The Cost Containment Imperative for 2018: Is There a Silver Bullet?

There’s a common thread that runs through most published predictions regarding this year’s healthcare environment: 2018 promises to be an even more challenging year for hospitals. Experts predict that the pressures hospitals faced in 2017 – namely, uncertainty over healthcare reform, ever-increasing costs and declining reimbursements — will intensify this year.

A recent article in Healthcare Dive, Why hospitals will face greater cost containment efforts in 2018, caught our eye. Hospitals’ need to reduce spending is not news, but the current healthcare environment has created a heightened sense of urgency for managing costs and expenses. The implications for 2018 are clear; the cost-savings actions taken in 2017 simply aren’t going to be enough in the 2018 environment. But the good news is that hospitals willing to embrace change can have a meaningful impact on their cost-containment initiatives in 2018 and beyond.

The article outlines three categories that hospital executives are expected to focus on to drive cost savings this year, including clinical variation reduction, labor management and revenue cycle management. While these are important strategies, we believe there’s an overlooked opportunity that’s worthy of attention: medical equipment costs. While there’s no single silver bullet for controlling costs, managing medical equipment lifecycle spending is the closest thing to a silver bullet that hospital leaders have for reducing costs in 2018.

Although it represents over $95 billion in total annual spending according to U.S. Census Bureau estimates, medical equipment lifecycle costs are generally not on executives’ radar as a place to look for savings. We have seen hospitals across the U.S. realize savings of $13,000 per bed (or $3.9 million for a 300-bed hospital) by adopting a systematic approach to managing medical equipment costs and related expenses, such as service contracts, throughout the life of the equipment. To carry this example further, $3.9 million in bottom-line savings translates into the revenue equivalent of $195 million for a hospital operating with a 2% margin. Finding savings in your capital equipment budget can not only bolster the bottom line, but also relieve some of the pressure of finding new revenue sources in today’s challenging market.

This year hospital executives will need to find new levers to pull in order to drive down costs. As your hospital begins to execute on its 2018 plan, how will you address the cost-containment imperative?

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