Hospitals and healthcare systems increasingly face financial pressures from increasing competition, deteriorating payer mix and other factors.  Due to these pressures, Cost reduction and control is at the forefront of healthcare finance leaders’ minds, whether they are a rural, nonprofit, urban or safety-net organization.

Healthcare is a manpower intensive industry. Spectrum of manpower is wide ranging from highly skilled doctors, technicians, nurses and General Duty Assistant; Major fixed costs are involved while operating a hospital. Bigger the size of the hospital, bigger the Fixed cost .If the Hospital controls its Fixed Cost it will be easy to break even its revenue. For Multi-specialty Hospital, It is necessary to increase the number of specialties under one roof as it increases footfalls  of patients but where  Multi- specialties  work as synergy , it also increases Fixed cost so again  it becomes the challenge to increase the revenue and control Fixed Cost.

Competition is also one major factor motivating for Cost Reduction, Number of hospitals is increasing day by day , So due to increasing competition, hospitals are struggling to reduce and control their operating expenses all around the world. Hospitals that successfully control their operating expenses have an immediate advantage over those that do not.

Here are a few areas where hospitals commonly can reduce and control its cost:  

Outsourcing & Centralizing non-clinical, non-differentiating functions

Multihospital networks can achieve efficiency by increasing scale, lowering manpower costs, centralizing and Outsourcing nonclinical, non-differentiating functions such as human resources, marketing, finance, and purchasing dept. Hospitals should look for partners who can align culturally and operationally. It is advisable to outsource these services to a single partner as it leads to lower overall costs, use of external expertise and increased patient satisfaction; it also makes it easy to standardize services.

In this way by  employing external expertise and outsourcing  non clinical services, hospitals can free-up their  Funds and Focus for re-investment in technology, clinicians and other critical functions.

Bundling Bio Medical Engineering

While making cost reduction strategies, hospitals can look at Bio Medical Engineering Contracts. Hospitals often have several contracts with original equipment manufacturers (OEMs) and maintenance vendors for equipment used to diagnose, treat and monitor patients.

Instead of making separate contracts for various equipment, if a Hospital makes a single contract to any specialized clinical engineering provider, it can reduce the cost of Maintenance,  liasoning and  reduce the pain of BME Administrator.

Foods and Beverage Service

Foods and Beverage services is not directly related to treating patients but it is an important services which play an important role in a  Hospital, if Hospital  manage this services itself ,  it has to allocate  resources , funds and spent much time in managing Foods and beverage  so it is advisable to outsource Food and beverage services in a Hospital

Some healthcare leaders worry that outsourcing will limit menu creativity; drive higher costs, and ultimately result in a loss of control over operations. The reality is just the opposite. Leading-cutting edge food companies make enormous investments in technology, menu, and program development and production systems, all designed to optimize your financial resources and deliver customized solutions while reducing costs in healthcare.

Hospitals should make contracts with food processing companies outlining clear financial, operating terms, adherence to menu costs, recipes, and quality KPIs.

Consolidating management layers

Hospitals can also reduce its cost by consolidating management layers. If Organization has four different managers doing the same function, they will get it done four ways; this factor alone can run up costs. There are economies of scale in centralizing functions, it makes standardization of processes across units and improves administrative and clinical operations control across organizational units.  It is very necessary where a hospital has many units across city or state

Floor Care Services

Hospitals should not take floor care Services lightly. As per various surveys 3 to 4 percent healthcare-associates get infected (HAI) . By opting high-quality & standardized Floor care services ,  hospitals can reduce the risk of HAIs and enjoy savings.

Optimization of patient flow

Waits, delays and cancellations are so common in healthcare, patients and providers assume that waiting is an inevitable, but regrettable part of the care process; recent surveys suggest that delays are not a resource issue but a flow problem. Specific areas of focus include smoothing the flow of elective surgery, reducing waits for inpatient admission through emergency departments, achieving timely and efficient transfer of patients from the intensive care units to medical/ surgical units and improving flow from the impatient facility to long term care facilities. Standardizing the flow of patients in hospitals is a great way to reduce costs and improve the quality of care. By optimizing patient flow and preserving dedicated staff and resources, Hospitals can decrease delays and wait times of patients and ensure the maximum occupancy for each bed.

Human Resources Management.

