The Issue

Hospitals commonly adopt cost-cutting initiatives to reduce bottom-line expenditures and improve financial performance. Typical targets include physician preference items, energy costs, clinical supplies, commodities, and discretionary items. However, CFOs might overlook savings opportunities in their own backyard: the finance department.

Background

Working in an environment that includes a difficult economy and declining payment, providers are continually seeking ways to improve their healthcare organization's financial performance. By applying the same analysis to the finance department that is used successfully in other parts of the organization, finance executives can save significant amounts of money, and in some cases even generate revenue. Financial services often are overlooked as an area of potential savings, partly because banks have enjoyed a special relationship with their hospital clients. In reality, banks are service providers whose contracts should be reviewed periodically. Because of increased competition, however, banks are now more willing to offer incentives or reduce fees. Also, improvements in technology and information security have greatly expanded both the number of banks capable of working with hospitals and the tools and services those banks offer.

Action Steps for Providers

There are three key opportunities for cost savings and performance improvement in financial services.

Lowering treasury banking services costs and fees. Because banking services are not usually treated the same as other purchased services, they often are exempted from competitive bidding and negotiations and do not undergo rigorous analytical review, despite their often significant costs. However, when healthcare organizations evaluate treasury banking as a typical service contract, they find the market extremely competitive. When banks compete, their different cost structures and approaches can generate unique and aggressive bids. Providers should seek opportunities to reduce banking fees, receive free services, and eliminate unnecessary services and fees.

Implementing a revenue-generating payment solution. Technologies from a third party, usually a bank, can be used to automate payments to vendors, reduce staff time, and earn rebates. The program's success rests on signing up vendors, which is typically done by the bank and can take up to two years before the program is at full potential. Many vendors may see participation as an opportunity to automate their cash receipts or gain additional business.

Reducing the cost of the accounts payable (A/P) process. Because many invoices are processed manually, savings can be achieved by automating the A/P process. A/P activities can be streamlined by replacing manual keying with electronic data interchange, increasing the percentage of invoices that have associated purchase orders, using an automated clearinghouse to pay vendors and employees, and using purchasing cards for buying a variety of items. The biggest benefit of these four activities is the reduction in A/P labor cost and some potential cash rebate.

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