6 Cost Cutting Strategies to a Healthier Bottom Line

Cost Cutting Strategies

6 Cost Cutting Strategies to a Healthier Bottom Line


Health systems face financial pressures from many sides. Increases in competition, downward pressure on reimbursement, changing payment models and diminishing payer mixes, plus other factors all lead to business challenges that may only accelerate in the future.

Maintaining and reducing costs should be a top priority for healthcare leaders. Rather than being a way to juice profits, managing expenditures assures precious company resources to be reallocated and reinvested for a robust enterprise long into the future. 

Ensure that staff skill set aligns with everyday tasks

Leadership should maximize the talent of staff by ensuring that everyday tasks align with staff skills and education as much as possible. For example, is a nurse checking patient eligibility when the process could be handled by the receptionist? Is an MD seeing patients that could be handled by a mid-level practitioner? Often times, you will find that staff is entrenched in certain activities that could be redirected to other departments, outsourced, or even eliminated altogether. When evaluating processes and assigned tasks, always ask yourself if the activity is appropriately within the scope of the employee. In some instances, it may not be avoidable, but maximizing an employee to work at the highest operational level that they can isn’t only a smart use of resources but it will also make for happier and more productive staff. 

Look for digitization opportunities

Along the lines of ensuring that staff are working at their highest level of education and expertise, automation of processes can have a major impact on costs and productivity. With more than 25 percent of healthcare expenditures dedicated solely to administration, there is often ample opportunity for improvement. The opportunities for digitization are endless, but some key ways that automation can be facilitated are through physician administrative duties. Physicians spend only 27 percent of their time on direct patient care. Considering that they are often the highest paid employees in an organization, increasing this figure will have a major positive impact on enterprise costs (not to mention improved revenue and increased doctor satisfaction). These opportunities exist well beyond clinicians, however. General administrative tasks are also ripe for automation such as appointment settings and reminders. Start by looking at existing EHR software for under-utilized functionalities of the system. Besides that, there exist hundreds of different programs and technologies that can streamline automation and efficiency. 

Re-evaluate Supply Costs 

Whether a part of a small organization or a large hospital, there are often greater chances to reduce supply costs than you may expect. One place to start is the cost of medical supplies. Generally, you can get a price list for your current organizational supplies with ease and competitors will gladly review it for the chance to make a competitive bid. Price changes may be small, but considering that this makes up a large component of a business’ overall spending, the dollar amounts can be significant. The same goes for just about any product or service that the organization is paying for. Perhaps an old manager signed an uncompetitive contract, or technology has brought associated prices down in the meantime and the organization is still in an unfavorable agreement. By shopping around, and sometimes even just asking the current supplier for better rates, you may be surprised at the potential for savings without significant effort. 

Steamline payer mix

I once worked in an outpatient clinic organization that took just about every payer source imaginable. While this was ostensibly to increase revenue opportunities and maximize profitability, it had the opposite effect. Administratively, it led to multiple challenges, principally in excessive time in training, understanding, and carrying out processes of different payers. It also led to staff confusion and frustration and rejected claims and missed reimbursement opportunities. On a basic level, it just wasn’t efficient. While this example may be extreme, it may be beneficial to streamline your payer sources or the processes surrounding them. Compartmentalize processes under one department so those that are assigned to them can properly master them and be subject matter experts in them. It may even be beneficial to minimize payer mix altogether to streamline administration and allow the organization to grow by focusing attention and resources on limited payers. 

Ensure effective staff scheduling

Management should have a solid understanding of how efficient staff is being scheduled and utilized. One good indicator to look at is overtime, for example. In general, a healthy overtime average for a typical organization sits around 3%. Leadership should be evaluating overtime greater than 3% as it is a classic example of labor inefficiency. Leaders should lean on an analysis of past scheduling needs and trends for ways that labor can be more effectively utilized to reduce the need for overtime expenses and reallocation of labor to meet unmet needs. Even better, leadership will rely on technology and AI by means of scheduling and reporting systems that aid and improve an organization’s ability to utilize and deploy their labor resources most efficiently. If properly utilized, ultimately the enterprise should find lower turnover and greater morale as well through more efficient labor deployment. 

Focus on quality

Quality sells in any industry whether in the form of products or services. Ideally this should always be a major focus of healthcare players, but that isn’t always the case. Even if enterprises have a robust quality program, they should understand how quality can positively impact organizational costs. Satisfied patients increase profitability through referrals and loyalty. Higher quality and a solid reputation allows you to convey the value you offer, which equals higher revenue and a healthier bottom line. That being said, organizations should ensure that their quality department has the right mix of resources and tools to function adequately. Leaders should ensure the integrity and accuracy of the data and reporting systems that quality measures are based on. Otherwise, the assumptions and decisions resulting from data gathered will be flawed and ultimately be a poor use of quality personnel. By ensuring that these resources are effectively used, businesses can obtain greater ROI from investments in quality and ultimately improve patient outcomes and increased profitability.

Bottom line

As the healthcare industry continues to evolve, organizations must stay on top of changes in regulations, demographics, and technology while ensuring high care standards and financial integrity. Leaders can help keep costs under control by effectively:

-Maximize staff skills by focusing and realigning their daily processes

-Seek out opportunities to effectively digitize and automate protocols

-Reevaluate and bid supply costs

-Narrow business focus and payer mix 

-Invest in staff scheduling analyses and forecasting tools

-Emphasize quality and ensure appropriate staff utilization

The changes enabled by these shifts in focus and resources will help cut costs, while also aiding operational efficiencies and improved patient experience and staff retention.

Authored by Brett Shay, Managing Partner at Informed Concepts Consulting. Published on October 28, 2019.