Training and developing staff is very important for  an organization’s health , It can contribute to more significant long-term cost reduction, minimizing overtime, increase  associate retention and  decreasing  labor turnover,

Besides training and Development, recognition programs are essential to consider in a cost-cutting strategy. Publicly recognizing and expressing gratitude for your hospital’s teams and associates is another way to reduce costs and improve retention. Consistently celebrating associates for great work has a measurable impact on associate engagement and retention and his productivity.

Continuously hiring new staff is expensive and time-consuming. Employee satisfaction and providing a positive work environment is one fundamental way to help combat turnover that also helps reduce costs.

Hospitals can reduce business costs through Staffing Strategy. Hospitals should examine the seasons or circumstances that indicate the patient census likely to increase or decrease. Hospitals can also check Patients trends in their hospital’s data, looking at trends within a particular area and time; hospitals can determine and plan the best staffing strategy.  Instead of hiring Permanent Staff, it can call Medical Professionals at any given time. This cost reduction strategy may take time and require the help of a third-party vendor but could save a lot of money in the long run.

Many successful ideas are generated by frontline staff, managers, and physicians, to reduce waste, standardize practices, and reduce avoidable complications. So hospitals should engage   staff on finding ways to do tasks more safely and more efficiently.

Human resources leaders can also increase resources operational efficiency by Giving job descriptions to staff, Delegating powers, fixing responsibilities and assessing progress by a monthly information report of the relevant department.

Reduce cost by proper Billing system

Though billing operation plays an important role in each industry, but In Hospitals it play very major role .It is very necessary to train billing staff to collaborate with patients and to educate them early, Hospitals that educate their patients on the billing process are more likely to have compliant patients and avoid protracted disputes and bad debts. It removes the surprises to patients when the bills come, and that facilitates the payment component.

More than 50 percent of patients revenue in a Hospital  is generated through TPA/ ECHS /CGHS /NHA and state Government  penal  so Where it require billing staff to collaborate with patients, it  also require  to educate them for  liasoning  / coordination  with respective TPA/ ECHS /CGHS and state Government  penal ,  providing   all required documents , forms and get pre-authorization on time , Obtain sanction letter , correspond effectively with TPA during discharge of patient, timely sending reason of prolonged stay of patients, Dispatch   Files with complete reports on time to recover money . If the Billing Department is not pro-active, it becomes the major cost to the Hospital in forms of bed debt, rejected claims etc.

Tips for Operation Efficiency from other Industry 

Though the Healthcare industry is totally different from other industries, it should take some tips from Other Industries and mainly from the manufacturing industry.   It would be wise for healthcare providers to look at successful cost-efficiency measures currently being used by other industries like:

I. Just-in-time concepts.

II. Short throughput, – Amount of a product or services that a company can produce and deliver to a client within a specific period of time

III. Minimum downtime,

IV. Short transport routes,

V. Low storage costs,

VII. Low error rates, and

VIII. Comprehensive knowledge of current stock quantities and the location of production resources.

These measures are undisputed determinants of success, with high levels of attention and planning devoted to them.

Patients are not cards and doctors and nurses are not production resources nevertheless, there are many similarities between industrial production and the treatment process, from which opportunities for optimization can be derived. We can compare the Success factors in Industrial Manufacturing and Health care industry in following table:

Industrial Manufacturing treatment process
1. Fast Production Reduced operating room times
2. Short waiting times Short waiting times
3. Low error and repair rates Low rates of Medical errors, repeat surgery and infection
4. No unnecessary movements / paths of assembly line No duplicate examinations that are not medically indicated
5. Optimized inventories Optimized capacity utilizations
6. Optimized storage Quick , error-free access to drugs, diagnostic imaging and surgical resources
7. Minimized transportation Few Transfers
8. Efficient Production planning Efficient Treatment planning
9. Reduced space requirements Reduced space requirements

The cost and efficiency of healthcare will continue to be major motivating factors as Patients  plan their care on the basis of cost and efficiency in a hospital.  So hospitals should provide the most competitive price maintaining quality of services and financial sustainability.  In India more awareness and emphasis on strategic cost management is required to streamline, competitive and affordable industry in future.

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2 Comments

  1. CMA ANIL SHARMA says:

    Very good article for CMAs and accounting professionals working for Hospital Industry. Inclusion of GST in cost and tax free outward services of Hospital industry has increased patient cost of treatment. It would be better in inputs are also tax free.

  2. CMA ANIL SHARMA says:

    Very good article for CMAs and accounting professionals working for Hospital Industry. Inclusion of GST in cost and tax free outward services of Hospital industry has increased patient cost of treatment. It would be better in inputs are also tax free .

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