Most health systems have cost-reduction programs, but few leaders love them

While most health systems have implemented some type of cost reduction plans, few executives are completely satisfied with them, a new survey suggests.

A survey by Strata Decision Technology found only 6% of hospitals describe their cost-cutting programs as extremely effective. The poll found 89% of healthcare executives surveyed had some kind of cost reduction plan in place.

Strata, which develops cloud-based financial planning programs for healthcare organizations, conducted the poll with the Healthcare Financial Management Association. The poll surveyed 185 healthcare finance, accounting and revenue cycle executives.

The survey didn’t find that cost-reduction programs are failures. Most of those surveyed (72%) said they found the culture of accountability around their cost reduction programs as acceptable, good or excellent.

Healthcare systems must set out the objectives for cost-cutting programs, said Alina Henderson, senior director, advisory services at Strata Decision Technology.

“Where we see things fall apart is where organizations don’t set clear expectations,” Henderson said in a statement accompanying the poll. “Closing the loop is critical to sustaining the process and successful cost reduction programs give leaders access to critical data they need to make informed decisions. However, it’s not just about access. You need to equip people with the data itself but also think about what is going to help them make that data useful.”

Health systems have faced serious financial pressures during the COVID-19 pandemic, and the latest monthly hospital report from Kaufman Hall suggests.

“The first four months of the year have been highly challenging for hospitals and health systems, and do not bode well for the remainder of the year,” the report stated. “Even if margins cumulatively return to pre-pandemic levels, many will still end up with substantially depressed margins at year’s end.”

Facing stiff financial headwinds, healthcare executives have been focused on cutting costs this year. A Healthcare Executive Group survey at the beginning of the year placed cutting costs at the top of the list.

The new Strata/HFMA poll found 8% of participants set a margin improvement target of over $100 million, while 50% established a target of less than $10 million.

The survey also found smaller hospitals and health systems were less likely to have established cost reduction programs, and they were less likely to be successful.

Healthcare executives need to make sure the goals aren’t just clear but they are realistic targets that their teams will understand and embrace.

Since many healthcare systems are already facing staffing shortages, they don’t have the option of reducing staff to save money. Indeed, many systems have said they are struggling to find key healthcare workers, such as nurses.

Hospital executives should engage clinicians to consider novel ways to realize cost savings, Strata officials said.

It’s up to executives to set the tone, said John Baker, senior director, continuous improvement at Strata Decision Technology.

“Together, healthcare leaders can create the burning platform that the entire organization can rally around in terms of cost reduction,” Baker said in a statement accompanying the poll. “They can incorporate the target savings amount into a narrative that resonates with the entire workforce. It’s the new way of doing financial stewardship. It’s a sustainable, long-term way to manage financial health.”