New Research from HFMA and Strata Reveals Only Six Percent of Hospitals Rate Their Cost Reduction Program as Extremely Effective
June 7, 2022
Formal, ongoing processes are a commonality among successful programs
CHICAGO – June 7, 2022 – Strata Decision Technology (Strata), a pioneer and leader in the development of cloud-based financial planning, analytics and performance tools for healthcare, today announced the results of a poll conducted with the Healthcare Financial Management Association (HFMA) of 185 healthcare finance, accounting and revenue cycle executives. The survey revealed that although nearly 89% of healthcare organizations have some type of cost reduction program in place, only six percent of hospitals characterize their program as extremely effective.
There is an ongoing need for cost reduction among hospitals and health systems, especially as the industry begins to recover from the impacts of the COVID-19 pandemic. However, many organizations struggle to implement a successful program because they lack a roadmap. The first step to successful cost reduction is to identify a priority area for savings and to choose a mathematically defendable savings target. For example, the HFMA poll found that only 8% of respondents set a margin improvement target of over $100 million with 50% setting a target of less than $10 million.
Establishing a governance structure and securing the right resources is important when it comes to defining who will do the work and how. The different tasks that must be assigned include identifying opportunities for cost reduction, prioritizing projects and tracking results.
Creating a culture of accountability is also crucial for hospitals’ cost reduction efforts. There are so many functions within a health system, from clinical care delivery to environmental services to food services, that each play a role in determining where changes can be made. In the past, labor reduction may have been the default method of cost reduction. Now, due to labor shortages and a variety of other factors, healthcare organizations are increasingly pursuing alternatives. Effective cost reduction programs necessitate involving executive leadership and clinicians in cost reduction conversations to bring new ideas to the table, helping identify alternative areas for savings and taking the burden off finance teams.
Collaboration, formality and governance do not need to make the process complicated, however – once established, these guidelines lay the groundwork so that organizations can easily make the right adjustments to achieve their desired results. Luckily, the majority (72%) of respondents say their overall culture of accountability around cost reduction programs is acceptable, good or excellent.
“Where we see things fall apart is where organizations don’t set clear expectations,” said Alina Henderson, senior director, advisory services at Strata Decision Technology. “Closing the loop is critical to sustaining the process and successful cost reduction programs give leaders access to critical data they need to make informed decisions. However, it’s not just about access. You need to equip people with the data itself but also think about what is going to help them make that data useful.”
As its core, creating and sustaining a successful cost reduction program is primarily about identifying and overcoming organization-specific barriers. Cost reduction is a daunting task to undertake, but it’s achievable with a well-defined, consistent process. In the same way that finance and decision support are required organizational functions, cost reduction should similarly be seen as an essential capability for all health systems.
“Together, healthcare leaders can create the burning platform that the entire organization can rally around in terms of cost reduction,” said John Baker, senior director, continuous improvement at Strata Decision Technology. “They can incorporate the target savings amount into a narrative that resonates with the entire workforce. It’s the new way of doing financial stewardship. It’s a sustainable, long-term way to manage financial health.”
The full survey report can be viewed here.
About Strata Decision Technology
Strata Decision Technology provides a cloud-based platform for software and service solutions to help healthcare providers better analyze, plan and perform in support of caring for their community and reducing the cost of care. Our customer base includes over 2,000 hospitals and over 400 healthcare delivery systems. Founded in 1996, our mission is to Help Heal HealthcareTM. For more information, please go to www.stratadecision.com.