The Flip Side of Financial Challenges

There is a limit to cost cutting as a long-term financial strategy. Administrators must also look to improve revenues in order to survive financially.

Beyond Cost Cutting

IFor the fifth year in a row, the ACHE survey of hospital executives reveals that their top concern is financial performance, with over three quarters of respondents listing “Financial Challenges” in their top three issues for 2009. As executives try to deal with tighter margins and an uncertain future, most are looking to cut costs wherever possible, keeping operations lean and productive.

When hospital administrators look to cut costs, the first area of focus is usually staff. And of all the hospital departments, they often find that non-clinical support services departments are an obvious target. For an average 300-bed hospital, there may be a staff of over 100 housekeepers. Compared to other departments,
this represents a large percentage of the population.
Since over 80% of the department’s cost is labor, administrators are tempted to severely cut staff to save money.

As many administrators have learned the hard way, cost cutting is a short-term financial strategy that can produce long-term pain, especially when quality suffers as a result. Support services departments are an important part of the hospital’s operations in that they support the more critical departments, enhancing the hospital’s core services and maximizing their potential to generate revenue.

Patient Throughput A hospital’s ability to move patients efficiently through the care experience is important to maximizing revenues and eliminating waste from its processes. For many hospitals, the inability to clear beds quickly leads to overcrowded Emergency Departments and ambulance diversion. A 2006 study published in the Annals of Emergency Medicine showed that for every hour the hospital was on diversion, it lost $1,100 in revenue.(1) Improving patient flow and reducing bottlenecks elsewhere in the hospital can relieve crowding in the ED.

This bottleneck can be directly impacted by improved productivity in the Environmental Services department. Anticipating, responding to, and expediting the completion of discharge cleaning is crucial. This demands more than a motivated staff. It requires logistically-minded managers and software to coordinate notification and task tracking. The addition of centralized Patient Transportation enhances the hospital’s ability to move patients efficiently through the process, eliminating wait times and enabling nurses to focus on clinical care instead of the movement of patients.

Revenue Generators Two of the biggest revenue generators for hospitals are highly dependent upon the efficient and on-time movement of patients. Maximizing the scheduling of elective surgeries, which have declined during the current economic downturn, is often key to a healthy bottom line. Post-surgical patients require available beds for recovery. Like in the ED, an overcrowded ICU becomes a bottleneck that prevents hospitals from taking on new surgical cases.

Outpatient imaging is another important source of income for many hospitals. Improved efficiency in transporting patients enables more outpatient procedures to be performed, directly impacting the hospital’s revenue stream. As we discussed in a previous issue of Celebrations, improved transport efficiency created by Crothall’s program allowed Frederick Memorial Hospital to generate an additional $1.2 million in one year as a result of a 56% increase in outpatient MRI procedures.

Keeping these revenue-generating devices in operation is critical. An industry rule of thumb says that on average, a hospital loses $1,000 in revenue for every hour that an MRI is down. It is important to have technicians on site trained in the various modalities so that devices are consistently performing scans and generating revenue. Hospitals that invest in more expensive state-of-the-art devices can expect higher ROI, making upkeep even more vital to their financial health.

Happy Patients, Happy CFO It has long been known that more satisfied patients are important to the reputation of the hospital and for attracting new patients. In an environment in which patients have more choice and access to information than ever before, reputation means everything. Satisfied patients are more likely to return to a hospital and refer their friends and family. Physicians are more likely to refer patients to hospitals with higher satisfaction scores. And in the age of HCAHPS, hospitals put a portion of Medicare reimbursement at risk if patient scores are too low. This is a real threat to U.S. hospitals already dealing with a $30 billion shortfall in government reimbursements.(2)

Through a focus on expert support services delivered in a hospitality model, Crothall can make a positive impression in both the cleanliness and courtesy patients receive while in their rooms. The room is notoriously the most negatively scored section of the survey, and making an impact here can raise the patient’s outlook in other areas. Research performed by Press Ganey reveals that the most profitable hospitals have the highest average patient satisfaction and the least profitable have the lowest scores.(3)

Support services departments are normally considered overhead costs, eating away at hospital profits. However, when used effectively, these departments can boost the value of more lucrative services through increased volume, enhanced productivity, and better outcomes. High-quality support service resources can pay dividends in the long term. When financial health is a concern, administrators need to look at both sides of the coin to ensure success.

Sources:
• (1) Ambulance Diversion and Lost Hospital Revenues. Annals of Emergency Medicine. 14 July 2006

• (2) American Hospital Association, Trendwatch Chartbook 2010. Chart 4.7

• (3) Looking to improve financial results? Start by listening to patients. Healthcare Financial Management. October 2008.