A recent analysis from the Office of the Actuary at CMS, reports that the national healthcare spending reached a total of USD 3.8 trillion before the pandemic hit the world. Conversely, there has been a steady decline of around 20% and 34% in inpatient and outpatient volumes, respectively. As a result, the American Hospital Association (AHA) predicts that the higher-than-usual supply expenses and other pandemic-related costs can lead to USD 323 billion loss for hospitals and health systems across the country. To curb the mounting expenditures in the healthcare industry, healthcare CXOs are shifting focus to cost optimization strategies. However, before focusing on cost optimization, one must consider:
Here are five non-traditional areas that can be optimized to bring down healthcare costs.
Medical Waste Management and IoMT
Medical waste in hospitals could have a severe impact. The economic costs associated with medical waste range from USD 760 billion to USD 935 billion, as improper management invites increased premium and out-of-pocket medical expenses, thus increasing healthcare costs. Investing in care coordinators, community health workers, and social workers can help to improve quality and cut costs. Waste management monitoring through sensors and IoMT can help hospitals become more efficient and remain compliant with various regulatory bodies such as OSHA.
Care Management and Process Optimization
In a dynamic environment, a lack of process standardization can increase the chances of variations in patient outcomes, resulting in longer LOS and increased costs to the healthcare system. Leveraging the power of data and data-driven processes, healthcare providers can standardize processes and identify areas that require improvement in terms of care delivery. Over a period of time, the data can help implement evidence-based workflows that improve consistency and coordination across processes.
Diagnostic Testing and Predictive Analytics
A report states that the costs of diagnostic testing account for more than 10% of all healthcare costs. However, there is also a rise in death or disability, with more than a million a year harmed by diagnostic errors, in the US. The repercussions of wrongful diagnosis can insure both direct and indirect costs that include medicolegal costs, increase in medical liability premiums, among others. While there is still an ongoing debate to determine whether diagnostic tests are being overused or underused, the cost factor of unnecessary testing must be taken into consideration. With the growing use of technology in healthcare, hospitals and other medical facilities must leverage electronic health records (EHR) for information transfer across care teams. The data acquired from EHR can be used in combination with new-age technologies such as predictive analytics and machine learning to minimize human errors and costly adverse events.
Data-driven Decision Making
The World Bank reported that the US leads the world in healthcare spending, with almost 18% of its GDP contributing to healthcare costs. One of the focus areas of cost optimization is the quality of consolidated patient information available to physicians, as it is critical to improving safety processes and quality. Lack of insight into patient information and process management leads to an increase in cost due to length of stay or complication rates. To manage frontline costs, it is imperative to establish a robust data-driven system. Using systems such as EDW will enable physicians to get real-time answers to clinical quality improvement queries, thus giving them the opportunity to analyze LOS and make necessary changes. Simply put, a hospital can improve its productivity by up to 26% by creating an environment for better decisions, thus creating more opportunities to optimize cost.
Supply Chain and Standardization
While focusing on increasing the volume, revenue, and growth of hospitals, one of the areas that is affected due to lack of attention is the supply chain. Gartner reports that the total healthcare supply chain cost averages to 37.3% of the total cost of patient care. The supply chain in a hospital can be affected by inefficiencies, service duplication, and poor labor management. To optimize costs in this segment, hospitals must focus on standardizing processes, manage physician schedules, and leverage health systems to handle patient access and flow. To build resilience within the healthcare supply chain, the top management must implement preventive measures such as improvements to data analytics and supplier visibility, and external intelligence focused on the healthcare supply chain.
Having discussed the different focus areas for cost optimization, it is important to implement these strategies wisely. While implementing a cost optimization strategy, one must follow these four rules:
According to Gartner experts, avoiding reactionary cost-cutting in favor of purposeful prioritization requires a partnership between CIOs, CFOs, and CEOs. To that end, Gartner recommends the following: