Over 50% of Orgs Lack Adequate Healthcare Cost Reduction Goals

An overwhelming majority of healthcare executives (96 percent) stated that cost transformation is a significant need for their hospital or health system. Yet, over one-half of organizations either do not have a healthcare cost reduction goal or have a small goal that will not transform cost structures, a recent Kaufman Hall survey showed.

One-quarter of over 150 senior executives in hospitals and health systems stated that their organization has no target for decreasing costs.

Single hospitals were most likely to have no healthcare cost reduction goal, with over 40 percent stating that this was the case.

The survey also found that about 26 percent of respondents said their hospital or system has a cost reduction goal between 1 and 5 percent and another 29 percent have a target between 6 and 10 percent.

Researchers noted that these modest goals will not be enough to “lower cost in an organized and deliberate way.” The cost decreases also will not keep pace with annual inflation.

“Financial realities demand a new way of providing care,” stated Walter Morrissey, MD, Kaufman Hall Managing Director. “This is not business as usual, involving incremental change. To meet community needs under healthcare’s new business imperatives, and to participate as a provider of choice in narrow networks developing nationwide, organizations must have a strong value proposition and a cost position that is significantly lower than competitors.”

Despite a lack of adequate goals, executives agreed that lowering healthcare costs within their organization is imperative as the industry shifts to value-based reimbursement. Almost 80 percent of participants said that their organization needs to refine its cost structure for the transition away from fee-for-service.

Other popular motivators for lowering healthcare costs included:

• The need to close the chasm between the organization’s financial plan and current operating performance with 68 percent of respondents

• To remain competitive with 61 percent of respondents

• To generate capital to fund strategic growth initiatives with 51 percent

While lowering healthcare costs topped executive priority lists, most organizations are not seeing their cost transformation strategies producing positive results. Three-quarters of executives reported that their cost transformation success was average to below average.

Single hospitals and small health systems were particularly skeptical about their cost transformation success, with 82 percent and 92 percent respectively saying their results were average to below average.

Conversely, health systems of 10 or more hospitals stated that their cost transformation success was better than average to very successful. Larger system executives also perceived their organization as successful across a range of targets, even in the over 20 percent cost reduction range.

Hospitals and health systems may not be realizing significant cost savings because their leaders are primarily focusing on traditional priorities that just scratch the surface, researchers pointed out.

Between 60 and 70 percent of executives said that their organizations see labor costs and productivity, supply chain and other non-labor costs, and revenue cycle optimization as key areas for lowering costs.

“Progress is slow because traditional areas will not yield the magnitude of cost reduction required to transform an organization’s cost structure,” stated researchers. “Business and service initiatives and clinical and workforce redesign actions are required.”

Original link: Over 50% of Orgs Lack Adequate Healthcare Cost Reduction Goals

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