Nearly all hospital executives say transforming costs are important, but about one-quarter of U.S. hospitals and health systems don’t have cost reduction goals over the next five years. About another quarter say they hope to decrease costs by 1 to 5% over five years, according to a new Kaufman Hall survey.
The report, called “2017 State of Cost Transformation in U.S. Hospitals: An Urgent Call to Accelerate Action,” said only 5% of hospitals and health systems hope to reduce costs by more than 20% over the next five years.
Respondents said they haven’t experienced a lot of success in transforming costs. Three-quarters of hospital and health system executives said they have experienced “average” or “below average” cost transformation success.
Despite the belief that healthcare costs are not sustainable, the Kaufman Hall survey found that many health systems aren’t prepared for making impactful cuts. Respondents to the survey acknowledged that one issue hampering success is that their hospitals don’t have the data and insight to create true cost-cutting efforts.
Kaufman Hall, which conducted the online survey of more than 150 senior hospital and health system executives, said most hospitals and health systems need to cut costs 25-30% over the next five years to compete, but only a small percentage of respondents expect to save more than 20% in that period.
Kaufman Hall said regulations, narrow networks and consumer demands are pressuring health systems to find ways to cut. The results show health systems aren't ready to implement meaningful cost containment strategies.
Despite the survey's sobering results, the good news for healthcare is that hospital spending growth is down. A recent Health Sector Economic Indicators report by Altarum’s Center for Sustainable Health Spending found that overall national health spending growth decreased in the second quarter. Hospitals saw spending growth drop to 1.3% in the second quarter. Year-over-year hospital spending increased by 1.1% in July and only 0.8% in June, which was the slowest growth rate year-over-year since January 1989.
A leading cause for the slowed growth is coming from forces outside of hospitals that are leading to less utilization. Those forces are also causing hospitals to lose previous money-making procedures. Payers — both private and Medicare — are looking to create other policies like Anthem’s imaging and ED policies and CMS’ proposal to make costs more site neutral. These policies move profitable services away from hospitals. Hospitals need to figure out ways to find meaningful savings on their own or payers will continue to impose policies meant to cut hospital costs.
Gregory Hagood, senior managing director at SOLIC Capital Advisors, recently told Healthcare Dive, “Those are huge dollars you’re talking about there… It’s another where a hospital’s lucrative services like joint replacement and imaging are starting to get squeezed from both sides — from CMS and private payers.”