While much has been written about how the economic crisis is affecting hospitals, IMA Consulting provides real and achievable solutions for cost management. The experts recommend a new evaluation of discretionary spending and close monitoring of labor productivity.
Chadds Ford, PA (PRWEB) November 17, 2008 -- Hospitals, long used to slim margins and careful expense management, must seek new and creative ways to manage expenses in the wake of the nation's financial crisis, according to healthcare experts at IMA Consulting. In a recent customer briefing, experts from IMA Consulting clarified the financial challenges through the healthcare lens, and recommended that hospitals compensate by reducing discretionary and supply spending and closely monitoring labor productivity.
The Effect of the Crisis on Hospitals: "Hospitals already face limited access to and increased costs of capital, along with decreased returns on investments," said Mary Ann Holt, RN, a senior partner in IMA Consulting's operations improvement practice. "One hospital client has seen his interest rate on short-term demand notes quadruple, moving from below two percent to almost eight percent in fewer than three weeks."
This challenge to financing comes at a time when many hospitals have significant building and renovation projects in process. Modern Healthcare reports that acute care projects, including new hospitals, expansions, and renovations, exceeded $251 billion nationwide last year. The demand for new and updated facilities, with expanded diagnostic and therapeutic capabilities, fuels the demand for healthcare financing.
"Health providers are also dealing with the same declines in investment income facing all of us, but given the 'trickle down' payment structure of healthcare, many are also bracing for payment delays from state-funded programs, and from insurers seeking to retain short term cash," said Holt.
"Providers are also concerned about patients delaying treatments due to high co-pays and therefore increasing the severity of their illness and cost of care," said Holt. "A recent hospital survey cited in the New York Times found that patient admissions were down nearly 3% versus 2007."
Suppliers are also passing on cost increases, and hospitals are bracing for reduction in charitable giving. But according to Holt, the biggest impact may stem from debt financing bonds, which require certain performance levels. Decreased revenues and increased costs may call debt covenant ratios into play and trigger potentially draconian measures by bondholders to assure financial viability.
Seek New Sources of Savings, With an Eye on Productivity: While one obvious solution is to reduce the financial burden holding off on major capital projects, IMA Consulting also recommends that hospitals take a new and creative look at expenses and productivity.
"Crisis can mean opportunity, and we are encouraging our clients to find savings through less traditional approaches," said Holt. "Labor costs often take top priority, but our analysis shows that discretionary spending, such as marketing, travel, and professional fees, presents new opportunities to save."
IMA Consulting's analysis of three years of expense data from recent client engagements shows that as salaries, benefits and supplies were decreasing or remaining steady, discretionary spending was creeping upwards. When each expense category is reviewed against the number of patient discharges, IMA's calculation of the compound annual growth rate (CAGR) puts the spotlight again on discretionary spending.
(The numbers below are the percent of spending in year one and year three. The last number is the compound annual growth rate)
Labor 51 % 47 % 3%
Supplies 25 % 25 % 6%
Discretionary24 % 28 % 8%
"Discretionary spending can be a black hole for hospitals, as data is limited on the exact nature of some expenses," said Holt. "Our clients who clarify program-specific costs by category are better equipped to determine the strategic importance of each program and the related costs."
IMA also recommends that hospitals trend spending by account over time, determining which accounts have experienced the greatest increases and targeting the understanding of the decisions that drove those increases. In addition, IMA helps clients find comparative data from hospitals of similar size and complexity. This analysis then triggers discussions about the changes necessary to further reduce costs.
"While supply costs remained steady in our analyses, we still encourage clients to review this category to reduce both costs and environmental impact," said Holt. "We recently helped a client achieve $300,000 in savings by eliminating the one-time use disposable supplies. While savings was the goal, the reduced environmental impact was also appreciated by staff and patients."
In addition to expense management, IMA Consulting recommends increased attention to productivity. By monitoring the variable workload standard of each department on a bi-weekly basis, leadership can get a better grasp on demand.
"Department managers should be accountable for flexing staffing to meet the variable workload demand, and senior leadership should review any vacant position with an eye to eliminating or distributing the workload performed by that role."
To read the full report that appears in the November IMA Insights, go to www.ima-consulting.com/insights
About IMA Consulting: Founded in 1996, IMA Consulting exclusively supports hospitals and health provider organizations, providing customer-focused, cost-effective solutions to the toughest problems in healthcare management. Service lines include operations improvement, financial services, revenue management, revenue recovery and related educational services. IMA Consulting currently provides services and solutions to over 600 healthcare organizations across the United States.
