Hospitals look to slash wasteful expenses

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Despite years of focusing on driving out excess operational costs, hospitals are still finding hidden waste in their recurring expenses. Such hidden costs can throw a wrench into planning efforts, but if approached correctly, waste need not remain hidden.

For instance, Sharp Health Care in San Diego identified excess waste in their telecommunications spending with help from SIB Fixed Cost Reduction, a medical cost reduction consulting firm.

One of the best ways to find hidden areas of focus is to involve the organization in process redesign.

“We were able to benchmark their pricing against other industries while also finding some redundancies that shouldn’t be there,” said Dan Schneider, CEO of SIB Fixed Cost Reduction. “But when you look at a multi-million dollar spend like that, we’re really analyzing every invoice not just total spend to be able to spot things and to say well, you are paying this, but for this type of broadband or this level of phone line this is what best-in-class pricing should be.”

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Miami-based Jackson Health System has saved $317,000 annually in medical waste expenses and $250,000 annually in cable TV expenses, Schneider said, simply by finding errors and inefficiencies in their existing billings and by negotiating best-in-class pricing for those services moving forward.

Schneider said third party providers like his differ from a group purchasing organization (GPO) since they focus on monthly recurring bills such as phone, internet, waste removal, bank fees, etc.

“The spend categories that we look at or the monthly recurring bills, usually they’re not part of a GPO or there isn’t one national provider that can handle the entire fit,” Schneider said. “For instance, very rarely are there GPO deals that cover all forms of medical waste from pharma to red bag to sharps. Usually there are maintenance contracts, bank fees, utilities and things like that the GPO doesn’t really cover.”

What makes hiring external consultants attractive to hospitals is their contracts typically only require compensation if savings are found.

Todd Nelson, director of healthcare finance policy and operational initiatives at the Healthcare Financial Management Association, said most hospitals have already spent a significant amount of time reducing expenses in areas like supply chain management, labor management and contract management.

“One of the best ways to find hidden areas of focus is to involve the organization in process redesign, which takes a significant organizational commitment of resources, intellectual understanding and process improvement,” Nelson said. “It is not necessarily a particular area, but more of a methodology that is beyond the normal routine renegotiation of services.”

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Nelson added that perhaps the greatest benefit an external consultant offers is the time and manpower to find areas of waste. “I believe that third party assistance brings scale and expertise, and maybe most importantly, time to work on these [hidden] areas,” said Nelson. “For many organizations, the time to devote to understanding these unique areas just isn’t there so they often go overlooked. It’s possible to do some of this on your own, but you would need to find the time to make it a priority and involve the various departmental areas within those conversations.”

Angela Zotos, principal, Healthcare Advisory Services, Ernst & Young, said the reason why there are still opportunities for savings in hospital expenses is because healthcare is continually changing how care is delivered. “We are becoming more mobile, and we now have better visibility into use rates which allow us to improve inventory and purchasing strategies,” Zotos said.

Zotos said hiring external consultants could prove beneficial since they allow organizational resources to focus on issues that are core to the business.

“Off site storage is not a core attribute of a hospital system, while physician preference items typically are,” Zotos said. “Utilizing external support frees up resources to focus on opportunities that will ‘move the needle’ on overall performance, quality and safety.”