Modern Healthcare recently interviewed Will King of HFS Consultants for its September 1 article “Healthcare on Sale: Texas hospital lowers prices, raises level of debate.”
“Hospitals . . . are working hard to cut expenses in anticipation of slower growth in reimbursement, tied in part to the elements of the Patient Protection and Affordable Care Act, but also because of the industry shift toward providing value-based care. And there are areas in a hospital’s operations that often create significant opportunities to cut costs”, says Will King, senior adviser for HFS Consultants. “Hospitals often can save money through more efficient staffing practices, and some pay too little attention to insurer contract negotiations. Nevertheless, a 15% reduction is a lot,” King says. HFS Newsletter recently caught up with King in between assignments to dig deeper into his views on hospital cost reduction.
Q: The article’s title caught my eye. What is the “healthcare on sale” reference about?
A: Paul Barr, the reporter, was writing principally about a hospital in Texas that had reduced its self-pay prices by 15% on a number of procedures. Paul was mostly reporting on the trends, still in their infancy, toward greater transparency in pricing and a better deal for the rising number of self-pay patients. He simply asked me whether hospitals could realistically cut 15% and stay in business.
Q: So were you quoted accurately?
A: Yes, though of course Paul had to cut it down to fit the space. I spent a little time distinguishing between a 15% price reduction – and the difference between gross and net – and a 15% cost reduction, which is another matter. He obviously had to abbreviate my cost reduction prescription. We did discuss insurer negotiations as a lever of hospital financial health, though it’s clearly not cost-related.
Q: So when you meet with hospital executives, what do you tell them about cost reduction?
A: Well, first, that this is their future, whether they like it or not. Payments for service, however structured, will not only slow in growth but will actually come down. Taxpayers, purchasers and payers just cannot continue to spend 17% of GDP on healthcare. Second, it’s better to be ahead of the curve than to be reactive. The challenge, of course, is to do it thoughtfully, not slash and burn, which needlessly creates ill will and mistrust with all stakeholders. The good news is that there are, in fact, right ways to do it and to internalize it so it becomes, as one client said, “a healthy lifestyle, not a crash diet.”
Q: So what do you tell clients about the “efficient staffing practices” that you mentioned in the article?
A: I tell them that our Management & Operations practice leader, David Kim, is one of America’s thought leaders in the field of how hospitals can deliver high quality and responsive service with leaner resources than they’re used to. David has pioneered the analysis of the best data set out there– California OSHPD – to objectively
identify opportunities system-wide and by department. He and the rest of our Labor Productivity team collaborate with the senior leadership team to establish challenging but achievable targets. We then work downstream with directors, managers and supervisors to help them staff to demand at their chosen productivity level, optimize OR utilization, share staffing across cost centers during low volume hours and establish the right level of standby.
Q: How much can hospitals save in this area?
A: Well, labor and benefits are roughly 60% of operating costs. In our three most recent assignments, our clients have reduced their labor costs by about 5%, which improves margin by 3%.
Q: Well, that’s a start toward 15%. Where’s the rest?
A: In our last several turnaround plans, we’ve used a tool such as an issue tree to develop hypotheses relevant to the particular hospital. In general, the remainder has come from a combination of sourcing purchased services and med-surg supplies (3-4%), payer contract renegotiations (2-3%), and revenue cycle operations and collections (1-2%). There may be opportunities inservice line opening or closure, shared services with other facilities in the area, outsourcing, leveraging regulatory pricing mechanisms on clinics or SNFs. Hospitals with high Medicare or with case rate commercial contracts usually have large LOS opportunities that we can help with. I will say one area that keeps coming up is physician compensation. Our specialists in this area often find payments well above market rates, without current contracts, and lack of compliance with RB-RVS productivity.
Q: Back to labor productivity, if a hospital wanted to go there, what would HFS do to get them started?
A: We’re unusual in the consulting business: we are always looking for ways to increase our clients’ ROI on our work. The latest example is our Labor Productivity Assessment. After automating our OSHPD data analysis, we are able to deliver a rigorous and comprehensive report to senior management in half the time it used to take. The report also includes interpretive materials and a self-help toolkit for hospitals that have the internal resources to successfully manage a project. If they need help, we are able to provide it on an a la carte or bundled basis that typically delivers an 8:1 return.
To contact Will King, call 510.768.0066, x308 or willk@hfsconsultants.com.
