Eye on Efficiency

This article first appeared in the December 2014 issue of HealthLeaders magazine.

HealthLeaders Media Council members discuss some of the most effective cost-reduction efforts that their organizations have implemented.

Nate Blackford
Chief Operating Officer
Northwest Medical Center
Albany, MS

The first and probably the most impactful cost reduction program has been to right-size and renegotiate many of our contracts with various vendors. That improves our purchasing power. We've negotiated contracts with our pharmaceutical distribution companies and we have also initiated a 340B drug pricing program that has had a positive impact from an expense and a revenue perspective.

About 65% to 70% of our total operating expenses are on the personnel side. We've taken a comprehensive view of our people plan and tried to make adjustments where appropriate, and it's definitely my job to get staff to buy into it. We've been transparent and open and honest. We've let them see our financials and our patient statistics, and asked them to be part of the solution. That's how we've chosen to engage them, and it's gotten them to buy into the process because they have contributed to the solution.

We are not unlike other small independent critical access hospitals. We are looking for ways to strategically partner with other organizations to improve efficiencies, effectiveness, and ultimately reduce costs and improve quality.

Kris Zimmer
Senior Vice President of Finance
SSM Health Care
St. Louis, MS

On staffing: For us, No. 1 continues to be improving operational management given that our staffing costs are the largest components of our costs. With today's tools and technologies you can do a better job of predictive modeling: when the patient load is going to be heaviest and making sure your staffing patterns match with that.

On supply costs: Instead of having an inventory at every location, including all the physician clinics and all the ambulatory items, by having a warehouse we've been able to be much more efficient in total inventory and yet develop a distribution model that ensures supplies are available whenever they are needed. It's both reduced cost and improved the quality of the service delivery.

On integrated health: As we evolve into more of an integrated delivery network that is positioned to meet our customers' needs in a population health environment, including leveraging the assets that we acquired last year from Dean Health System, there are a couple of categories that we found very valuable. The first is our pharmacy benefits management company, Navitus, which we have implemented across our entire system. We are seeing notable savings from the way they help us manage our benefits and their transparent model so there is understanding of what the spend trends are and why, and what can be done to influence them. We haven't converted all of our employee benefits to the Dean Health Plan, yet we have immediately implemented Dean as a care manager and gave them responsibilities for influencing some of our care management processes across all of our health plans.

Mary Ann Freas
Chief Financial Officer
Southwest General Health Center
Middleburg Heights, OH

We have a labor productivity system that helps us on an ongoing basis, and benchmarking helps us with annual budget setting. Last year we used a vendor that helped to focus on nurse staffing levels. We hired about 75 new nurses, and we saved money in premium pay and overtime pay.

We have been successful in outsourcing certain services. We continue to save $500,000 a year and received better service by outsourcing transcriptions.

We also have had significant success in a couple of areas where we insource services previously outsourced in management areas. We had external management of certain clinical areas such as acute rehab, and we brought that back in-house. In our home health agency, we had used agency physical therapy because that function wasn't fully integrated with what was going on at the health center itself. We brought that physical therapy back in-house and saved quite a bit of money within that service. The rule of thumb that I use and many of my colleagues use is that if it doesn't touch the patient, then it may be a good candidate for outsourcing.

We're also working closely with our group purchasing organization and the programs they have in place for higher levels of commitment and the price advantage that we receive from that.

Timothy Putnam
President and CEO
Margaret Mary Health
Batesville, ID

We're engaging our frontline staff to identify cost reduction efforts. When we actively empowered individual managers and staff to think, "How can we provide the same service for our patients at a lower cost?" they started scouring for the opportunities. The pharmacists implemented the 340B drug pricing program; the just-in-time inventory came out of the people in materials management.

There were a lot of small projects. Nothing major. It didn't come from changing the buying group or renegotiating contracts. We joined the Suburban Health Organization a couple of years ago and have seen significant savings in buying opportunities. We worked together with them to create a program with a biomedical firm to do maintenance and repairs on all of our medical equipment. Before it was with different firms for maintenance. Now it is all coordinated and at a significantly lower cost than what we had before.

Cost has become much more top of mind. There are more retail pressures that we face, more price pressures and transparency issues in the marketplace. The organization that can be more efficient at delivering care is going to be much better placed in the future. I don't think 10 years ago that was our mind-set. Nobody likes waste, but we didn't quite see it as the enemy that we do today.