- Hospitals are showing some signs of progress in reining in costs, but more is needed to reduce financial pressures and put organizations on solid ground, a new Kaufman Hall survey shows.
- Nearly six in 10 executives say their organization has structures and processes for holding health system leaders accountable for meeting cost transformation goals, up from 46% a year ago. Meanwhile, 56% say their organization uses clinical pathways, protocols and guidelines to develop best practices for treatments, up from 47% last year. And nearly three-fourths report system-wide distribution of cost transformation improvement targets.
- Still, fewer than one in five leaders reports cost reductions greater than 5% in any priority area this year.
Healthcare executives have struggled with cost containment and it's been an elusive goal, as this survey shows.
"U.S. hospitals are facing increasing pressures, so these percentages need to be much, much higher," Lance Robinson, managing director at Kaufman Hall, said in a statement. "The combined effect of the shift to a new business model, competitive pressures from expanding health systems, new retail options that are siphoning off high-margin services, and the need to raise capital for strategic growth initiatives is quickly putting hospitals in an untenable position."
While hospitals are making strides in reducing costs, most of the progress has been in traditional belt-tightening areas such as supply chain and other non-labor costs, where nearly two-thirds of executives reported a reduction of 3% or more. By contrast, 61% reported no progress in service rationalization and 46% reported no progress in reducing inappropriate clinical variation — areas with real potential to transform an organization's cost structure. Those numbers jumped to 57% and 60%, respectively, for systems with more than 10 hospitals, according to the report.
The report also points to a concerning trend in executives' sense of urgency about cost transformation. In 2017, 96% of healthcare leaders called the issue a "significant" or "very significant" priority for their organization. That share dropped to 86% in 2018, while the number of organizations that reported having set no cost improvement goals ticked upward — from 25% last year to 32% this year.
"Most healthcare leadership teams understand that change is necessary," Robinson said. "But they are unsure of which initiative to tackle operationally."
Other survey findings include:
- Eight in 10 executives report using incentives to improve operational cost
- Physician engagement in cost transformation is limited, with just 39% of organizations having physicians serving on cost transformation teams and 17% putting cost-improvement targets in physician contracts
- One-fourth of leaders say lack of reliable data and insights into costs and potential opportunities for savings are the biggest barriers to cost improvement
- Seven in 10 leaders lack confidence that their existing cost accounting solution is accurate and reliable
To get on sound financial ground, Kaufman Hall recommends organizations set a minimum goal of reaching Medicare breakeven. Longer term, leaders should apply "specific and ambitious" cost-reduction targets enterprise-wide, offer incentives for achieving cost-transformation goals and hold leaders accountable for their performance in achieving those goals, according to the report.