It is no secret that health care providers are under great pressure to lower their operating costs. Reimbursements are being arbitrarily reduced by government programs, which account for over half of all spending, and private payers are toughening their payment stances. A Harvard Business Review article suggests that many cost-cutting programs may be counterproductive. (HBR Article) The article lists five common cost-cutting mistakes. The first mistake relates to cutting personnel costs, which are about two-thirds of total expense in the typical provider organization. The article notes that support staff cuts can be particularly damaging, as they may cause expensive clinicians to spend more time on paperwork and administrative tasks. Instead, the authors advocate evaluating who really needs to do what work and saving expensive clinicians for the most complex patient needs. The second mistake involves underinvestment in space and equipment. As in the first error, failure to have enough space, for example, operating rooms, and equipment can make expensive clinical resources, like surgeons, less productive. Again the key is evaluating work processes and the total costs of those versus the revenue that could be created if the process is maximized.
The third error is focusing only on procurement prices, rather than looking at variation in how supplies are used and reducing that. The fourth mistake is trying to maximize patient throughput. In an era when value-based purchasing is becoming more prevalent, the authors suggest measuring physician productivity in terms of quality outputs rather than the number of patients seen. The last mistake is not benchmarking and standardizing to try to analyse the organization’s performance. High variation in clinical processes, performance and cost is common within organizations. The causes of that variation and opportunities to reduce it can be relatively easily identified. And the performance of other organizations can be studied to learn about best practices. All good ideas, but they will require a champion inside an organization to reach their potential.