounting for the market-specific dynamics of today and a set of factors with potential to meaningfully change the workforce needs of tomorrow.

As hospitals resume elective surgeries, they can prepare for future surges by building a sustainable, cost-effective model that leverages clinical and operational data to support physicians and staff. Digging deeper, savings initiatives must consider the staffing levels and mixes required for each facility. In some cases supplemental staff may be required to keep up with surges in patient volumes due to COVID-19. 

Workforce planning is key to effectively managing labor expenses. Contract labor vendors that manage the credentialing and placement for clinical staff eliminate the need for internal resources to devote time to project management. Thoroughly evaluating factors that affect physician and nurse staffing can uncover opportunities to optimize your clinical workforce. And leveraging nonclinical contract labor agencies focused on IT, finance and HR is another path to savings. 

At up to 25% of total expense, purchased services are one of the highest potential cost savings opportunities in any hospital. But many organizations focus optimization only on five to 10 highly visible categories like food, IT and freight – ignoring potential cost savings in myriad other areas. Often, oversight of business, clinical and operational categories is decentralized, resulting in redundancy, coverage gaps, variance in contract terms and lack of budget visibility; and inconsistent data and organizational challenges can hinder the contracting process.

To achieve meaningful cost reduction and improve overall margin, hospitals must evaluate and streamline spend comprehensively across all purchased services categories. A first step could be to partner with a third party that has expertise in data aggregation and analysis, needs assessment and performance improvement for these challenging categories. 

External consultants can also help an organization address short- and long-term planning, centralize vendor management, establish governance protocols, implement performance metrics, conduct procurement and contract negotiation, and leverage benchmarks.
These initiatives can result in value beyond significant cost reduction by improving operational efficiency, goal alignment, standardized contract terms and more. Some categories are associated with revenue, and others can directly influence patient satisfaction (HCAHPS) scores.

The pandemic accelerated the adoption of virtual health care. As health care evolves to a new normal following the surge, many organizations are finding it to be a viable and efficient means to conduct ambulatory, urgent and primary care, remote patient monitoring and teleconsulting. 

New approaches to coding have brought telemedicine closer to parity with in-person care, reducing reimbursement concerns that were historically an impediment to widespread adoption. This change to the cost scenario has helped align incentives and made digital health care a more sustainable way to meet patient demand and foster engagement. 

In addition, compared with inpatient stays, studies show telehealth can lead to cost savings by contributing to shorter average length of stay, fewer readmissions and high HCAHPS scores. 

To expand utilization of telehealth, hospitals should spend time now to thoroughly assess patient demand, understand financial implications, develop care redesign models and build strategic provider networks – leveraging telehealth technology to lower costs of care.

Although the COVID-19 pandemic has caused major supply, care and operational challenges across the health care continuum, it also presents a unique opportunity for hospitals to re-examine existing practices and processes and implement innovative improvements. Agile organizations that think strategically and engage the right resources, networks and data can emerge solidly on the path to the future of health care.  
 

Vizient provides solutions and services that improve the delivery of high-value care by aligning cost, quality and market performance to help members improve patient outcomes and lower costs.