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Executives’ Increasing Concerns About Hospital Costs Suggest Innovative Cost Control Measures

A recent survey of hospital/health system CEOs by a national healthcare consulting company reported that cost control is their top priority. CEOs responding to the survey noted “innovative approaches to expense reduction” as the second leading priority.


The survey results supported an April report from Moody’s Investors Service that the median operating cash flow margin for its hospitals in 2017 declined to 8.1 percent—below levels recorded during the 2008-2009 recession. (Click here for iProtean, now part of Veralon blog/newsletter, May 29, 2018, Moody’s: Preliminary Medians Show Declining Hospital Profitability.)


Moody’s noted that the decline in median operating cash flow margin came amid accelerating expenses and reduced revenue growth, with expense growth in FY17 outpacing revenue growth for the second year in a row. Its analysts referred to an increase in operating expenses of not-for-profit and public hospitals, with the increase stemming at least partly from the tight labor market.


Similarly, the American Hospital Association’s 2018 chartbook found the percentage of hospitals with negative total and operating margins had increased by the end of 2016 to recession-era levels. (Click here for the report.)



These reports and others emphasized increased hiring and high labor costs as major contributors to escalating costs. Hospitals have talked about reducing labor costs for years, even as hiring has steadily increased. Total hospital employment rose from 3.7 million workers in 1995 to nearly 5 million in 2016, according to AHA data.


Health consultants and analysts have made several observations on potential innovative solutions. For example:

  • Rather than absolute labor force cuts, focus on slowing labor expense growth
  • Focus on administrative costs including achieving economies of scale when consolidating
  • Consider decreasing corporate overhead
  • Divest and outsource non-core functions
  • Undertake a critical analysis of costs incurred by acquired physician practices, and refocus on reducing tasks that detract from clinical productivity of these physicians
  • Hire more non-physician clinicians to relieve time constraints on physicians who currently are concerned that documentation requirements overshadow time for patient care


(Source: “What’s Driving Increased Hospital Cost Concerns?” HFMA Weekly News, July 13, 2018)




The Volume to Value Paradox advanced Quality course, featuring Nate Kaufman, Marian Jennings and Dan Grauman, is in your library. These experts discuss their perspectives of moving from volume to value, the pitfalls to avoid, how to involve physicians, the impact of consolidation and scale on value and the overall challenges of inserting value into the reimbursement formula.


Our upcoming course focuses exclusively on costs and both traditional and innovative approaches to cost reduction. Look for it soon in your library!



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