Optimizing Your Healthcare Organization's Core Business Today

Healthcare organizations are in the business of caring for patients, but to continue doing so your healthcare organization must be able to pay its bills. By optimizing core functions of your business, you can pay your bills today, invest in the future and continue to provide care to your community for years to come.

Approximately $750 billion is wasted annually within the healthcare industry. This accounts for nearly 30 percent of all healthcare spending. While unnecessary lab tests, supplies and other day-to-day expenses add up, in many cases organizations waste money because they haven’t aligned spending and the strategy around people, technology and/or acquisitions. To do so, create a strategic plan and then make sure that future investments align with this strategy. This ensures that your organization operates efficiently and allocates funding to areas of the business that will drive growth.

Healthcare is a high-touch business. Every patient encounter with a healthcare system involves an engagement with one employee and in most cases, multiple employees. Unlike other industries which have been able to automate many aspects of their businesses, healthcare has not. As a result, labor accounts for a significant amount of an organization’s costs.

• Align people to strategic goals. While organizations have invested significantly in one area, this may not be identified as a key area for growth in their strategic plan. For instance, if increasing outpatient surgery volume is part of the strategic plan, then backfilling nurses on the inpatient surgery unit may not be necessary. It’s also important to think about whether present staffing needs align to your long-term goals and, if they don’t, how to create a short-term staffing solution.
• Benchmark. To hire top talent, it’s critical that your organization’s compensation and benefits are competitive. Staffing should also match the marketplace to make sure that staff to patient ratios are also optimized.
• Align incentives. Healthcare systems are typically a conglomeration of hospitals, small systems and physician groups. As a result, the organizations often do not operate as a unified entity. This means that incentives vary across the system. Aligning incentives can help to standardize the cost of labor which may potentially reduce costs. This same principle should be applied to nonlabor expenses.

To increase profits, you must increase revenue or cut costs. This is basic math for most businesses, but it’s not always applied to healthcare organizations, in part because much of the revenue comes from fixed pricing set by government entities. To do this, look at your strategy and what is driving growth so you can identify revenue generators or opportunities to shed superfluous expenses.

By identifying ways to reduce costs, improve revenue and optimize technology, healthcare organizations can ensure that they are making the most of the resources they have.

• Invest in the right tools. Identify tools and technologies that will allow you to better measure and manage costs (labor, supplies, resource utilization, etc.) and revenue (coding/documentation, charge capture, denials, etc).
• Streamline and optimize processes. Analyze and improve processes for all major functions of the organization such as medication management, revenue cycle, supply chain distribution, care management and patient access.
• Optimize labor management. Focus on key labor management functions including productivity management, position control, daily staffing tools, skill mix, premium pay and compensation, and overtime.

Look at your balance sheet and identify ways to collect money quicker or pay it out more slowly. To get paid faster and capture charges correctly, use revenue cycle tools that help to reduce claim denials and ensure coding is accurate. To pay your expenses more slowly, look at your debt, and how it will mature and when you must pay back.

• Revenue per discharge on a payor basis
• Labor cost per adjusted occupied bed
• Days cash on hand
• Operating cash flow
• Capital structure
• How much debt does the organization have?
• What type/duration is it?
• When does it mature?
• Capital expenditures (CapEx): Minimize it or maximize CapEx efficiency

By defining and focusing on a strategic plan for all financial decisions, healthcare organizations can reduce unnecessary expenditures, increase revenue, spend money on what matters and generate a profit. This allows you to optimize your core business and overcome the financial challenges from declining reimbursement, shrinking inpatient admissions and other industry pressures.