Cost containment in hospitals

Dr. Subhodip Mitra,Junior Resident,Dept. of Hospital Administration,KMC, Manipal.

Overview

Definitions. Essentiality, challenges and ways of achieving it? The global scenario. Improvement areas of hospital :i. Infrastructure.ii. Operations.iii. Information technology.iv. Material management.v. Finance.vi. Human resources.vii. Marketing. Summary

Definitions

Cost Containment : A detailed plan and process of maintaining organizational cost and

purchased prices within certain specified target limits over a period of time.

Cost Avoidance : An effort to prevent or reduce supplier price increases and ancillarycharges through the use of value analysis, negotiations, and a

variety of other techniques.

Cost reduction: A reduction in the costs incurred by an organization which has tangible results; i.e., a reduction in outside spend and/or the

availability of funds that can be used for purposes other than originally intended.

Why is it essential?

Rising material cost. Increments for staff. Less availability of manpower. Requirement of star players. Other increments: electricity,.etc. Quality : Accreditation. Reduction of income:- Government schemes trying to cap bills.- Poor reimbursement rates.- Hospital only source of revenue is patients.

Challenges

All hospitals are faced with challenges in today’s economic climate.

 These include:

1. Containing spend and reducing costs are the highest priorities.

 2. Accomplish this containment and reduction with less help. 3. Achieve results without jeopardizing on quality. 4. Targets need to be achieved in a timely manner.

How to achieve it?

Accomplishing these cost containment and cost reductionobjectives requires: 1.Experience. 2.Functional Knowledge. 3.Strong project management. 4. Correct business analysis skills. 5. Ability to effectively manage the change and make it

stick.

What to keep in mind?

There are four key areas where providers need to focus to succeed:

1. Be clear about the patients to be served and the business model.

2. Have highly efficient processes based on standardization and flow.

3. Develop models for workforce, technology, buildings and logistics that drive quality and lower costs.

4. Create systems to manage this and drive continuous improvement.

Areas of improvement?

1. Infrastructure.2. Operations.3. Infrastructure4. Material management.5. Human resources.6. Finance.7. Marketing.

1. Infrastructure

Building orientation and structure.

Scope for change and adaptability.

Layered hospital:1. Hot floor2. Hotel3. Office4. Factory

1. Infrastructure

Design approaches

• Minimizing waiting and circulation space.• Limiting the number of different room

types in favour of adaptable rooms to reduce patient transfers (which increase delays and costs).

• Reducing the use of water and energy and using sustainable sources of energy.

Hospital Energy Expenditure

2. Operational management

Devolved management with flat structures. Deployment of lean techniques to eliminate

waste and maximize quality. Strong governance with and independent

knowledgeable oversight by a properly qualified board.

Measurement systems. The ability to compare performance against

others so learning can be adopted from elsewhere

2. Operational management

Strong relationship between a number of factors and effective management practices:

• Competition helps to improve managerial

standards. • Having senior, clinically qualified managers

improves results. • Larger hospitals invest more in management

and appear to be better managed .

2. Operational management

Developing the right set of metrics and reporting standards .

Real time availability and having the competences to interpret and act on this information.

Willingness to prototype and pilot new ideas.

Business intelligence models. Healthcare IT.

3. Information technology

4. Material Management

Proper inventory control:

1. Setting up of various stock levels:a) Re-ordering level.b) Maximum level.c) Minimum level.d) Avg stock left.e) Danger level.f) Economic order quantity.2. Preparation of inventory budgets.3. Maintaining perpetual inventory system.

4. Material Management

Inventory Turnover Ratio:(a) Slow moving Inventories.(b) Dormant Inventories.(c) Obsolete Inventories.(d) Fast moving inventories.

ABC analysis.

Just in time.

Planned preventive maintenance.

5. Finance

Revenue cycle management

5. Finance

Improve the working capital management:i. Maintaining efficient levels of both components of

working capital, current assets and current liabilities, in respect to each other.

ii. Ensures a hospital has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

iii. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.

6. Human resources

6. Human resources

Planning level rational assessment of manpower requirements by WISN (work load indicators of staffing needs):

1. Determine how many health workers are required to cope with actual workload in a given facility.

2. Estimate staffing required to deliver expected services of a facility based on workload.

3. Calculate work load and time required to accomplish tasks of individual categories.

4. Compare staffing between health facilities and administrative areas.

5. Understand workload of staff at a given facility. 6. Fair workload distribution establishment amongst staff.7. Assess the workload pressure of the health workers in the

facility.

7. Marketing

Marketing strategies.

Camps.

Using the social media.

Display of educational material.

Summary

Healthcare costs are increasing and cost growth is speeding �up

Traditional cost containments strategies can cut costs but �won't slow cost growth.

Costs should be contained at the healthcare system level by:�–Containing technology adoption, the most important factor of

growth.–Containing hospitalization costs, the most important spend

area.Costs can be contained at the hospital levels by:�–Improve clinical staff efficiency .–Outsourcing of non-core functions.–Excel in operations.–Adopt IT.