In this Business Profile, Scott Elston, strategic accounts manager, GE Healthcare Services, describes how substantial cost reduction in health care requires rethinking business strategy and asset use.

Scott Elston GE Healthcare February 2015 Business ProfileTell me about your organization.

GE Healthcare provides transformational medical technologies and services that are shaping a new age of patient care. Our broad expertise in medical imaging and information technologies, medical diagnostics, patient monitoring systems, drug discovery, biopharmaceutical manufacturing technologies, performance improvement, and performance solutions services helps our customers to deliver better care to more people around the world at a lower cost.

Why is focusing on cost management so important at this particular time?

Consensus holds that healthcare organizations must cut operating costs by 10 percent or more to withstand reimbursement pressure and maintain a positive financial profile. This “new normal” involves step-function changes in delivering care and rethinking of traditional norms on optimizing hospital operations—with a keen eye toward productivity.

How serious is the cost issue? One analysis shows the average health system’s operating margin is 3.5 percent today, and it will be a negative 4.5 percent margin by 2020.1 Responses to this challenge include a wave of mergers and acquisitions, undertaken for scale and efficiency: Healthcare consolidation has increased more than 50 percent since 2009.2 However, consolidation alone is not a remedy.

How else should organizations be approaching cost?

Experience with hundreds of healthcare providers shows that those most successful at cost reduction are those best able to identify meaningful and sometimes hidden opportunities to deliver sustainable savings without sacrificing the delivery of world-class patient care. That requires an outcomes-based approach to designing a holistic strategy.

The servicing of clinical assets provides an illustration. Clinical device inventories tend to be excessive, and service quality and consistency is often far from optimal. Mergers and acquisitions have not improved this situation, often contributing to service inefficiency. Newly acquired hospitals bring more assets to already bloated inventories, while disparate service practices from site to site hinder overall productivity. Meanwhile, clinical asset utilization, from diagnostic imaging equipment to mobile medical devices, hovers at all-time lows.

Such inefficiency is one reason total service costs per bed increased by 90 percent on average over a 10-year period, even as the hourly cost of providing service rose modestly, at near the rate of inflation.3 Hospitals can address this trend by rethinking their clinical asset service approaches, remaking and standardizing processes, and letting data drive decisions.

Effective clinical asset service, more appropriately called asset optimization, has three pillars: service model optimization, mobile asset management, and lifecycle planning. Courageous strategies and actions in each area can bring rapid, substantial, and sustainable service cost reduction—on the order of 10 to 20 percent.

What does an optimal service model look like?

There are two basic models in clinical device service: in-house service and outsourcing. In-house service offers advantages that include close oversight of variable expenses, complete control of personnel, and flexibility in setting priorities. On the other hand, outsourcing providers can bring economies of scale, advanced training, and assets not always available to in-house departments, such as the latest troubleshooting tools and analytical technologies that support planned maintenance compliance, timely repairs, high device uptime, and efficient utilization—all yielding cost savings of up to 15 percent.

However, outsourcing versus staying in-house is not an either/or proposition. Often the ideal model is a hybrid that takes the best from both approaches, and avoids the cultural issues full outsourcing can bring. In-house teams retain their autonomy, yet receive access to tools and expertise that external service providers bring. Under hybrid service models, cost reductions up to 10 percent are realistic.

A key issue is whether an organization has the will to challenge tradition and revisit its approach, assessing the current model and its costs, objectively analyzing alternatives, and—if the data warrant—choosing a better and lower-cost model that will help achieve the organization’s goals.

Any other tips for examining cost structure?

Right-sizing the asset fleet is also important. Hospitals face a glut of equipment that is underutilized yet still needs to be maintained. Devices such as ventilators, infusion pumps, and telemetry units make up some 95 percent of a hospital’s clinical asset inventory. The number of such devices per bed increased 62 percent over 15 years; on average, these devices are idle more than half the time.4 Still, because of broken processes for storing, distributing, and cleaning equipment, nurses often cannot find the right device when they need it.

Newer processes can boost utilization from the typical 40 percent to as high as 70 percent. The staff can then deliver the same quality of care with much lower inventory while reducing service costs by 4 to 6 percent. Of course, this requires significant change. The clinical team must dissect existing processes, find the flaws, devise fixes, and set new procedures. Leaders then must enlist the team to abandon old habits and embrace the new ways of working. Once new processes are in place, technology can help monitor progress and reinforce compliance. For example, real-time location systems can monitor the new workflow and report exceptions, such as assets improperly stored or an inadequate number of infusion pumps in a clean room. The net results are lower spending on devices and less equipment to maintain.

Also important is focusing on using capital wisely. Healthcare providers may invest millions more than necessary in equipment. Again, process is at fault: Often a committee reviews department requests and decides to buy new imaging systems because a prominent physician wants one, because an existing system is “getting old,” or for other reasons not rooted in analytical rigor.

An effective technology planning process analyzes a range of factors, such as asset ages and utilization patterns, local healthcare market trends, patient demographics, and the organization’s strategic objectives. Data analytics then help produce an objective five-year plan that spells out what to purchase and when, which assets to retire, and ways underused assets might be redeployed. A technology plan of this kind helped one Midwest healthcare network avoid $12.5 million in capital spending in the first year alone. 

Any last advice for readers?

No “cost-out” initiative will succeed without strong advocates in the executive suite who develop the vision, set meaningful targets, and catalyze execution throughout the enterprise. Leadership can provide the energy to drive new processes that help boost service efficiency, increase asset utilization, and preserve precious capital. Also, learn from others’ successes with standardization. Systemwide methods of delivering service, managing mobile assets, and planning capital purchases can enhance productivity and drive down service costs. I encourage readers to learn more about how we are helping others adopt such approaches to navigate the coming era’s cost challenges.

1 L.E.K. Consulting and GE Healthcare analysis.
2 Weber, D.J., Rutala, W.A., Huslage, K., et al., “Role of Hospital Surfaces in the Transmission of Emerging Health Care-Associated Pathogens: Norovirus, Clostridium Difficile, and Acinetobacter Species,” American Journal of Infection Control, 2010.
3 Out of Control: How Clinical Asset Proliferation and Low Utilization Are Draining Healthcare Budgets, General Electric Company, 2012.
4 Ibid.

GE Healthcare
HFMA is the nation’s leading membership organization for more than 40,000 healthcare financial management professionals. Business Profiles are funded through advertising with leading solution providers. Learn more. 

Content for this Business Profile is supplied by GE Healthcare. This published piece is provided for advertisement purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions of those profiled are those of the individual and not those of HFMA. References to commercial manufacturers, vendors, products, or services that appear do not constitute endorsement by HFMA.


Publication Date: Sunday, February 01, 2015