Chadds Ford, PA (PRWEB) November 17, 2008 -- Hospitals, long used to slim margins and careful expense management, must seek new and creative ways to manage expenses in the wake of the nation's financial crisis, according to healthcare experts at IMA Consulting. In a recent customer briefing, experts from IMA Consulting clarified the financial challenges through the healthcare lens, and recommended that hospitals compensate by reducing discretionary and supply spending and closely monitoring labor productivity.
The Effect of the Crisis on Hospitals: "Hospitals already face limited access to and increased costs of capital, along with decreased returns on investments," said Mary Ann Holt, RN, a senior partner in IMA Consulting's operations improvement practice. "One hospital client has seen his interest rate on short-term demand notes quadruple, moving from below two percent to almost eight percent in fewer than three weeks."
This challenge to financing comes at a time when many hospitals have significant building and renovation projects in process. Modern Healthcare reports that acute care projects, including new hospitals, expansions, and renovations, exceeded $251 billion nationwide last year. The demand for new and updated facilities, with expanded diagnostic and therapeutic capabilities, fuels the demand for healthcare financing.
"Health providers are also dealing with the same declines in investment income facing all of us, but given the 'trickle down' payment structure of healthcare, many are also bracing for payment delays from state-funded programs, and from insurers seeking to retain short term cash," said Holt.
"Providers are also concerned about patients delaying treatments due to high co-pays and therefore increasing the severity of their illness and cost of care," said Holt. "A recent hospital survey cited in the New York Times found that patient admissions were down nearly 3% versus 2007."
Suppliers are also passing on cost increases, and hospitals are bracing for reduction in charitable giving. But according to Holt, the biggest impact may stem from debt financing bonds, which require certain performance levels. Decreased revenues and increased costs may call debt covenant ratios into play and trigger potentially draconian measures by bondholders to assure financial viability.
Seek New Sources of Savings, With an Eye on Productivity: While one obvious solution is to reduce the financial burden holding off on major capital projects, IMA Consulting also recommends that hospitals take a new and creative look at expenses and productivity.
"Crisis can mean opportunity, and we are encouraging our clients to find savings through less traditional approaches," said Holt. "Labor costs often take top priority, but our analysis shows that discretionary spending, such as marketing, travel, and professional fees, presents new opportunities to save."
IMA Consulting's analysis of three years of expense data from recent client engagements shows that as salaries, benefits and supplies were decreasing or remaining steady, discretionary spending was creeping upwards. When each expense category is reviewed against the number of patient discharges, IMA's calculation of the compound annual growth rate (CAGR) puts the spotlight again on discretionary spending.
(The numbers below are the percent of spending in year one and year three. The last number is the compound annual growth rate)
Labor 51 % 47 % 3%
Supplies 25 % 25 % 6%
Discretionary24 % 28 % 8%
"Discretionary spending can be a black hole for hospitals, as data is limited on the exact nature of some expenses," said Holt. "Our clients who clarify program-specific costs by category are better equipped to determine the strategic importance of each program and the related costs."
IMA also recommends that hospitals trend spending by account over time, determining which accounts have experienced the greatest increases and targeting the understanding of the decisions that drove those increases. In addition, IMA helps clients find comparative data from hospitals of similar size and complexity. This analysis then triggers discussions about the changes necessary to further reduce costs.
"While supply costs remained steady in our analyses, we still encourage clients to review this category to reduce both costs and environmental impact," said Holt. "We recently helped a client achieve $300,000 in savings by eliminating the one-time use disposable supplies. While savings was the goal, the reduced environmental impact was also appreciated by staff and patients."
In addition to expense management, IMA Consulting recommends increased attention to productivity. By monitoring the variable workload standard of each department on a bi-weekly basis, leadership can get a better grasp on demand.
"Department managers should be accountable for flexing staffing to meet the variable workload demand, and senior leadership should review any vacant position with an eye to eliminating or distributing the workload performed by that role."
To read the full report that appears in the November IMA Insights, go to www.ima-consulting.com/insights
About IMA Consulting: Founded in 1996, IMA Consulting exclusively supports hospitals and health provider organizations, providing customer-focused, cost-effective solutions to the toughest problems in healthcare management. Service lines include operations improvement, financial services, revenue management, revenue recovery and related educational services. IMA Consulting currently provides services and solutions to over 600 healthcare organizations across the United States.
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