10 Best Practices for Increasing Hospital Profitability
Hospitals today face many challenges including an economic recession, increases in uninsured care and growing competition for outpatient services. However, there are still many steps hospitals can take to increase their profitability amid these economic conditions.
Industry experts say that hospitals wishing to increase their profitability can focus on two key areas — reducing costs and increasing reimbursement. Here are 10 best practices for increasing hospital profitability by reducing costs and increasing revenue and reimbursement.
1. Reduce staffing costs by using data to drive staffing decisions. Because labor is the largest single expense for hospitals, it is critical that hospitals are not over- or under- staffing their facilities.
Hospitals leaders can cosider the use of flexible staffing, such as part-time or hourly employees, and adjust staffing based on patient census data. Leaders should also monitor the efficiency of this staffing by continuously reviewing benchmarking data such as hours worked per case.
Amy Floria, CFO of Goshen (Ind.) Health System, says that her facility monitors patient volume on a daily basis and adjusts staffing accordingly. "We adjust our nursing staffing every eight hours after looking at our inpatient volume and expected discharges and admits," she says.
Kevin Burchill, a director at Beacon Partners, a healthcare management consulting firm, agrees that staffing must be adjusted daily. "The easiest thing that a hospital can do to improve profitability is for the senior management team to assume responsibility for the day-to-day performance of an organization and look at the organization's performance in real time," he says. "You must shift to an emphasis on the day-to-day, not pay-period to pay-period or month-to-month."
It is important that concerns regarding efficient staffing are communicated throughout the organization and that hospital leaders work in collaboration with physicians. Donna Worsham, COO of National Surgical Hospitals, suggests that hospital leaders share staffing efficiency benchmarking data with unit managers and provide feedback regarding the productivity of the unit.
Flexible staffing is especially useful for OR nursing staff. OR managers should review clock-in times versus surgery-start times and determine if their staff is consistently arriving before a surgery actually begins. If this is the case, mangers can utilize flexible staffing to allow nursing staff to arrive later so that when surgeries run over, no overtime expenses are incurred, says Ms. Worsham.
Other facilities are saving in staffing costs by reducing benefits for full-time staff. Goshen Health System, for example, deferred merit increases, reduced paid vacation time and suspended its retirement matching program in response to the current economy, according to Goshen's CEO, Jim Dague. Goshen reduced employee dissatisfaction in response to these cuts by soliciting employee feedback on which benefits to reduce, thereby building organizational support for the changes. In addition, Goshen's executives took a voluntary 20 percent cut in order to help sustain the system through the recession.
Joe Freudenberger, CEO of OakBend Regional Medical Center in Richmond, Texas, agrees that staff must buy in to any reductions in hours and shifts worked that will personally affect them in order for the hospital to remain successful. He says that hospital leaders must communicate the reasoning for these changes to the staff before making them. "If we call off staff, they see it as personally hurting their income when we need to help them understand that it is actually preserving their income by maintaining the financial viability of the hospital," he says. "It may be obvious to us that we're calling them off because we have a significant reduction in patient volume, but we need to communicate that to them for them to understand the financial realties we face."
Although some staffing cuts may be necessary, hospitals should be careful not to take a blanket approach to layoffs or cuts in services. Hospital leaders must take a close look at their business before making cuts.
"Don't make the same mistake everyone else does — don’t look at bottom line, determine that you need to cut $1 million, for example, and then cut 10 percent across the board. Doing so will trim some fat but will cut meat and bone in other areas," says Mr. Burchill.
He suggests that hospitals assess each program individually and determine which ones are what are winners and losers. "You do not want to cut areas that you should be doing more of or that are already profitable," says Mr. Burchill.
2. Reduce supply costs by better managing vendors. Hospital leaders can reduce supply costs by working with vendors to improve contracts and encouraging physicians to make fiscally responsible supply decisions.
"When it comes to supply costs...