Health Systems Need to Completely Reassess How They Manage Costs

Jeff Goldsmith Article in Harvard Business Review

A recent Navigant survey found that U.S. hospitals and health systems experienced an average 39% reduction in their operating margins from 2015 to 2017. This was because their expenses grew faster than their revenues, despite cost-cutting initiatives. As I speak with industry executives, a common refrain is “I’ve done all the easy stuff.” Clearly, more is needed. Cost reduction requires an honest and thorough reassessment of everything the health system does and ultimately, a change in the organization’s operating culture.

When people talk about having done “the easy stuff,” they mean they haven’t filled vacant positions and have eliminated some corporate staff, frozen or cut travel and board education, frozen capital spending and consulting, postponed upgrades of their IT infrastructure, and, in some cases, launched buyouts for the older members of their workforces, hoping to reduce their benefits costs.

These actions certainly save money, but typically less than 5% of their total expense base. They also do not represent sustainable, long-term change.

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