Financial efficiencies

Was reading Doing More With Less by Susan Birk in May/June 2012 edition of Healthcare Executives.  I won’t delve into why it is so important because we all know it.

Talking of structure and efficiency,  as healthcare organization move towards value-based system, two pathways become very critical: cost management and cost structure.  Cost management or efficiency pathway would mean being more efficient in what we do and not cut down the scope of services.  Cost structure pathway would mean reassessing the strategic objectives to derive efficiencies by altering size and scope of services.  It may involver consolidation of services at one place and other structural changes.  The latter approach has not been explored that much in healthcare sector.  The reasons for this are political, as patients, staff and physicians would resist change.  It is generally advised that the organization start off with working on cost efficiencies, as this will create groundwork for further change.

As a step forward to better integrate their services and to reduce cost, organizations can reduce their non-core assets – services and facilities.  The question that comes to mind is what is core and what is non-core.  Core would be activities through which more of the care pathways pass.  Non-core won’t be in line with the strategic goals, and would be something that easily handled by somebody else.  Organizations can easily divulge non-core activities, and dedicate all their resources core activity.  The article contends that more tightly the providers are able to integrate the decision making related to cost structure and management with strategic, operational and capital allocation planning and management, the more effectively they’ll be able to use resources and keep cost under control.

Another important parameter of cost is overcapacity.  It is important to measure historical and future trends so as to balance the capacity.  That can be done better if there are means to measure.  Overheads are hard to measure as they depend of expected demand.   Ways can be found by calculating true cost, measuring appropriateness, and then determining the rationale behind continuing those services.

The article takes example of University of Alabama at Birmingham Hospital.  It emphasizes the point that cost cutting efforts should be enterprise wide, and not department wide.  Else saving at one place might be counterproductive at the other.  It further goes on to day that any cost cutting efforts coupled with maintenance or improvement of quality, should involve both clinical and financial leaders.  It should be communicated upfront that cost cutting efforts are not at the cost of quality.

Talking about Faxton St. Luke’s Healthcare, they believe in creating a sustainable model.  Where sustainability and accountability work in tandem.  The idea is to use LEAN and Six Sigma based performance improvement initiatives as cost management activities.  This in turn is hardwired to their corporate goals, and cascaded down the leadership as their individual goals.

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