The 4 P’s Of A Successful Hospital Cost Savings Strategy

This article was written by Lisa Miller.

Robust cost management is now imperative for every hospital.

Adopting VIE Healthcare’s 4 P’s (Plan, Process, Project Management, Performance) of a successful hospital cost savings strategy can help to drive margin improvement across your hospital.

Increasing financial pressure on US hospitals

There is no disputing the financial pressure many hospitals across the United States are now facing. At the beginning of the pandemic, the American Hospital Association predicted that healthcare organizations would collectively lose approximately $200 billion between March 1- June 30 of this year.

To date, at least 42 hospitals have closed or entered bankruptcy in 2020 and the impact of COVID-19 may result in higher numbers.[1] The Pew Trust notes that hospitals in rural communities also continue to be among the most at risk of closure.[2]

In my previous blog, I highlighted the six questions healthcare leaders must be asking now, to identify the cost savings opportunities that exist in every organization.

Healthcare organizations based their strategy and vision on historical data, but that data must be accurate. That requires a monthly discipline of analyzing your line item details, seeing your hospital spend and being able to make those strategic decisions in real-time.

My goal is for all hospitals to have real-time management of their costs. That requires a focus on purchased services spend, a focus on your operating room and implementing the 4 P’s of an effective cost savings strategy, namely:

• Plan
• Process
• Project management
• Performance

Plan: Every cost savings strategy needs a plan, or clear roadmap for success, linked to a bold vision for the future of your organization. That includes a clear plan for implementing each step, commitment from your leadership team, an accountability structure to measure performance, and sufficient resources to enable your vision to become reality.

That must include an effective cost management system to identify cost savings in real-time.

Process: The second step is to create a repeatable, proven process. That process may include how you collect your data, how you manage your data or defining your accountabilities, but it must be repeatable and proven.

Whether your organization examines its data from an item master, or charge master in OR surgical information systems for example, your underlying data must be accurate.

Spend data analytics means your hospital can take back control of its purchased services spend and review all of your data in real-time. Your historical data gives you the ability to understand your actual costs and enables you to move forward.

How do you price, how do you negotiate? These are critical questions that must be answered.

Without accurate data, this is a huge challenge.

Only 12% of healthcare organizations effectively use data analytics to manage costs. Without it, significant cost savings are being missed.

Project Management: Project management systems are essential to track and manage your cost savings initiatives.

In my experience, one of the key areas to margin improvement is shortening the time to complete cost savings initiatives.  At VIE Healthcare®, we constantly push for shorter timelines, not to diminish results, as they are unchanged, but we don’t see a viable reason for any cost savings initiative to take between three to six months.

When we work with our clients, we strive to complete projects within 30 days or less. From there, effective project management can ensure those initiatives are maintained.

Performance: You cannot assess how your hospital is performing unless you are constantly measuring. What can be measured can be improved.

Consider some of the following options:

Zero based budgeting – Rather than basing your budget forecast on the past twelve months and adjusting it by an agreed percentage, zero-based budgeting requires each hospital department to start from a zero budget and justify their purchases and spend. In our experience, your organization can reduce spend by up to 25% with this approach.

Key questions in measuring performance include:

• What does the product cost?
• Are there similar or identical products that cost less?
• How does this product affect patient care?
• Are there community or major environmental concerns?
• Where does waste occur on a regular basis?
• Are protocols, policies, and procedures updated regularly and enforced?

These costs can be within or outside your GPO, as long as you have full visibility. All healthcare organizations are having to take a long hard look at issues around pricing as so many cases are now managed to Medicare margins.

We have to refocus and ensure your hospital is getting the right price which means carrying out ongoing performance reviews, coupled with a drive to be both creative and innovative.

Implementing the ‘’4 P’s’’ can help your hospital to create an efficient cost management strategy and realize significant cost savings at this critical time.

Schedule a call with Lisa Miller to create a cost savings strategy for your hospital.

[1] https://www.beckershospitalreview.com/finance/42-hospitals-closed-filed-for-bankruptcy-this-year.html

[2] https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2020/07/22/rural-hospitals-hang-on-as-pandemic-reaches-smaller-communities