Three Actionable Strategies For Driving Out Cost

October 22, 2014

This commentary is the second in a three part series. Click here to read the first commentary in the series.

If cost improvement is important, and it is, we need more than just a cost committee to get results

The rapidly changing healthcare delivery system and dwindling margins can make the future can look bleak—especially to organizations with eight or nine figure cost reduction targets, which unfortunately, have become the norm.

The future looks even more frightening for the many providers who have either already tried cost reduction initiatives and failed, or those who are working hard but not producing meaningful savings. A recent survey of financial executives reports that at least 85 percent hospitals fall into one of those categories. Typically, either their initiatives did not produce the level of savings needed or the cost crept back into the organization. The common thread, and the root of the problem, is the lack of a strong foundation to support the cost improvement efforts.

The basis of any successful cost improvement program is that strong systems and structures must be focused on cost improvement. This key principle cannot be avoided regardless of the methodology used to identify savings opportunities.A strong central leadership model is the primary differentiator between successful cost improvement initiatives and ineffective ones. This principle has three accompanying elements required to establish and manage a successful cost improvement program.

Key Element #1: Strong, collaborative leadership

Driving cost out cannot be a siloed endeavor, nor one that is led by finance alone. Having one senior leader who is responsible for leading the cost saving program and for rallying support from other senior leaders is an effective way to elevate the importance of the initiative and ensure continued focus.

Positioning this role as a direct report to both the CFO and COO sends the message that true cost improvement cannot happen without collaboration and mutual ownership between operations, clinical care, and finance. All senior leaders should be accountable for achieving their respective division’s cost savings goals and enabling the achievement of the entire organizational goal. They should feel ownership and exude that sense of accountability to their teams.

Strong leadership is not just about bringing the right people to the table. Their main role is to provide guidance and boundaries to cost improvement teams, to push them to innovate and re-think how care is provided, to hold teams and initiative owners accountable for achieving goals, and to communicate a clear, consistent message to all stakeholders.

Key Element #2: Highly effective teams

The next element, to a successful cost improvement program, is chartering highly effective teams. However, many organizations move too quickly through this step and then wonder why they do not see results.

In order to be effective, teams should be created that align directly with the overall metric that is to be impacted. If the team is successful, it will positively and measurably impact the performance of the overall metric. Teams should be given explicit targets to aim for. Focusing on these targets will push the teams to think beyond today and deliver innovative ideas. Additionally, the sum of the teams’ targets should equate to more than the overall target. This over-abundance of cost savings opportunities will give the leadership team much-needed leeway to not move forward on all opportunities identified if the circumstances are not ideal.

Each team should consist of:

• Managers and directors from a cross section of the organization with expertise in different areas;
• One or two project managers or “Cost Leaders” who are responsible for facilitating team meetings, obtaining and analyzing data to quantify cost savings opportunities, reporting out to senior leadership, and driving implementation;
• One or two vice presidents who should help identify cost reduction opportunities, but more importantly promote openness to new ideas, cross-departmental thinking, and an expectation of driving operational and/or quality improvement, not simply cost savings. Ultimately, these senior leaders are accountable for the team’s results.

Additionally, teams should be given clear goals, expectations and timelines.

Key Element #3: Embracing the idea of the “Cost Leader”

Leadership and teams cannot succeed on their own. Just like for quality improvement, healthcare organizations that are serious about cost improvement should have resources dedicated to cost improvement. This new role is the Cost Leader.

The Cost Leader focuses on driving out cost all day every day. A Cost Leader collaborates with clinical and operational leaders to identify and implement cost savings strategies and provides coordination of HR, IT, and other resources. Without this level of focus, providers will not realize the level of cost savings they need.

The Cost Leader should align closely with finance, operational, and clinical leadership. The person must understand what is needed to drive true margin on the income statement, what will and won’t work operationally, and how to engage physicians. This role, or department for larger facilities, should have access to financial, clinical and operational data and be able to nimbly pull this data together to identify and quantify cost savings opportunities.

Most importantly, the Cost Leader needs to be an innovator – someone who challenges conventional wisdom, proposes new approaches to old ways of doing things, and can work with operational and clinical leaders to transition these ideas into practice.

Once improvements are in place, the Cost Leader is responsible for on-going tracking and ensuring that performance meets goals.

To truly realize lasting savings in the delivery of healthcare, we cannot continue to work on cost reduction in our spare-time or only during budget season. We need breakthrough thinking and new, more efficient ways of caring for patients and running our business. To achieve that, the proper systems, structures and dedicated roles must be in place. If cost improvement is important, and it is, we need more than just a cost committee to get results.