The top healthcare cost savings strategies for 2023.

 

Episode Introduction 

As hospitals struggle with spiraling costs, Lisa Miller reveals seven key ways to save money in the next 12 months. Topics Include how ‘’flickering’’ helps to reflect on cost initiatives, the need for a Chief Expense Officer, the midterm contract reviews that helped to save one hospital over $19 million, and how data creates a 14% cost shift when presented to physicians. 

 

 

Show Topics

 

• Adopt a comprehensive approach to cost savings 
• Hospitals need a Vice-President of Costs (or equivalent) 
• Successful contract management requires a mid-term review strategy
• The benefits of zero based budgeting 
• Insource versus outsourcing
• Raising physician cost awareness
• Creating a cost-conscious culture in hospitals 

 

O1:30 Adopt a comprehensive approach to cost savings

Lisa challenged hospitals on how much insight they have into their cost savings projects.

 

‘’So what I mean by this is today, if you're a C-suite leader or you're a supply chain leader, if you wanted to know every single cost savings project that's going on in your organization, could you open up an Excel, some kind of dashboard, platform or something, and have line of sight into every single one? And my experience has said, when I've asked that question, that 100% have said, "No. We do not house every single initiative that's going on in the organization." And I think that bringing these initiatives all together so you get a complete picture with complete visibility, cohesiveness, understanding what's going on, and of course that terrible A-word which is accountability, bringing it all together, we'll have just another level of savings because you just have a complete view. And so I challenge anyone that's listening to the podcast today… I'm going to tell you that the effort to just house everything together is literally ... game changing for a lot of reasons. And I'll talk about those for a moment. But I want to give you one more nuanced thought…..Could you go back 12 months or go back in the last six months and say, "Okay, what are all the initiatives we worked on and what will be completed?.....my number one advice is to pull those projects together…. get a complete picture, invest in that time.’’

#2 Hospitals need a Vice President of Costs (or equivalent)

09:00 Lisa explained why every health system would benefit from a position that focuses on costs 

 

‘’This vice president of costs or this person who just focuses on costs where they can have line of sight to everybody and they work with everybody. …. last month, just by accident, I came across somebody, and I'm hoping that I get that person on this podcast soon…they do have a title and I've researched it since then. And there's a few of these titles out there. The title is Chief Expense Officer. I've taken an excerpt from their LinkedIn page and it says, "Senior leader collaborating with the health systems' clinical and administrative leadership to identify opportunities to create value." There's also this really great line, and I think I'm going to say this super slow. I might repeat it. It says, "Leveraging experience in expense management and analytics to reduce waste and unwarranted variation and eliminate excess cost. Leveraging experience in expense management and analytics to reduce waste and unwarranted variation and eliminate excess cost." .. their job is a Chief Expense Officer. So I feel like that's an innovation for hospitals. Again, an innovation is a process. It's a way to think about their business, a new position, right? Innovative positions. And I think that Chief Expense Officer is an innovative position. And I had in years past said there really needs to be this Vice President of Cost or of Costing or Cost Structure. But you can have a VP of Expense, but this, another CEO, Chief Expense Officer, I think makes a whole lot of sense.’’

 

 

12:00 Successful contract management requires a midterm review strategy

Lisa shared how her team identified over $19 million of cost savings carrying out midterm contract reviews for one hospital. 

 

‘’Everybody has a strategy for contract renewals. So when renewals come up there's a strategy, an RFP strategy or a renegotiation strategy. There's a strategy for net new, going out to the market. And again, it could be RFP or it could be a rigorous internal process. But I does feel like there's really, again, an innovative process to look at your contracts, and that's having a midterm strategy. And so having a midterm agreement strategy means that you've got probably a large amount of your agreements now, maybe 50 to 60% of them that aren't coming due in the next year, 18 months. They're in that three to five year, three to seven-year cycle. And so that usually gets tucked away and like, "Oh, we're going to do that in the next two or three years." But I think every hospital at some point or other, you can't do this all the time, but at some point they put a stake in the ground and say, "We're going to look at all of our agreements that are in midterm and we're going to benchmark them. We're going to analyze them." And we had done that for a lot of our hospitals. We actually did this for one health system just for their IT. They were a large IDN, several hospitals. The CIO wanted to look at all their agreements. In particular, wanted a company that had expertise looking at contracts midterm and could renegotiate them... we looked back after about two and a half years and saved them over 19 million dollars.. some of the greatest savings came from the midterm agreement renegotiations. Now if you think about it, these are agreements that wouldn't have been looked at for years.’’

 

 

19:00 The benefits of zero based budgeting

Lisa outlined the financial benefits for hospitals adopting zero based budgeting. 

 

‘’..Zero based budgeting essentially is assuming, given your budget is zero, and now you've got to explain everything you want to put into your budget versus having a budget and saying, "I'm going to keep that same budget for 2023 or 2024 and I'm going to plus or minus five or 10%," or there's some kind of way you look at it. You can look at it rolling 12 months, rolling three months, versus saying, "I've got to explain everything I'm going to put in." And that is just a really high performing way to look at your budget. And we've done that with hospitals, taken away the heavy lift part of it because it is a bit of a heavy lift and really it's just been remarkable how much we take out by taking that approach.’’

