The need for hospitals to accelerate efforts to bend their costs curve down is getting stronger and more immediate. In fact, results from the annual American College of Healthcare Executives’ (ACHE) survey are in and for 10 years in a row, financial challenges top the list of issues affecting hospital CEOs. Cost pressures for 2018 have become even more acute, with their average rank of importance increasing by 35 percent in this year’s survey.
How can hospital executives deal with this ever-increasing financial pressure?
We think the answer has a lot to do with courage: the courage to take informed risks, challenge the status quo and break out of the mental trap of, “Well, we’ve always done it this way.” Making what may be hard, but correct, decisions is what’s needed to “win” against the financial challenges that hospitals face.
It’s the same type of decision that Philadelphia Eagles coach, Doug Peterson, faced in this year’s Super Bowl. With the score at 15-12, the Eagles could have settled for a field goal and gone up 18-12 or aimed for the touchdown. The courageous call was not as risky as it may have looked on the surface. It was preceded by countless hours of practice and preparation, and informed by the coach’s confidence that the team could execute – which they did. Football fans know what happened next: the Eagles went for the bigger play and won the game.
The ACHE survey reported that the top three financial concerns are (1) reductions in Medicaid reimbursement, (2) increasing costs for staff and supplies, and (3) reducing operating costs. After reviewing the results, we wondered why capital medical equipment spending hasn’t received more attention as a way to address these challenges. It represents $95 billion in total spend across U.S. hospitals and is far from fully rationalized.
But the fear of taking a risk and trying something new often prevents hospitals from taking steps to reduce equipment costs. Historically many hospitals have relied on outdated tools and inaccurate pricing information sources to help them benchmark their equipment spend, and as a result, lack visibility into the total cost of equipment across its lifecycle. Because hospitals don’t have an accurate understanding of how much they spend or how much they can save, they stick with the status quo.
How can hospitals make the right call when it comes to cost reduction? Unlike the wild play that won the Eagles the Super Bowl, there is a much lower risk way to have a significant incremental impact. By having the right information, hospitals can challenge “accepted” rules, methods, tools and procedures, and can typically find 12-16% incremental, annual savings hidden in their capital medical equipment budget.
Hospital executives will surely face some difficult financial decisions this year. But the decision to rethink capital medical equipment spending – an area well within hospital’s control – is a no brainer.