Many hospitals experienced moderate to severe financial setbacks in 2020 as a result of the COVID-19 pandemic. The general consensus among hospital CFOs is to accomplish a 10% reduction of operating costs over a period of 12 months as part of a financial recovery strategy. What are your financial recovery plans? Are you equipped to successfully implement them? Read on to see how Harris Affinity can guide you through the recovery process.
What did your financial survival plan look like in 2020?
As the negative financial impact of COVID-19 was first being experienced, many organizations responded with cost cutting strategies such as:
- Reducing employee benefits and executive salaries
- Furloughing and ultimately laying off employees
Was a survival plan enough to keep you on a long-term positive financial track?
Probably not. That’s why it is called a “survival” plan. Harris Affinity knows that throughout 2020, many hospitals have experienced:
- Reduced volumes and revenues
- Increased costs in providing care for COVID-19 patients
- Reduced cash-on-hand and cash reserves
- Acquiring debt in order to keep facilities running
- Risk of diminished bond ratings that would impact the ability to secure funding required for growth
Ignoring a problem does not change the reality. Gathering information and analyzing the situation will provide insights. Seeking innovative solutions from trusted partners will result in finding cost reduction solutions that work.
How will you move from “survival” mode to” recovery” mode?
The best way to move from “survival” mode to “recovery” mode is to cut costs, which will support growing cash reserves. However, you can’t simply cut costs without first having the insights required to understand how the margins of specific service lines within your hospital will be impacted. Specific resources and process that are required to support fiscal responsibility include:
- A costing system that can simultaneously utilize multiple costing methods in order to deliver the clearest possible vision of spending
- A combination of standard costing methods that will provide cost rates and actual cost at the charge code level for direct expenses
- Activity Based Costing (ABC) methods that can utilize Relative Value Units (RVUs) and provide cost values that accurately reflect clinical and operational activity
How can you responsibly meet this challenge?
To enter “recovery” mode, you’ll want to see positive profit margins over time. One way to accomplish this is to increase revenue while reducing costs. Cost is the factor that offers the greatest degree of direct control with a dollar-for-dollar impact to the profit margin. This is not a new conversation; the healthcare industry has always looked for ideas to reduce costs without impacting the quality of patient care. Last year, many hospital executives stepped down, resigned or retired and therefore hospitals are working with fewer resources while experiencing unprecedented volumes. Harris Affinity’s financial consulting team and hospital cost reduction strategies can help you do more with less. Do you have the resources and expertise necessary to accomplish the task at hand?
It’s not about simply “cutting costs.” Strategically managing resources that will support growing and diminishing volumes while maintaining high quality standards is the answer. To do this, you must have the experience, insights and tools necessary to provide clear financial and operational intelligence. In addition to having the right tools, you need to know how to use them. The primary function of a decision support system is to identify where you can take action that will deliver the desired result of reducing cost. Harris Affinity has been guiding hospital cost cutting strategies for more than 30 years. Affinity Decision Support (ADS) can help you:
- Identify the actual cost of mid to high cost drugs in your pharmacy department
- Review the utilization of those drugs within specific service lines and identify the physicians are that are prescribing them
- Explore detailed information related to lower cost drug alternatives and how they can be implemented into practice patterns.
What does a successful financial recovery plan look like?
A successful solution includes the following:
- Dynamic profitability analysis at the service line level with labor, supply and equipment cost detail
- Timely and accurate information, which can mean the difference between positive and negative financial results
- Alignment of physician and hospital financial information
- Ability to see cost detail for both the hospital based and professional based activity as it relates to service lines
- Finally, the ability to monitor and measure the results of the solution over time
Ready to save 10%?
Harris Affinity’s consulting team has 125 years of combined experience working in the healthcare industry. The results of the most recent pandemic may be extreme but not unfamiliar to our organization. We look forward to talking with you.