The 4 Ps for a Successful Hospital Cost Savings Strategy

By Lisa T. Miller, MHA, CEO, VIE Healthcare
Host: The Healthcare Leadership Experience podcast
Twitter: @viehealthcare
Twitter: @lisamillerVIE

Robust cost management is now imperative for every hospital.

Adopting the 4 Ps of a successful hospital cost savings strategy can help to drive margin improvement across your hospital.

Here is the methodology to utilize:

  • Process
  • Plan
  • Project management
  • Performance

Plan: Every cost savings strategy needs a plan, or clear roadmap for success, linked to a bold vision for the future of your organization. That includes a clear plan for implementing each step, commitment from your leadership team, an accountability structure to measure performance, and sufficient resources to enable your vision to become reality.

That must include an effective cost management system to identify cost savings in real-time.

Process: The second step is to create a repeatable, proven process. That process may include how you collect your data, how you manage your data or define your accountabilities, but it must be repeatable and proven.

Whether your organization examines its data from an item master, or charge master in OR surgical information systems for example, your underlying data must be accurate.

Spend data analytics means your hospital can take back control of its non-labor spend and review all of your data in real-time. Your historical data gives you the ability to understand your actual costs and enables you to move forward. Healthcare organizations based their strategy and vision on historical data, however, that data must be accurate. That requires a monthly discipline of analyzing your line item details, seeing your hospital spend and being able to make those strategic decisions in real-time.

How do you price, how do you negotiate? These are critical questions that must be answered.

Without accurate data, this is a huge challenge.

Only 12% of healthcare organizations effectively use data analytics to manage costs. Without it, significant cost savings are being missed.

Project Management: Project management systems are essential to track and manage your cost savings initiatives.

In my experience, one of the key areas to margin improvement is shortening the time to complete cost savings initiatives. At VIE Healthcare®, we constantly push for shorter timelines, not to diminish results, as they are unchanged, but we don’t see a viable reason for any cost savings initiative to take between three to six months.

When we work with our clients, we strive to complete projects within 30 days or less. From there, effective project management can ensure those initiatives are maintained.

Performance: You cannot assess how your hospital is performing unless you are constantly measuring. What can be measured can be improved.

Consider some of the following options:

Zero based budgeting – Rather than basing your budget forecast on the past twelve months and adjusting it by an agreed percentage, zero-based budgeting requires each hospital department to start from a zero budget and justify their purchases and spend. In our experience, your organization can reduce spend by up to 25% with this approach.

Key questions in measuring performance include:

  • What does the product cost?
  • Are there similar or identical products that cost less?
  • How does this product affect patient care?
  • Are there community or major environmental concerns?
  • Where does waste occur on a regular basis?
  • Are protocols, policies, and procedures updated regularly and enforced?

These costs can be within or outside your GPO, as long as you have full visibility. All healthcare organizations are having to take a long hard look at issues around pricing as so many cases are now managed to Medicare margins.

We have to refocus and ensure your hospital is getting the right price which means carrying out ongoing performance reviews, coupled with a drive to be both creative and innovative.

Implementing the ‘’4 P’s’’ can help your hospital to create an efficient cost management strategy and realize significant cost savings at this critical time.

In addition to the 4 Ps – there are six questions that will help guide healthcare leaders in identifying the cost savings opportunities that exist in their organization.

6 Key Cost Savings Opportunities for Hospital Leaders to Think About

  1. Is my pricing right?
    • Benchmarking from two to three external resources (one could be your GPO – but you need additional sources of benchmarking).
    • Review all agreements annually and in-term reviews for pricing opportunities.
    • Analyze to reimbursement when possible.
  2. Is the utilization right?
    • Insights into variations.
    • Insights into standardization.
    • Insights into product conversions.
  3. Do we systemize data analytics?
    • Use multiple sources of data that are assimilated, analyzed and compared.
    • Visualize key utilization and metrics on a line item basis on a monthly basis.
    • Every department in the hospital utilizing data analytics to support management of spend from their own information systems.
  4. Do we have a Culture of cost awareness from the front lines to the physicians to the CSuite?
    • Program for employees to understand and see costs.
    • Scorecard and feedback system for physicians and surgeons so they see their costs in real-time.
    • Formal process to analyze new supplies, services, technology and equipment – that is reviewed and questioned by others.
    • Are there sacred areas of spend that can’t be analyzed?
  5. Do we adopt Cost Innovation?
    • Insourcing from outsourcing/Outsourcing to insourcing
    • New Technology & the integration of it.
    • Risk share models with vendors.
  6. Do our leaders have a discipline of Cost Management?
    • Access to line item details for all of your spend.
    • Dedicate time each month to review utilization.
    • Perform quarterly financial and operational business reviews with high volume vendors using your own data. Business Reviews Run by the Hospital.

External dynamics are forcing every hospital and health system to track every dollar spent.

These six questions, is the start of internal discussions you have that will create an effective cost-savings strategy and build a cost-opportunity roadmap for your organization.

Don’t miss Season 2 of Lisa’s Podcast coming up on the Healthcare NOW Radio Network, October 4th!
The Healthcare Leadership Experience with Lisa Miller – The podcast for healthcare leaders who want to think differently and learn how to improve their performance. You will hear from innovators and leaders within healthcare and from other industries. We will bring you topics on the business and clinical sides of healthcare on strategy, finance, patient satisfaction, innovation, leadership, communication, marketing, plus much more. This show is for healthcare leaders who want to think differently and learn how to improve their performance. The podcasts will be diverse and thought-provoking while also actionable. You will learn new strategies, best practices and ideas for you to think about and to utilize in your career and healthcare organization.