A difficult year for hospital and health system finances brought with it renewed attention to expenditures. Scrutinizing costs is a job that should be done with the same amount of precision and care as your top surgeons in the OR, because one mistaken move can cause several complications and long-term damage.
Any time I’m faced with the issue of reviewing cost reduction strategies, I like to keep a few principles in mind to guide my judgment and help see the big picture.
1. Be extremely careful about negatively impacting direct patient care at the bedside. Although nothing should be completely off the table when scrutinizing costs, this area requires careful analysis. Snap, short-term decisions can cause serious long-term problems. It may be necessary to change the care model, but this cannot be done quickly and definitely not in the midst of a hectic annual budget development process.
2. Scrutinize overall management structures and efficiency processes. Caution about direct patient care does not mean a hesitancy about analyzing operational processes. Do we have layers of management that previously made sense but not today? Are we imposing rules and metrics that are unproductive? Do we have bureaucracy “creep”? Do we have unnecessary redundancy? Are these opportunities for greater consolidations or in some cases more decentralization? Are we as integrated as we need to be?
3. Be careful to protect the organization’s social mission. Managing an organization with a single primary goal, such as margin or profit, is relatively easy. Doing it in healthcare, with multiple obligations, is much more difficult. We invest in services and programs to improve the overall health of the community — efforts to solve food insecurity programs, to address substance abuse and mental health, support for students to pursue their educational goals, etc. All of these are expenditures, not revenue drivers. Some are partly reimbursed by the government, but never enough to cover the costs. These are endeavors we must not retreat from — it’s part of our core responsibility and must be protected even amid very difficult budget conditions. It’s important to accept the idea of a lower margin to protect our overall mission. Managing this balance is not easy, but it is an essential test of leadership.
4. Seize opportunities for long-term strategy. In the process of developing the budget and reviewing expenditures, opportunities for future strategy and operational transformation automatically arise. Take advantage of them. Core issues that need to be further addressed arise, such as how to optimize the role of nurse practitioners; how to develop robust patient navigation systems; and how to improve the food service (food service at Northwell is now overseen by Michelin-star chefs); how to improve collaboration between various specialty care disciplines; and how to enhance customer service. Follow up on these issues helps in the development of future strategy.
5. Realize that you will never cut yourself to success. The leader’s job is a mix of being diligent about expense management, process improvement and operational efficiency while simultaneously maximizing revenue. Where do I grow and what do I expand? How do I curtail market share loss in current business? How do I balance commercial business growth with growth in government business? What “new” business should I develop? Should I partner with new entrants in the marketplace? Improving efficiency and productivity is superlative but so is profitable revenue growth. It’s the only way to sustain a necessary margin and maintain a commitment to our social mission.
6. Remember your role as a leader in times of difficulty and constriction. The goal of leadership is to manage a crisis with an attitude of calmness and optimism — with a can-do perspective. Continually conveying, either internally or externally, that you are in a crisis just compounds the issue. It can be demoralizing and frightening for staff. Balancing the reality of the circumstance with the optimism of what’s possible in the future sends a message of practicality and hope. It’s also important, of course, that expenditure constraints apply across the board and that the front-line don’t just perceive that all the pain is being carried by them.
The role of leadership is to put people around you who look at everything creatively and do not put forward knee-jerk reactions. None of my people would run up to me and say, “We need to cut costs!” Instead, they’d approach me and say, “here are my ideas on how we can become more productive and more efficient.”
We are now in a transitional period caused by the short and long-term effects of COVID-19 and the instability of the global political landscape. The world has changed which requires all organizations, healthcare included, to adapt and evolve. Standing still or wishing for the pre-COVID days is the greatest risk. How to convey this new reality and respond is now a test of leadership. It’s also a test of how to take advantage of all the opportunities before us.
This post, Michael Dowling: 6 Ground Rules for Cost Cutting, was shared by Becker’s Hospital CRO Report on December 6, 2022.
