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“We believe the mechanisms enabling cost transformation are better understood now than ever before,” said Kermit Randa, chief executive officer of Kaufman Hall Software. “Hospitals continue to proceed cautiously, but the fact that they are taking cost transformation seriously is a step in the right direction.”
The survey found that while 96 percent of respondents understand the importance of setting cost reduction targets, fewer than one in four have achieved most or all of their cost transformation goals.
Hospitals face many challenges in terms of revenues and expenditures, which underline the need to reduce costs.
According to the survey, the main revenue challenges are flat or declining inpatient volumes, which were identified as their top concern by 30 percent of respondents. Other challenges included downward pressure on commercial insurance rates and a rising number of patients with Medicare and Medicaid.
In terms of expenditure challenges, nearly half of respondents said that rising wages and wage inflation, the product of a tight labor market, makes it harder to hold down spending. Because labor costs can account for up to 60 percent of a hospital’s expenditures, this trend is a risk to cost restructuring efforts. In addition, close to one-quarter of respondents said demands to finance new projects is putting pressure on their bottom line.
Close to three-quarters of respondents said they plan to invest in cost transformation technology within the next two years. But, when asked if their organization has access to reliable, trusted costing data, as many answered “no” as “yes”.
“This report demonstrates that while healthcare finance executives understand the need for performance improvement, the pathway to achieving these goals is still filled with obstacles,” said Lance Robinson, managing director at Kaufman Hall.
“Changing business models as more care migrates beyond hospital walls, combined with an aging population more reliant on programs like Medicare and Medicaid, make it imperative to control costs in legacy operations and free up resources to invest in the future. Better data and insights are key to helping healthcare leaders identify and prioritize both cost reduction and business growth opportunities,” Robinson concluded.
