To Cut Costs, Start at the Top

Financial leaders can identify where and how to trim budgets, but it’s up to CEOs to get buy-in from an organization’s leadership and staff, and to address the cultural, quality, and staffing concerns associated with deep cuts.

As the healthcare industry moves toward value-based reimbursement models, it is becoming increasingly important for hospitals and health systems to find ways to trim as much waste as possible from the cost of doing business.

This reality is reflected in a recent survey from Strata Decision Technology—a Chicago-based healthcare IT company—in which 88% of respondents said their organizations have established cost-reduction targets.

But, while the overwhelming majority of provider organizations are trying to cut cost, according to the survey, not many are achieving their objectives: Only 17% of respondents rated their organization as successful, and 69% said they are just somewhat successful in reaching their goals.

Among the key reasons cited for this shortfall are difficulty tracking results (55%); lack of accountability (44%); inconsistent focus from senior leaders (30%), and lack of clinician engagement (29%).

Finding New Efficiencies

One of the organizations that participated in the survey is Mission Health System, a six-hospital system based in Asheville, NC.

“We started our budget process several weeks ago and determined we have a $52 million need for improvement for the system, and I would say the majority of that is to come through cost reduction rather than enhanced revenue,” says Larry Hill, Mission’s vice president of finance. “This is the target we need to get to over the next three years to keep our margin at what I would call a healthy system margin.”

To reach this goal, Hill expects Mission will reduce its supply chain spending by $5.3 million this fiscal year and will look at making cuts to its workforce.

“We did not go into the process predisposed as to where the cost would need to come from, but we know that some of it will be labor-driven,” he says. “There will be people in positions that will be restructured out of the workforce, and then there will be some taken out through attrition and currently vacant positions.”

Mission is also centralizing many of its administrative and support services in areas such as IT and revenue cycle operations in order to “remove all the duplication,” Hill says.

“These services are being collapsed and streamlined to a corporate model. We’ve been consolidating our financial systems and EMRs. What has been more difficult has been on the outpatient side with registration and billing because there are so many billing practices attached to legacy systems. From an IT perspective, we are nowhere near best practices on the number of systems we are supporting, and we know there is quite a bit of waste and redundancy that we can eliminate there.”

When I asked Hill about the survey and why he thinks it appears to be so difficult for healthcare organizations to achieve their cost-reduction goals, he said it comes back to communication from the CEO to staff around the reasons for the cuts and what they mean for the long-term health of the organization.

“We started the budget process with a series of mandatory town hall meetings that were conducted by our CEO, and he explained the current state of affairs, how we are going to approach the process, and at the same time, he made a promise that the short-term, one-time measure we took last year of not giving pay increases would not be deployed again. He asked for partnership from the leadership and staff, and we are definitely getting buy-in.”

Cost Reductions Shouldn’t Threaten Quality

Hill says it is also important to make sure employees understand that cost-containment efforts are not being made at the expense of quality.

“We have invested so much in quality and outcomes, and we cannot regress on that,” he says. “Mission set out to put the patient first and to focus on quality and safety, and that will not be compromised by trying to achieve cost-reduction targets.”

Michael Sitowitz, controller at Parrish Medical Center, a 210-bed acute care hospital in Titusville, FL, agrees that it’s important to be sure that any efforts to reduce spending do not have a negative impact on quality. PMC also participated in the survey.

“You can’t just look at cost and say you are going to cut cost out because you have to have a value equation that also looks at quality, safety, and outcomes. It’s real easy to say you are going to cut cost, but you have to look at what is potentially going to suffer,” Sitowitz says, noting that PMC uses Lean Six Sigma to find process improvements and pull waste out of the system.

PMC has operated for nearly twelve years under what it calls its “strategic game plan”—the guiding principles it uses to ensure it is providing high-quality, low-cost care, Sitowitz says.

“Although it is a small group of people who created this plan, we spoke to a lot of our clinicians and physicians about how making changes in processes would impact care. We asked if these were processes they could adopt. We really took the time to make sure we were not just implementing a strategy the hospital thought was right but that all of our stakeholders could support,” he says of how PMC achieved organization-wide buy-in for its game plan from the start.

Providing clinicians with data to help them realize that using a lot of expensive resources does not always equate to better care also goes a long way toward achieving cost-reduction goals, Sitowitz says.

“The best way to talk to them is with evidenced-based information that shows that outcomes are similar or better [with the use of fewer resources], and that is how you can move the conversation along.”

Succeeding in a Value-based World

When I asked Sitowitz about the survey results, like Hill at Mission Health, he said he believes successfully rolling out new strategies to cut costs and improve quality begins at the top. He credits PMC’s CEO and senior administrators for creating a culture that is able to adapt as needed in the new value-driven healthcare environment and where everyone understands they have a part to play in keeping costs down.

“Our CEO looked at the new building that we built in 2002, and he realized that just because you move into a new building, it doesn’t change your culture. So when the new facility opened, he began a two- to three-year journey to really get people to understand what our culture needs to be for us to be successful in the future,” he says.

“Now, our leadership group meets every month to go over how people are doing, where people are doing well, and where they are struggling. We talk about strategies to resolve any issues, and we all talk about all areas of the organization, not just our own, because we are all responsible for our overall success.”