It’s no secret that optimizing financial performance is a constant challenge for healthcare organizations throughout the country and around the world. Routine is an important part of hospital life-- long term consistency care to be delivered thoroughly and efficiently and also help to maintain patient and employee safety. That makes changing things up an incredibly daunting task. One of the greatest concerns hospital CFOs express is whether or not pushing changes in a hospital will end up being worth the financial and intrapersonal hassle.
This list includes 6 ways real hospitals have cut costs within their organization and the return on those time and expenditure investments. We’ll cover:
- Real strategies hospitals have implemented to cut spending and improve quality
- How these strategies can affect your bottom line in the short term and in the long term
- Important trends in hospital management that could impact your budget
Case Studies in Hospital Cost-Cutting Strategies
1. Invest in your employee’s health.
Where: Community Hospital of the Monterey Peninsula, CA
What: Employee disease and wellness management program
Savings: 15% per employee member per month
In 2008, CFO of Community Hospital of the Monterey Peninsula (CHOMP) Laura Zem began searching for ways to reduce spending at the independent 284-bed hospital. She and her team quickly pinpointed the hospital’s health benefits plan as an increasingly unwieldy portion of their organization’s budget.
Zehm recalls her initial feelings that reducing the toll the benefits plan took on CHOMP’s budget was impossible: “Healthcare costs are growing up, employees are getting older, but there’s nothing we can do about it.”
However, Zehm kept looking for solutions and eventually found inspiration in the Asheville Project, an initiative by the City of Asheville (NC). The self-insured employer had initiated an effort to improve employee education and oversight of chronic health concerns. Using the Asheville Project as a model, Zehm and her team developed a strategy for incentivizing employee health by offering lower health insurance premiums for employees who engaged with CHOMP’s wellness training program.
CHOMP’s employee disease and wellness management program included:
- Opportunities to complete tasks in five main wellness categories: blood pressure, body composition, cholesterol, fasting glucose, and tobacco and nicotine free
- Wellness classes and programs available to employees and their spouses
- Free lab draws and biometric screenings
- Wellness coaches to offer personalized wellness training
The results of the program suggest that hospitals can experience significant savings on employee benefits by implementing a disease and wellness management program. Between 2009 and 2012, CHOMP’s per member, per month health costs dropped an impressive 15% from $705.65 to $602.25.
2. Find innovative ways to keep the lights on.
Where: Resurrection Health Care (IL)
What: Energy efficient light fixtures
Savings: $900,000 per year
The lights are always on in a hospital. Patients require care every hour of every day, and that’s never going to change. For that reason, it’s unsurprising that lighting costs make up an average of 16% of a hospitals total energy consumption. Because lighting is such a significant part of a hospital energy bill, finding ways to reduce spending on lighting can reap huge benefits when implemented across an entire health system.
Health organizations, such as Resurrection Health Care in Chicago, made the following changes to help drive down energy consumption:
- Reduced the number of light bulbs in fixtures with multiple lights wherever possible
- Switched to more energy efficient lighting options
- Eliminated unnecessary light fixtures in areas such as chart racks (now digital)
- Installed light switches in areas where lights do not need to be on at all hours of the day and night
When considering this option, it’s worth noting that there is an upfront cost associated with switching to an energy efficient lighting system. However, this investment pays dividends in the long run. By simply switching from high-energy lamps to newer, energy efficient models, Resurrection Health Care accrued an annual energy savings of more than $900,000 dollars.
3. Make every room in your hospital energy efficient, even the bathrooms.
Where: Beaumont Health System in Royal Oak (MI)
What: Energy efficient sinks, toilets and urinals
Savings: $257,000 per year
At Beaumont Health System in Royal Oak, Kay Winkour has played a key role in developing and implementing a variety of energy-efficient and cost-cutting strategies. The RN, VP of Quality, Safety and Accreditation, and LEED Green Associate suggests that the bathroom is an often overlooked area when organizations are searching for ways to cut energy spending, but there is plenty of potential for improvement.
Winkour notes that there a variety of ways for a hospital to improve the efficiency of hospital bathrooms. To name a few:
- Convert toilets, sinks and showers to low-flow models
- Adopt waterless urinals
- Wire different areas of a large bathroom to different light switches, allowing only the lights necessary to be used
- Address leaky faucets and running toilets as soon as the issue is discovered
Similar to other strategies that include improving energy efficiency, the need for new hardware and appliances means that this strategy comes with an upfront cost. Fortunately, transitioning to more energy efficient bathroom solutions is a project that can be taken stages, and even small changes quickly translate to big savings. witching to low-flow inks, toilets, and urinals has saved Beaumont Health System over $257,000 a year.
Beyond the immediate financial savings, Winkour also noted that this project got the attention of those who work at Beaumont every day. It sparked other initiatives that have “been the products of interested employees.”
4. Chill out with a new chilled water system.
Where: North Shore University Hospital in Manhasset (NY)
What: Revamped chilled water system
Savings: $1.3 million per year
In addition to providing care to patients, hospitals are responsible for providing a safe and comfortable environment for patients and their families. Air conditioning is an essential component of this environment, especially in the hot summer months, but the chilled water systems that support air conditioning can be a massive financial drain.
