Stories of hospitals in cost reduction mode have escalated since 2008. Staff reductions, closed units, service cutbacks, renegotiated contracts, reviews of purchasing practices, and cutbacks of construction projects are just part of the list of cost reduction strategies that goes on and on. The economic downturn; changes in reimbursement policies; and reductions focused on specific phenomenon such as those related to never events, readmissions, and recovery audit contractors (RACs) program, and so forth have driven the need to watch, control, and reduce costs with a new intensity.
The demand for cost reduction is pervasive among our provider organizations and yet reductions are difficult to accomplish because they portend pain. Nonetheless, the pressures of an economic downturn and changing reimbursement policies call not just for lowered operating expenses, but for a sustainable plan to continue driving costs down. We are in this for the long term. There is no option. This issue of Frontiers address the question: How do we reduce costs?"
The answer to that question is not simple; the answer is not only about costs. When we flip the coin that says "cost" on one side, we find the face on the other shouting "improved quality". We are faced with what seem to be polar opposites: less payment on the one hand, higher quality on the other.
I like the term "cost optimizing" better than "cost cutting." It suggests strategic thinking behind what is being cut or reallocated - action, not just reaction. The authors of this issue of Frontiers walk us through their experiences in finding success and describe where improved operational financial performance is not found. Most are looking in new places, applying creativity and innovation. As feature author Chip Caldwell and his coauthors write, "Leaders are discovering that traditional methods for curbing expenses have largely exhausted themselves, and they seek fresh approaches to meet their strategic imperatives… The urgency of cost reduction is compelling. Senior leaders who fail to act, hoping better times will come, do so ill-advisedly." He and his colleagues report compelling findings from their study of hospital leaders whom they ultimately describe as "starters" and "non-starters." Leadership, they report, is the core characteristic of starters and the key to their organizations' financial success. A starter has a vision; she is strategic, and she places her people and her patients at the center of the decision process.
David Clark and his coauthors take us inside Intermountain Healthcare in Salt Lake City, Utah, to tell the story of what puts their organization in the spotlight when discussion turns to cost control and improved quality. Their experience is that "you can cut operating costs and still improve clinical outcomes, service excellence, and physician and employee engagement."
Now, if you're even a bit like me after thinking about this, then we're back to the question: how? Well, for starters, it seems that Clark and his colleagues have made lemonade (in my simple words). They declare that "the recent recession has provided an environment more amenable to farther-reaching efficiency goals." How do they reach for these goals specifically? "Like other healthcare systems responding to a difficult economic environment, Intermountain Healthcare has challenged past assumptions (e.g., staffing ratios, premium pay, revenue cycle management, supply chain management, patient registration, financial assistance process), solicited input from our volunteer board members and community advisory councils, and made improvements in operational efficiency."