Over the past few weeks, I've noticed prominent hospital CEOs being more vocal in the media about their financial challenges and presenting some useful ideas for solving them.
William Roper, CEO of UNC Health Care answered questions from the Raleigh News & Observer earlier this month. A public health expert who headed the Centers for Disease Control and Prevention during the administration of George H.W. Bush, Mr. Roper describes the situation for hospitals as dire. He argues the need for universal health insurance, citing his own organization's expenses to make the point. In 2009, he expects UNC Healthcare to spend $260-$270 million for uncompensated care (these are the actual costs to his hospitals, Mr. Roper says, not marked-up patient charges), a 26 percent increase from 2008. The state of North Carolina will appropriate $48 million to help defray the costs. In order to make up the difference, Mr. Roper says UNC has no choice but to charge higher prices to insured patients.
Even so, the number of insured patients is decreasing along with rising unemployment. UNC Health Care's uncompensated care will continue to rise and it will be forced to cut costs aggressively to stay out of the red this year.
In the interview, Mr. Roper speaks to this as an elemental policy challenge: universal health insurance will help hospitals distribute costs equitably and put less burden on paying patients. I agree wholeheartedly with Mr. Roper's advocacy for a "full-scale assault" on current healthcare policy; and I try to share his optimism that fundamental change will be enacted quickly.
I wrote last week about Paul Levy, CEO of Beth Israel Deaconess Medical Center (BIDMC) in Boston. His hospitals face a $20 million operating shortfall this year. In addition to monitoring a monthly dashboard of revenue and cost variances with his executive team, Mr. Levy went to the well for ideas. Over the past few months, he has conducted town hall meetings with BIDMC employees to outline the IDN's challenges and seek their input.
By Mr. Levy's account, his people are rising to the occasion. He has received recommendations for cost reductions from clinicians, support staff, and executives alike. To avoid laying-off personnel, many employees are voluntarily foregoing scheduled pay increases and forfeiting some of their earned time accruals. (Read more about it here.)
I'm a big fan of Mr. Levy's candid and inclusive approach. By challenging his employees as a team, he is unleashing a deep reservoir of cost-reducing creativities and sensibilities. Because the cuts must be substantial and happen very quickly, BIDMC has little choice but to hit payroll and staffing; fittingly, he made that clear to everyone upfront.
I urge CEOs to follow Mr. Levy's lead as a matter of ongoing practice. Don't wait until the stakes are this high. Have open and frank discussions with your people about reducing costs and ask them to suggest new ways of saving money each week. Furthermore, the role is a natural fit for your supply chain executive. Put him or her in charge of the initiative and collaborate often.
Is this just wishful thinking? No. Look at this example from Stanford Hospital & Clinics. The CEO challenged her staff to reduce 6 percent from all non-labor operating costs. The supply chain and value analysis teams led the charge, finding consolidation opportunities by evaluating 20,000 items actively purchased from over 6,000 vendors, analyzing the terms of long-standing service agreements, and asking the entire staff to bring new ideas for assessment.
And it's working. The IDN is on track to save $14 million.
Stanford Hospital & Clinics did not wait until the expense situation reached critical state. Instead, they got ahead of the curve, creating a culture that celebrates finding ways to save money each and every day. It's a deep well you can revisit time and again.
Finally, the second (or third) of my own two cents: When you begin this process, make sure you have ways of measuring success. Projects can start with much fanfare and optimism, only to lose steam because you have no effective means to track your actual savings. There are tools out there to help, and – of course – I'm glad make recommendations.
Invest in creating a culture eager to root out unnecessary expense. Invest in the right supply chain tools to monitor your progress. And invest in your supply chain executives, charging them to lead the attack while working with them as partners. The time has never been more right, the motivation has never been higher, the savings have never been more needed. And – I know this – the savings are there.
Sincerely,
Mike
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