In a recently released report, the Congressional Budget Office analyzed 3,000 hospitals to forecast their financial health in 2025. Profit margins were predicted in three scenarios – increasing efficiency in line with the overall economy (about 0.8% annually), at half that rate (0.4% annually) and at zero, or no efficiency gains at all. You can read the full report here.
I took away two important points from their findings and suggested responses. First, they are essentially predicting that well over half of the hospitals delivering care today may not be doing so in less than a decade. Some will be acquired by larger IDNs, some will narrow their focus to a few specialty services, and the others will be out of business. At a time when so much attention is being given to population health, this prediction should give us pause because it represents a lot of at-risk care delivery capacity.
Secondly – while I respect the CBO’s need to make conservative estimates that are supported by past performance indicators – the fact that we set such abysmally low expectations on our industry’s ability to transform is beyond disappointing. And, suggested responses mention nothing about increasing margins by reducing operational costs. In 2012, the Robert Wood Johnson Foundation published a study stating that nearly a third (30%) of healthcare spending is waste. I have seen estimates ranging from 30% to 40% in other studies. And while a great deal of that waste is attributed to unnecessary or ineffective services and costs associated with treating preventable illnesses, we shouldn’t overlook that inefficient operational processes drive a significant portion of that waste.
Unlike the many other areas that are highly regulated, we have the ability to change our processes as we see fit. Since we are not used to hearing these words, I’ll repeat. We are in control of how much we spend on our day-to-day operations. This is good news. Let’s take advantage of this freedom while we can by first gaining visibility into the actual cost of our operations, and then by systematically cutting out waste. I encourage you to read recent interviews with healthcare leaders posted on the InSites Blog in which they share the ways their organizations are transforming operations by leveraging location-based intelligence and continuous process improvement. Once you get started, you will find that change is not only within our control, but also impactful and rewarding – for your bottom line as well as your patients and staff.
(Recommended Reading: InSites blog posts containing interviews with Caryn Hewitt, RN, MBA, Director of Nursing Operations at Sanford Health and Mark Waind, CIO of Altru Health System and President of the ND HIMSS Chapter)