According to the Centers for Medicare & Medicaid Services (CMS), almost one out of the every five dollars in America is spent on health care, resulting in close to $3 trillion spent in 2014. Of that, an estimated $765 billion was lost to waste in inefficiency, redundancy, errors, over utilization and unnecessary variation in clinical practices. In addition to revenue loss from waste, hospitals are simultaneously confronted with payments that are not rising as fast as costs, and in many cases, payments that are actually declining.  The American Hospital Association even contends that one-third of hospitals presently have a negative operating margin.

Because of these troubling trends, it is no wonder that reducing the total cost of care ranks as the number one overall strategic concern for hospital leadership. Reducing cost is any industry is a difficult task, but in health care, the difficulty is compounded by the need to maintain, or in many cases, improve the quality of care, health outcomes, and patient satisfaction.

Given the difficulty and complexity, it is also not surprising that hospital executives often turn to expensive consultants for answers, only to hear the same “one size fits all” solutions to drive cost savings, that are often unattainable or unsustainable.

Hospitals Are Failing To Meet Their Targets

A July 2014 independent survey of hospital finance professionals by Strata Decision Technology concluded that 88% of hospitals claimed to have cost-saving strategies in place. However, only 17% of hospitals were able to realize their targets. Another 70% achieved “some savings,” but not the level they needed to hit financial targets.

Health care organizations cited that cost reduction efforts often fell short because they were too time-consuming and data intensive. Additionally, while some were able to “identify savings opportunities,” they found that the actual savings realized was much less than expected because ideas could not be put into action and there was a lack of accountability for results system-wide. Hospitals also cited that accurately tracking “hard dollar” cost savings was too labor intensive since they had no technology to rely on, aside from messy, overgrown excel spreadsheets.

As large health systems across the country – especially those serving large Medicare and Medicaid populations – focus on identifying in-house savings that don’t sacrifice quality or patient satisfaction and meet ACA requirements, financial executives must take the lead for their organizations, but they can’t do it alone. The most successful cost-saving strategies are those that are grounded in a meaningful collaboration among finance, operational leaders, and physicians. The process should be informed by finance, but led by operational and clinical leaders. Reducing cost is not just a ‘finance problem’ as it was considered in the past.

January 12, 2015
Written by Nicole Fisher, Contributor