Moderate goals and moderate success in achieving them will not produce transformative outcomes.
A new report on performance improvement jointly released by Kaufman Hall/Axiom and HFMA indicates that hospitals and health systems continue to face stiff headwinds. Respondents to the survey that was the basis of the report’s findings cited flat or declining inpatient volumes and downward pressure on commercial insurance rates as the two most significant pressures on revenue. Nearly half the respondents (47%) cited rising salaries and wage inflation as the most significant pressure on expenses.
Without greater accountability, incumbent providers will struggle to compete
The pressures on hospitals and health systems will not abate. The flat or declining inpatient volumes noted by respondents are indicative of changes reshaping both healthcare delivery and healthcare business models. Growth is occurring outside the hospital wall’s in outpatient centers and retail locations.
Incumbent health systems face the prospect of increased competition from new market entrants that do not bear costs of providing acute inpatient care, nor the burdens of legacy assets, delivery models and culture. They often have significant reserves of capital at hand, either through private equity backing or the scale and resources of national competitors such as
CVS Health or Walmart. Many are experienced retail operators accustomed to competing on price.
Effective competition in a new, retail-focused healthcare business model will depend on the ability of incumbent providers to execute on strategies that radically reform their cost structure and enable them to compete on access, convenience and price. Yet signs of the ability to engage in this radical restructuring are not promising. While 96% of survey respondents indicate that their organization has targeted cost reduction goals, these goals represent 10% or less of current costs for 84% of respondents. And fewer than 1 in 4 respondents report that they have had success in accomplishing “all” or “most” of their cost transformation goals to date.
In short, most organizations have set moderate cost transformation goals and have had moderate success in achieving them. This will not result in the transformative outcomes the current healthcare environment demands.
What is holding organizations back? The survey results show a three-way tie for the most significant impediments to achieving cost transformation goals. They include:
- A lack of good data and insight into costs and where savings opportunities exist
- Too many savings opportunities that are too politically sensitive to pursue
- A failure to hold leaders accountable to performance for cost transformation goals