Hospitals do not exist to generate profits. But they are now increasingly facing the necessity to improve their financial results – both to retain their solvency and to create scope for the investments required for future-proofing. Almost 50% of hospitals have results that on a structural basis fall below the healthy threshold of 2% of revenue. But can significant improvements really be made to financial results? ‘We’re already operating efficiently, we’ve done all that we can!’ you may say. But it is in fact possible to make improvements, provided that you adopt a thorough, targeted approach and maintain four perspectives. I will discuss each of them in turn below.
Four perspectives for improving financial results
If a hospital that wants to improve its financial results simply confines itself to the question of ‘can we perform the same healthcare activities more cheaply’, then the challenge will be difficult or even insurmountable. It is important to select several perspectives and then apply them fully, each of them in conjunction with the others. In general terms, these are: (1) the hospital’s healthcare portfolio, (2) revenue and (3) costs. It is also important to examine (4) the organisation: not primarily to cut costs, but mainly to ensure that the process is managed with a focus on results and to guarantee that the agreed measures are actually implemented and generate the envisaged improvements. Each of these perspectives can open up surprising new avenues to pursue. A few examples and points to bear in mind are set out below.
1. Healthcare portfolio – both social and financial interests matter
Before a hospital starts investigating whether activities can be performed more cheaply, it should first make an honest assessment of whether it should actually be carrying out these (healthcare) activities itself. If specific activities are loss-making and there are other institutions that can perform them more cheaply on a structural basis, then your hospital should at least consider whether it would be possible to halt these activities or outsource them. Quality can also be an issue in this respect: carrying out a low volume of a certain healthcare activity can both drive up costs and restrict quality. Terminating or transferring unprofitable activities that the hospital is not well equipped to perform for one reason or another will make a contribution not only to your own financial results, but also to a socially healthy and sustainable healthcare system.
2. Revenue – it’s about more than negotiating effectively
Revenue is largely determined by the agreements reached with health insurers on rates and other matters. In this connection, introducing differentiation is definitely worthwhile. Generally speaking it makes little sense these days to ask for rate increases. But if your request is very specific and well substantiated – per condition/treatment, per health insurer – then there are real possibilities available here. And the chances of success are greater if you align your request with the interests and priorities of the health insurer in question. But there’s more. Is all healthcare being paid for at a realistic rate? Can the hospital avoid exceeding limits? Take a close look at agreements with and payments to both internal and external partners. Do the reimbursements still cover the costs and does the system contain the incentives needed to encourage financial prudence? These are just a few examples to illustrate that in our experience there are substantial results to be achieved when you look into things in sufficient detail.
3. Costs – you need to zoom in and zoom out
Healthcare professionals at most hospitals work diligently and efficiently. Yet as a rule it will be possible to cut costs. The key to doing this is to combine zooming in with zooming out. On the one hand you need to be sufficiently specific: the surgery unit may on the whole achieve an impressive result, but there may be specific room for improvement when it comes to materials. On the other hand, it is worthwhile to examine cross-sections of the entire organisation. Even if you’re doing great on the capacity-utilisation KPIs, there may be room for improvement if the total number of OR hours reimbursed is far below 90%. The use of benchmarks can certainly help identify where there is room for improvement, but they should only be a departure point when you sit down with those involved to identify where and how improvements can be made. Irrespective of benchmark scores, it is always worthwhile to examine certain aspects in detail, for instance: the use of multiple locations, OR, emergency department(s), IC, overheads and procurement.
4. Organisation – make structural changes to safeguard improvements
Management and the organisation can be examined critically to determine whether there is scope for savings. But it is also highly conceivable that making targeted investments – for instance in management reports, business control, sales and capacity management – would help improve results. Traditionally, the operational structures of hospitals have not been strong. Now that health insurers are asking for targeted action with respect to volumes and costs, it would be worthwhile to undertake improvement initiatives in this respect, even if those improvements come at a cost. Sometimes one-off action is needed to bring the financial results up to standard. But it is considerably more efficient and effective if this can be done at an early stage through high-quality control exercised by management and intervention of a more limited nature.
Take an integrated approach – including with respect to stakeholder engagement
Improving financial results can be a painful process. Although the hospital will look for win-win situations, it will also need to make choices that can be unpleasant for individual specialists, staff and even patients. Getting each of these stakeholders engaged at an early stage is important in order to ensure that choices are weighed carefully and to get these parties to support, understand and contribute to the process. Internally this means that both a top-down and bottom-up approach will be needed. Setting parameters and making choices – which will sometimes have far-reaching consequences – is something that senior management has to do in a targeted manner. At the same time it is necessary to take advantage of the insights and involvement of healthcare professionals in order to arrive at workable measures that they will adopt and own and that will actually lead to improvements.
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