This article appears in the December issue of HealthLeaders magazine.
Conventional wisdom is that cost-cutting is a painful, even futile, way to respond to reduced reimbursements. One can only cut so far before placing sustainability in jeopardy. Nonetheless, healthcare executives are very much focused on reducing the costs of providing care, with 39% saying their cost-cutting programs have resulted in savings of at least 6% every year for the past three years. More than half (56%) say they expect total cost reductions over the next three years to be 6% or more, as well.
Concurrent with conventional containment activities such as inventory and supply-chain monitoring, most organizations pursue other approaches to improve the bottom line such as workforce efficiency and smarter utilization. Success at cost-containment initiatives depends on measuring and monitoring and, increasingly, using data to guide decisions.
Labor costs, avoiding layoffs
While labor generally represents the largest portion of cost in the healthcare industry—60% for many—workforce reductions are avoided by most organizations in favor of workload balancing. Although workforce reductions are mentioned by 17% as the highest dollar value contributor to cost containment, the second most frequently mentioned technique in achieving staff-related cost reduction in this fiscal year, efficient use of labor, is a more common tactic.
Nearly half (45%) saw their best labor-related cost reductions through more efficient use of clinical labor, and an additional 8% achieved their highest labor-related cost reductions though more efficient use of nonclinical labor.