Reducing Costs and Improving Reimbursement

Hospital financial director calculating costs

State of healthcare reimbursement

Healthcare, and specifically hospitals, have been facing financial pressures for decades. Becker’s reported in their August 15, 2018, issue of the Hospital CFO Report that 11 hospitals closed in 2018 alone. Add to these troubling statistics that healthcare reimbursement and value-based reimbursement pressures from both governmental and commercial payors continue. While on the healthcare consumer side, the continued growth of High Deductible Health Plans creates financial challenges, including more price sensitivity, which means hospitals see their cost of collection and bad debt rates climb. These trends will not only continue, but also potentially accelerate.

One in three hospitals are in financial risk.

Consolidation in the market will continue, although possibly at a slower rate. Some rural hospitals that have struggled financially have found acquisition by a larger tertiary facility or health system to be their savior, providing much needed access to capital. Others do not have the need or the interest in being acquired or may not have found an interested acquirer. Other sectors of the healthcare market such as suppliers, providers, and insurers will also see continued consolidation, while insurance reform will continue to drive fundamental changes in healthcare delivery.

Reducing healthcare costs and improving reimbursement

Other financial challengesOther challenges bringing upward pressure on costs include continued shortages in Physicians and Nursing staff, drug costs – especially specialty drug costs, and new medical technology, Information Technology and EHR system investments. Competition from non-traditional care settings will also pull some outpatient volume away from hospitals who are already facing declining inpatient volume. Access to capital will continue to be tight except for those with the strongest of balance sheets.

Your Potential to Thrive

With all these financial challenges growing, the need for hospitals to reduce cost is paramount. Many hospitals have made some headway here, but many have not taken the radical steps required to reduce cost to the levels both reduction in value-based reimbursement rates and drop in inpatient volumes necessitate. In order to maintain positive margins, hospitals will have to make significant cost restructuring and rebalancing efforts.

To counteract the financial pressures expected to continue this year, hospitals will have to:

1. Rebalance cost structure

This means focusing on areas such as lean staffing, optimizing profitable service lines through marketing and other operational efficiencies and eliminating practice variation.

2. Create and identify new sources of revenue

Collaboration with other providers is essential here and could help your organization add services that one hospital alone can’t support.

3. Plan for and focus on outpatient volume expansion while inpatient volume declines or remains flat

Building, acquiring, or partnering with existing outpatient facilities could help shift your organization’s balance sheet in this area.

4. Protect the revenue cycle and strengthen liquidity position

To meet capital needs, laser focus on supporting profitable areas of the healthcare revenue cycle and improving or shrinking gaps will help your organization in both the short and long term.

5. Negotiate for best Commercial Payor rates

Whether through narrow networks or quality improvements, commercial payor rate improvement has the potential to make a big impact on your organization’s bottom line.

6. Position your organization as a population health leader and maintain good case management

Population health initiatives and value-based care model requirements are fundamentally shifting how today’s hospitals think about managing care, and strong case management strategies can support both financial and population health gains.

7. Improve Physician Practice financial performance

When your affiliate physician practices have improved productivity, the healthcare revenue cycle management and more efficient practice operations, the financial gains roll up to your larger organization.

Despite the financial pressures that healthcare organizations constantly face, success is still possible. Implementing the best financial structure and maximizing investments doesn’t have to be overwhelming. QHR can help, especially with helping organizations like yours tackle and overcome financial challenges with tangible solutions. For three decades, the QHR Learning Institute has delivered healthcare management education to hospital leaders and professionals like you. Our upcoming finance webinars and classroom education sessions provide the leading-edge education and training you, your staff and your board need to be successful. Learn more about QHR Health Learning Institute here.