In 2009, hospitals faced what was probably their fiercest fight for financial survival. Many laid off employees, some curtailed their capital expenditures and still others experienced unparalleled bottom-line shortfalls. Some suffered all three or more.
Looking ahead, I envision that many of the same stress-provoking factors that hospitals grappled with in 2009 will continue through 2010 and beyond. Above all, hospitals will need to lean on their ability to do more with less.
Consider finances first. Although the economy is exhibiting faint glimmers of recovery, weak economic conditions linger, causing credit – be it borrowing or bonds – to remain expensive. While a few hospitals were able to maintain a “business as usual” approach in 2009, the faltering economy caused many others to restrict their capital purchases and/or expansion plans. At least one hospital I know of had to fill in the hole it dug for the foundation of its new facility.
If the credit goes from freeze to ease in 2011, I predict that hospitals will have internalized the effect of recent hard times. They will move slowly to spend money if they have it. To avoid wasting money, hospitals will also convene cross-functional teams to more carefully and critically evaluate whether to devote their limited financial resources to purchasing the latest and greatest technological innovation, whose clinical benefits may remain unconfirmed.
I predict some hospitals may simply stay with some of the equipment they have, since they’ve learned the cost equation associated with using those tools. With respect to purchasing the newest medical devices, hospitals are likely to work harder at getting physicians to review the cost/benefit scenarios for using them.
The area in which hospitals will readily spend money is in healthcare information technology. Electronic medical records systems (EMRs) and/or electronic prescribing systems are essential components of the drive to improve efficiency in healthcare.
Hospitals will continue to adopt EMRs as a means to transform and improve patient care documentation, safety and process flow. This commitment is by no means a low-cost initiative with a known ROI. Rather, it is a mission-critical marathon for the throughput of patients. It will facilitate a smoother-running payer/provider interaction, help eliminate inaccurate or missing coding and provide much needed critical insight to determine an accurate patient-specific cost of care analysis.
Together, those results will help hospitals understand their total cost of care and allow them to better understand their operational costs, analyze and evaluate their clinical and supply chain processes and procedures and implement constructive financial changes. The more efficient you can make your system, the better off you will continue to be.
Also in the realm of IT, more hospitals will adopt business intelligence tools and begin to embrace analytics to curb costs and improve financial security. In the supply chain arena, analytics enable hospitals to improve visibility of their overall utilization of supplies and services. Analytics also will allow hospitals to develop more effective strategies through knowledgeable decision-making that will make a difference to the bottom line.
Whatever its ultimate structure, healthcare reform, which is designed to lower costs and preserve quality patient outcomes, is lurching ever closer to reality. Because Medicare reimbursements are often inadequate to cover hospitals’ costs, many hospitals will face an even greater bottom-line shortfall if, as predicted, Medicare rates continue to fall.
To offset these potential losses, we believe hospitals must employ more stringent methods to help them carefully analyze their supply chain spending to identify factors and sectors that present money-saving opportunities.
By planning for the worst-case scenario, critically reviewing and analyzing current practices and procedures and judiciously installing innovative yet proven processes, technology tools and protocols, hospitals will be able to create the necessary operating margin to continue to provide the quality of care their communities expect of them.
Scott Downing is executive vice president at VHA Inc.