According to a PriceWaterhouse Coopers report, the U.S. health system wastes $1.2 trillion annually, half of the $2.2 trillion it spends each year. To reduce waste and lower the cost of care, providers should focus on the core activities that comprise the majority of its expense base:
Workforce management, i.e. "the staff" – Compensation and benefits for labor is the most significant hospital cost, comprising about 60% of a hospital's budget, or $322 billion annually, according to the American Hospital Association. Effective labor management offers multiple opportunities to reduce bottom-line costs without sacrifices to quality – or reductions in an existing employee base. Organizations with deployed, focused resources and installed processes related to labor management--in addition to the right measurement tools--sustain substantial savings over time. For instance, 150 hospitals and healthcare systems saved more than $120 million in labor and supply costs in one year as participants in a labor management program from the Premier healthcare alliance. These savings can be applied to other strategic priorities within the organization, such as improving patient outcomes.
· Sourcing to specification – Accounting for about 25% of a hospital's expense, the supply chain presents a vital opportunity to help offset reimbursement cuts. Sourcing to specification is a key strategy to reduce costs. Healthcare is the only industry where consumers (i.e., hospitals) do not determine the specifications of products. As providers using products, hospitals should get what they want and what they think is of the highest quality. Providers need to get away from the model of buying whatever is in the marketplace. This means not ordering or paying for features that aren't wanted or needed. And it also means having access to products from diverse geographies to ensure continuity of supply, as well as better forecasting around the use of and need for products. One Midwest provider was able to save more than $100,000 on exam gloves contracts by taking this approach.