Best Practices for Improving Hospital Profitability
Amidst expansive healthcare reforms, many healthcare organizations and practices are struggling to achieve profitability while providing quality healthcare. According to the Centers for Medicare and Medicaid Services, national healthcare expenditures are expected to grow by 4.8% in 2019, reaching $3.8 trillion.
Additionally, factors like increased competition, cuts to Medicaid, and an increasing number of insured patients are also contributing to dwindling revenue. As hospitals struggle with higher costs and lower revenues, there’s a need for comprehensive guidance to facilitate profitability.
In this blog, we take a look at a few best practices to improve hospital profitability.
Reasons for Increasing Costs
To understand how hospitals can become profitable, we must first recognize the factors that contribute to their financial failings at a national level. Healthcare spending in the US outstrips other countries by far, even as health outcomes lag behind. A report published by the Commonwealth Fund highlighted a few reasons why US hospitals are not cost-effective:
- High Practitioner Salaries: When compared with other high-income countries, US doctors are paid nearly double.
- Increased Spending on Drugs: The US spends nearly $1,443 on pharmaceutical costs per person; that’s double the average of any other country.
- High Administrative Costs: In the US, nearly 8% of all healthcare expenditures are related to regulating, managing care, and planning. Other high-income countries spend an average of 3%.
Improving Hospital Profitability
Increasing hospital profitability involves adopting strategies that cut down on costs while, at the same time, increasing reimbursement and revenue. The following are a few best practices that help achieve profitability.
Reduce Supply Costs
Similar to wage costs, the cost of supplies also accounts for a significant portion of a hospital’s budget, but is easier to cut down. The first step involves negotiating with vendors for discounts and, if possible, more favorable terms of agreement. Secondly, hospitals should try to work with as few vendors as possible to achieve economy of scale.
Thirdly, hospitals must be vigilant regarding supply orders. They need to ask vendors to produce a purchase order in case they receive unwanted or unordered supplies. This prevents vendors from including expensive items that the hospital had not ordered in their billing.
Finally, hospitals must routinely remind staff to not be excessive and wasteful in regard to supplies in order to prevent unnecessary costs from rising any further.
Reduce Readmissions
Readmitting patients negatively impacts a hospital’s profitability in two main ways. The first is the addition of a cost which can otherwise be avoided. The second is the fact that high readmission rates negatively impact the image of a healthcare facility. A hospital might even risk losing government reimbursements in case of excessive readmissions.
Readmissions can be reduced by improving patients’ experience and outcome, something that can only be achieved by providing high-quality care services.
Reduce Staffing Costs
Staff salaries represent the largest cost that hospitals incur. Hospitals can make use of patient census data to understand whether it has too few or too many employees. Depending on the outcome, hospitals can then determine if they want to implement flexible staffing regimes.
Implementing staffing regimes is an effective way of hiring part-time professionals when patient numbers begin to soar. It significantly cuts down on staffing costs as extra staff is brought in only when required. Hospitals can scale their operations while reaping the benefits of full-time staff. However, such a move risks increasing employee dissatisfaction rates.
Outsource Certain Services
When facing financial difficulty, it’s best to outsource unprofitable operations such as IT, laundry, clinical services, and recruitment. By handing these services over to specialized firms, hospitals will benefit from increased efficiency, which inevitably results in increased profitability.
Take recruitment, for example. A qualified healthcare recruitment agency has access to a large database of potential candidates searching for career opportunities. Such agencies prove far more effective than in-house hiring managers because of their access to large networks that help identify and contact candidates who would otherwise remain inaccessible.
Also, these agencies have internal vetting processes that ensure hospitals end up recruiting staff members who align with their culture and goals. In a day and age when physician and nurse shortfalls continue to grow, getting help from recruitment agencies is a great option.
Use Health IT Systems to Monitor Utilization
Hospitals can use effective technologies to become increasingly efficient and profitable. One way is to use clinical decision support systems. These systems enable hospitals to achieve desired financial outcomes by decreasing unnecessary tests and overseeing laboratory utilization without affecting the quality of patient care.
These are a few best practices hospitals can implement to increase revenue and profitability. Medical Associates Consulting is a medical professional recruitment agency that helps hospitals recruit talented medical staff and provide quality healthcare services. Contact us today for more information.
