Use Back-To-Basic Self-Help Strategies For Financial Success

March 24, 2004

More than ever, hospitals need financial leaders who can confront deteriorating financial performance in their hospitals and then redirect their organizational strategy. Turnaround opportunities range from reducing labor and supply costs to maximizing contracts and clinical resource management. A special educational supplement in the March 2004 hfm addresses how, in many cases, hospitals 

can achieve financial success by returning to no-frills, back-to-basics strategies to address revenue cycle efficiency, clinical costs, and information technology. The following excerpts address two key areas: labor costs and managed care contract management:

Improve Productivity, Reduce Agency Costs

By monitoring labor indicators, such as overtime and agency utilization, executives can "tune in" to some of the variability in labor expenses. Hospitals may be able to reduce labor costs by considering these strategies:

• Recognize that contract labor and overtime can become a crutch for an organization. Agency usage and overtime should be monitored and reported weekly so that managers can work to control it.
  
• Monitor labor costs at the department or cost center level and track overall labor costs on a case-mix-weighted basis (on as timely a basis as possible, not weeks later).
  
• Train multidisciplinary teams to look for opportunities to cut costs and improve care. At the Johns Hopkins Hospital and Health System in Baltimore, for example, teams use evidence-based strategies to help prevent central-line infections in the ICU, which can add $25,000 to the cost of caring for these patients.
  
• Align staff schedules to patient schedules, especially in outpatient clinics and satellite sites.
  
• Structure the organization so that no more than three or four reporting relationships separate the frontline employee from the CEO. Too many layers of management can interfere with operational performance.

Negotiating Favorable MCO Contracts

A healthcare system needs to use its leverage to negotiate appropriate payment in its contracts. Some hospitals have successfully cancelled or renegotiated contracts that offered the lowest rates to increase managed care revenue.

Another alternative is to outsource the contracting function. By doing so, a hospital can increase scrutiny of its contracts and gain critical market knowledge to understand what the facility should be asking for.

Some of these basic strategies may help healthcare executives overseeing managed care contracts:

• Know the competition. Managed care negotiators work on contracts full-time, so go in well-armed and well-prepared.
  
• Cancel capitated contracts if the hospital is not in a position to take on risk or if contract profitability is not present.
  
• Be timely. Don't let contracts become overdue for renegotiation.
  
• Take steps to ensure that both managed care organizations and the hospital adhere to the terms in the contract.
  
• Use your decision-support system to reconcile contract rates with actual collections on a regular basis.
      
• Review managed care contracts to see if big-ticket medical advances such as drug-eluting stents and automatic implantable cardioverter-defibrillator (AICD) units are included as carve-outs.

Dropped responsibility: If you enlist consultants to help launch turnaround efforts, make sure that once the consultants go off the clock, the oversight committee understands that it's the committee's responsibility to monitor the organization's progress toward meeting its goals.

The wrong tools: Give managers the information and tools they really need to manage their departments -- not just a data dump.

Hanging onto unused space: Have a clear rationalization of the use of surplus space to help unload unnecessary buildings that require costly utilities and upkeep.

System constraints: Financial managers of hospitals within healthcare systems need to concentrate on their hospitals' own operational goals within the processes set up for the system as a whole.

Benchmarking caveat: To be effective, benchmarking must be put in context and modified by the hospital's specific facts and circumstances. Benchmarking out of context can actually impede an organization's financial progress.

SOURCE:

Back to Basics: A Self-Help Approach to Achieving Financial Success, a collaborative effort by Navigant Consulting, Inc. and the Healthcare Financial Management Association.

Additional Resources

• Audio Webcast: Trends in Managed Care: A Survival Guide for Providers and Payers, April 20, 2004. Cosponsored by HFMA and the Society of Actuaries.
• "Scrutinize Payment Language to Avoid Costly Contracting Pitfalls," HFMA Wants You to Know, June 18, 2003.
• "A Tight Labor Market Requires Tight Labor Resource Management," HFMA Wants You to Know, November 20, 2002.
• "Maximize Staff Productivity To Minimize Workforce Shortage Effects," HFMA Wants You to Know, August 14, 2002.
• Managed care tools and information in HFMA's Resource Center.
• Preliminary Managed Care Contract Negotiation Checklist (Managed Care Forum members only).
• Labor cost tools and reports in HFMA's Resource Center.

If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble at lnoble@hfma.org.

HFMA Wants You to Know ISSN: 1540-0697. Volume III, Issue 6. Copyright 2004, Healthcare Financial Management Association. All rights reserved.