A recent survey by Kaufman, Hall & Associates has revealed that most hospital executives feel that they are falling short of their cost reduction goals. They survey of over 150 senior hospital executives revealed that 75% of the respondents felt that their cost transformation success has been average to below average.
The move from volume to value is encouraging most organizations to reduce costs in order to remain competitive in their market. With over 95% of the respondents claiming that cost transformation is a significant or very significant goal for their organization, there are many hospitals that are unable to achieve one of their primary objectives of cost transformation. As the report from Kaufman Hall summarizes:
This is not business as usual, involving incremental change. Financial realities – lower revenue and nonstop expense, consumer, regulatory, and competitive pressures – demand a new way of providing care. To meet community needs under healthcare’s new business imperatives, and to participate as a “provider of choice” in narrow networks developing nationwide, organizations must have a strong value proposition and a cost position that is significantly lower than competitors.
For most hospitals and health systems, achieving such a position will be a transformational undertaking, requiring extensive effort to dramatically lower costs by 25% to 30% over a five-year period. That effort must start now, not a yet-to-be-determined future date.
The pursuit of lower costs is not a new priority for most healthcare organizations, as the value versus volume discussions have taken root in the industry. But has the talk translated into action? What goals have organizations set to transform costs, what progress are they making, and what impediments must be addressed? Our key survey findings include:
Why the Need to Reduce Costs?
- Financial realities make cost transformation an imperative for healthcare organizations and their leaders.
- Executives recognize the imperative, but organizational commitment to transformational change, goal setting, and progress have been limited to date.
Where Are Organizations Focusing?
- Current efforts focus on traditional areas of cost improvement (e.g., labor productivity, supply chain, revenue cycle)…
- …while areas that will yield transformative reductions (e.g., clinical redesign, service rationalization, workforce reconfiguration) are not being addressed at a pace that acknowledges urgency.
What Are the Challenges?
- Accountability for transforming costs is a concern for most organizations.
- Data and important processes and tools, such as cost accounting methods, lack credibility.
- Reliable cost-related data, insights, decision making, and monitoring are required to transform costs.
Cost transformation is urgent but many organizations are struggling to set appropriate reduction goals and start the hard work of reconfiguring their businesses for a much more cost competitive environment.
Download a copy of the survey report here: 2017 State of Cost Transformation in U.S. Hospitals: An Urgent Call to Accelerate Action
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