Chilled water systems can be optimized in several ways:
- Ensure that the sequence of operation promotes efficient energy use
- Install sensors to monitor load demand throughout the hospital and adjust the chilled water temperature setpoint automatically
- Look for updated and energy efficient chilled water systems
Chilled water systems can be an expensive upgrade. North Shore University Hospital (NSUH) in Manhasset executives dedicated $8 million to revamping their chilled water system. Neil Rosen, Director of Sustainable Development and Facilities Services at NSUH’s parent organization North Shore Long Island Jewish Health System, insists that this has been a worthwhile investment. “Although this was a huge upfront cost for North Shore Long Island Jewish Health System’s flagship hospital, it allowed the entire plant to more efficiently cool water and keep temperatures under control.”
The hospital currently enjoys annual savings of approximately $1.3 million, making the return on this investment clear.
5. Prioritize the patient experience.
Where: St. Luke’s University Health Network (PA)
What: More efficient and patient-focused billing.
Savings: $1.2 million per year
The current economic landscape, unavoidably influenced by continued changes in health policy, has created an understandable anxiety in patients when it comes to selecting healthcare services. In March 2018, a Gallup poll of more than 1,000 adults in the United States found that 55% of respondents identified healthcare availability and affordability as something they worried about “a great deal,” making it more worrisome than any other stressor on the list, including crime, federal spending, and the use of drugs or guns.
In June 2018, Richard Madison, St. Luke’s University Health Network Vice President of Revenue Cycle, shared insights into how his organization looked to major retailers like Amazon and Costco to develop strategies that would help them stand out from the competition, while cutting organizational costs.
Madison deployed several strategies, including:
- Providing a transparent financial experience to patients
- Simplifying out-of-date and overly complex website and billing system
- Sending patients electronic payment reminders using the Simplee platform linking to online payment portals, to encourage quick and easy payment
- Implementing an automated voice response system to address common questions when patients call billing support
According to Madison, St. Luke’s University Health Network is “responding to the age of consumerism” by giving patients “easy access to their information.” Thus far, these strategies appear to be working. Revamping their electronic payment management is projected to help the organization realize a goal of $900,000 in yearly savings, and more efficiently dealing with support calls has resulted in an additional savings of $300,000 per year.
Together, these strategy changes account for upwards of $1.2 million in savings every year.
6. Abandon your old shipping strategy.
Where: University of Washington Medical Center in Seattle (WA)
What: Improved supply chain efficiency.
Savings: $1 million per year
Like many hospitals, the University of Washington Medical Center (UWMC) makes use of a variety of single-use medical devices in its patient care. Recognizing that this practice is neither economically nor environmentally sustainable, UWMC partnered with Stryker Sustainability Solutions to reduce spending on medical devices as well as divert waste from landfills by exploring different supply strategies.
Ultimately, the healthcare organization opted to invest in single-use device reprocessing, which is the FDA-approved practice of “inspecting, cleaning, function testing, sterilizing, and repackaging” SUDs so that they can be reused safely. This process offers significant savings over simply purchasing more single-use devices.
In order to implement this strategy, UWMC decided to:
- Organize a reprocessing taskforce with representatives from all participating hospitals in the system
- Hold monthly meetings to evaluate progress and identify new challenges and opportunities
- Determine ways to use savings to improve patient care via supporting education and career development programs
The result of these efforts have been promising. Improving the efficiency of their supply chain allowed UWMC to save more than $1 million in 2017 and keep more than 10,500 pounds of waste out of landfills.
Hospital Management Trends with Cost-Cutting Potential
Hospital CFOs and other financial executives have a tendency to be reactive. However, as the healthcare field continues to grow and evolve, the role of CFO evolves as well, and it has become increasingly necessary for hospital CFOs to take a more proactive role in identifying and piloting innovative cost saving measures .
Former CFO of HealthEast Care System in St. Paul, MN and Executive Vice President of Warbird Consulting Partners Doug Fenstermaker suggests CFOs take a more active approach to exerting influence and exercising leadership to peers and the rest of the organization. “It’s not enough to wait and see what happens, and then react,” he says, adding that CFOs must learn to “observe and adapt to emerging trends.”
Keep an eye out for new options.
Healthcare is continuously evolving, and that means there are new ideas and strategies about how to optimize hospital spending published every day. The key to making lasting cuts to hospital spending is remaining on top of emerging trends. Regularly make time to review what other hospitals are doing and assess whether or not these strategies could be beneficial to your own organization.
Embrace the patient-centered mindset.
Patient-centered care is the shift within the healthcare community towards developing care strategies based on real feedback from patients, families and care providers. As a few of the case studies above suggest, understanding your organization from a new perspective can inspire change that both improves the quality of care for patients and benefits the hospital bottom line. Patient-shadowing and patient shadowing tools play a key role in understanding patient perspectives and pinpointing hospital inefficiencies, making them essential to hospital administrators who adopt a patient-centered mindset.
Optimizing financial performance is a constant challenge for hospitals, and it can be difficult to decide which (if any) emerging strategies are worth the upfront costs and disturbing your organization’s routine. We hope that these case studies give you some insight into what adopting these strategies would really look like for your organization.
Have you implemented or considered implementing any of these strategies? We’d love to hear from you in the comments below!
January 18, 2019