Due to the COVID-19 pandemic, hospitals and health systems have to rethink “business as usual” as they look forward and set strategic goals. They are adjusting to managing dual systems of care along with addressing shifts in payer mix, consumers’ demands and increasing cost pressures. These changes, combined with the loss of revenue due to recent reduced patient volumes, is putting unprecedented financial pressures on health leaders to reduce operating costs to improve margins. It is clear that there is a critical need for changes in hospitals and health systems cost structure and operating performance, as well as a need for new sources of revenue. Both of these will add new complexities and challenges to business operations.
The extreme sense of urgency to put cost reduction strategies into action are also putting additional strains on already burdened resources, which could potentially create unintended consequences, such as employee burnout and potential turnover, or challenges to quality of care and safety, if not managed properly.
A survey of approximately 60 health system executives conducted by The Chartis Group highlights the strategies underway for health systems to achieve financial recovery and sustainability.
85 percent of the respondents cited cost reduction as one of their top three priorities for coping with COVID-19’s impact on their organization, which dramatically drove down patient volume and revenue. 90 percent said they want to meet their cost-reduction goals in less than 12 months, with 88 percent seeking up to a 15 percent cut in operating expenses.
So how are they going to do it? Here, in ranked order, are the top 10 cost-reduction strategies that the surveyed executives say they are pursuing:
1. Optimize revenue cycle (78%)
2. Optimize labor/workforce management (69%)
3. Improve supply chain (64%)
4. Streamline management structures (50%)
5. Improve inpatient throughput (50%)
6. Improve ambulatory access (50%)
7. Rationalize clinical programs (40%)
8. Optimize perioperative/procedural utilization (38%)
9. Reduce fixed asset base (34%)
10. Optimize informatics and technology (34%)
While these cost-reduction strategies are critical, it’s rare that a hospital or health system has the resources to execute these strategies successfully, simultaneously and on time while also trying to recover from an unprecedented public health emergency. The executives acknowledged the biggest risks that could delay or derail their plans citing: