Execs Grapple with Healthcare Cost Problem

Edward Prewitt, for HealthLeaders Media , January 7, 2013

The entire conversation is insightful and honest. I want to highlight a couple of the points that the assembled finance leaders discussed. The first is how they plan to pull out the necessary costs. There is no single answer, since different health systems face differing situations, but to begin with, many CFOs feel the need to get a better handle on income and spending. For this, they will need better IT systems—a significant expense in itself.

CFOs are poring through their expense sheets and looking for ways to reduce high-cost line items, such as lab services and patient sitter utilization. They examine labor costs—i.e., nurses—which are typically the number-one operating expense. Efficiency is the watchword.

It's for this reason that programs such as Lean, Six Sigma, and continuous improvement continue to find fertile ground in healthcare. Lean production methods and related concepts such as Kaizen became popular in American manufacturing two decades ago after Toyota Motor showed the way.

Six Sigma spread from Motorola in the 1980s. These efficiency methods have become standard in manufacturing and other sectors, but many healthcare organizations are still coming to understand the possibilities.

But will efficiency alone be enough? Or will another manufacturing trend—reengineering, that bugbear of the 1990s—be the next phase in healthcare? As one CFO Exchange member, Rick Hinds, executive vice president and CFO for UC Health in Cincinnati, noted, "We continue to squeeze everything we can out of today's cost structure, but then we've got to really step back and redesign the way we deliver healthcare to take out large amounts of costs."

I predict that costs will continue to be a leading priority, a main topic of conversation, and a serious headache for healthcare finance leaders for many years to come.

Edward Prewitt is the Editorial Director of HealthLeaders Media.

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