Eliminating waste is only part of the equation for healthcare sustainability

Eliminating waste is only part of the equation for healthcare sustainability

March 27, 2020
Kermit S. Randa
By Kermit S. Randa

We have better tools than ever in healthcare to advance care and improve access. But legacy healthcare organizations still have not mastered a critical competency: eliminating waste. A recent study shows that 30% of healthcare spending is wasteful, at a cost of $760 billion to $935 billion.

The need to reduce costs is high on healthcare leaders’ radars. A new Kaufman Hall report shows that the ability to identify and manage cost-reduction initiatives is healthcare finance executives’ top priority for 2020, but they struggle to act on opportunities:

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• More than half of healthcare finance executives say they don’t have the tools to lower costs in the right areas without compromising quality.
• Cost accounting systems often fail to provide the support needed to reduce costs: 43% of finance leaders say they have an existing cost accounting solution, but it’s too simplistic or they have limited trust in the accuracy of results.

According to the Kaufman Hall 2020 Healthcare CFO Outlook, here are the top financial performance management priorities of the year:
1 - Identifying and managing cost-reduction initiatives
2 - Improved performance management and reporting to operational and C-suite leaders
3 - Predicting and managing the impact of changing payment models

Eliminating waste is part of the solution to healthcare reform, but it cannot be the sole focus. Healthcare organizations must balance cost reduction efforts with revenue optimization and clinical quality improvement. Leaders can address all three priorities by using data to guide action that will have the most profound impact.

Dig deeper into costs by service line, department, and physician
Reining in expenses and improving margins require finance leaders to dive into drivers of waste and low profitability. Survey results show 52% of healthcare finance leaders seek to improve profitability measurement by service line, patient, and physician in 2020.

Modern cost accounting solutions that provide an accurate, comprehensive view of costs and support data-driven analysis at the activity, physician, and patient level are critical. So is access to reliable data, especially critical given that 43% of healthcare CFOs don’t trust the data their current cost accounting systems provide.

Hone your ability to uncover clinical variation
In an era of risk-based payment, healthcare organizations must have the infrastructure and tools to identify variation in clinical care processes and supplies that fuels expense and waste. Yet even as healthcare CFOs say the ability to predict and manage the impact of changing payment models is a top priority, the aforementioned report finds just 42% are seeking to improve clinical and quality analysis—capabilities that are essential under risk-based contracts.

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