 

 

20:00 Insourcing versus outsourcing 

Lisa said hospitals that outsource should make 2023 the year to carry out an in-depth analysis to ensure it is still cost effective. 

 

‘’You could, right now, insource your dietary and you may in the past have taken analysis to look at, well, what it would save us or what would be the benefits of outsourcing? I think this year we've got to look at that again. And so much has changed. It may be very beneficial to outsource dietary or, for your hospital, it may be really beneficial to insource. Lisa, you and I talked on the past episode about food costs and maybe it would make sense to bring in dietary and use local providers for dietary that could bring down costs. Years ago, I remember having school lunches and I've had community members or family members who actually did the cooking for the school. This is way back because I'm aging myself a little bit, where you would have people cooking in the back and you'd have really well prepared lunches for schools versus some of the things that may happen now versus home lunch. So what innovative ways could a hospital say, listen, maybe we want to insource it and maybe we want to use the local community. Maybe that's the way you don't want to outsource anymore because the outsourcing costs too much. But I think the whole idea around this is that whatever you're looking at internally that you've insourced, that's not a core business, consider the analysis to outsource.’’

 

 

24:30 Raising physician cost awareness

Lisa explained why consistency in providing cost data to physicians can result in significant cost savings. 

 

‘’Physicians, their decisions drive about 70% of costs in organization. And so I feel like we don't do a good enough job at showing physicians their cost. It's not telling them how to do business. We, of course, sometimes have to get them aligned when there's a cost savings initiative. But sometimes it's simple as just telling them, showing them where their costs are and showing them the numbers. And I feel like ... I often say they're scientists. If you give them the data and the information and given some comparisons in a very smart analytical way, they're going to make some really great decisions. We just don't do it, give it to them in a way that's meaningful and then we don't do it consistently, if we do it at all. And they were frustrated that when we come to them for a cost savings initiative, maybe there's a little bit of conflict because that's the only time we come to them. So I think this physician cost awareness, in a really collaborative way, getting a champion and putting that together, again, it requires some planning and maybe some outside resources to help you with that, but it's really important. There's a study that shows that they had two groups of physicians in a surgical line in the OR, and just by showing this one group of physicians their cost ... they just showed it to them, they didn't tell them they wanted anything. They reduced their costs by 7.2%, just showing them the data. The control group, which didn't get the pricing data, the cost, they had an increase in that same time period of like 6.7%. So if you can imagine, there's this shift of 14%, right, by just showing physicians the cost information. And the ones who didn't see it, they just had a natural increase in their cost. So why aren't we just using this very innovative, simple way? ‘’

 

 

29:30 Creating a cost-conscious culture in hospitals

Lisa said the key motivator for a cost-conscious culture is the delivery of better patient care. 

 

‘’I think we just need to have more cost conversations. Everything from what a welcome bag may cost. You want to have welcome bags, what are included. To these higher cost items, to being on the front lines and seeing things that somebody could raise their hand and say wait a minute, I want to be a part of this culture of cost awareness and cost consciousness, but I have to have an environment there's safety in that environment. Where people are going to listen and kind of support that. But I think there's a lot that goes on in the front lines that have a tremendous magnitude overall. So we've got to have this culture. So it's a positive culture. Listen, we're doing this for patient care. It's cost aware for patient care. It's something I've written about quite a bit. That's why we're doing it. We're not doing it for any other reason. It's not to be a downer, but it's really to uplift the organization, save jobs, really be great stewards.’’

 

 

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You’ll Also Hear:

 

How ‘’flickering’’ can help hospitals in their reflections on cost savings initiatives. ‘’That's why I if you have a plan, You can go back and flicker back and forth to say, "Well, what do we do? What did we thought we were going to do? Why didn't we do it?"

 

The need to be aware of price creep in every contract – and how a monthly or quarterly review can prevent that. 

 

Why it always comes back to the data in every cost analysis. ‘’… look at the data and then you might make the decision that you may not want to do that this year, it could be a 2024 project.’’

 

Becoming wiser in engaging physicians. ‘’We wouldn't walk in to any kind of store and just not look at a price tag. I just don't think we're being wise about how we engage physicians.’’

 

Creating a movement within a hospital: cost savings innovation from Lisa Larter. ‘’My idea for hospitals is when you explain to people what the cause is, what the mission is and why it matters and you get people to understand and then you reward and celebrate people when they have cost savings ideas, you start to really change the culture.’’

 

 

What To Do Next:

 

1. Subscribe to The Economics of Healthcare and receive a special report on 15 Effective Cost Savings Strategies.

 

    2.There are three ways to work with VIE Healthcare:

 

• Benchmark a vendor contract – either an existing contract or a new agreement.
• We can support your team with their cost savings initiatives to add resources and expertise. We set a bold cost savings goal and work together to achieve it. 
• VIE can perform a cost savings opportunity assessment. We dig deep into all of your spend and uncover unique areas of cost savings.

 

If you are interested in learning more, the quickest way to get your questions answered is to speak with Lisa Miller at [email protected] or directly at 732-319-5700