When an industry’s margins shrink due to external factors, it is forced to find operational efficiencies wherever possible. That is the state of healthcare today. As healthcare delivery moves away from the fee-for-service payment model to a value-based payment system, providers recognize the need to improve operational efficiencies. And not just by a little—but in many cases, drastically, to prepare their organizations for a new environment that is just over the horizon.
Healthcare providers are looking inside labor, process workflow, care coordination, supply chain, revenue cycle and all possible cost centers within their systems for areas to cut costs, streamline operations, and increase and secure new revenue. They are doing so to achieve double-digit margin improvement to meet the demands of value-based care.
In this survey, healthcare executives across the country told us how they are uncovering areas for reduced costs, and realizing improvements that are making an impact. In preparing for the future, their focus is clear: Investing in the patient is the way toward profitability.
When margins are being squeezed, something is either pushing the top line down, or the expense line up—or both. When it comes to hampering provider revenue, healthcare executives resoundingly responded that rates from payers are placing the biggest pressure on their revenue right now (47%). As the government prods the industry toward value-based reimbursement, and third-party insurer consolidation strains rate negotiations, the pressure on pricing is at its peak. The increasing prevalence of high-deductible plans is also placing downward pressure on provider revenue (18%) (though not nearly as heavily as rates from payers) indicating that providers are just learning to adapt to these plans’ effects on patient financial literacy and collections.
Only 5% of healthcare executives responded that their organization is not experiencing downward pressure on revenue. When nearly all organizations are looking to improve margins, the question must be asked, what is getting in their way? Based on the first question’s results, it is no surprise that regulatory requirements are the biggest obstacle to improving margins (54%). And in a time of rapid change and preparation, investments that are required to prepare for the future is the second largest obstacle (48%) to improving margins. Other obstacles include the pace of the shift to value-based care (40%), states not moving forward with Medicaid expansion (31%) and pricing from suppliers/vendors (30%).
While investments may be preventing providers from taming the expense line, such investments are expected to contribute cost savings and efficiencies in the near future. Where have providers invested with hopes of operational improvements? In multiple and varied areas. Almost three-fourths (72%) invested in IT systems; other popular investments include physician/ employee alignment activities (59%), redesigning workflows (56%), and patient engagement initiatives (44%). Less popular investments include building/energy upgrades (25%) and consulting (21%). Only 4% of survey respondents said their organizations have not made any significant investments in the last 24 months, indicating a time of heavy investment for healthcare providers.
Certain investments are already paying off for some providers, but not for the majority. Healthcare executives say their investments in redesigned workflows are paying off the most, with nearly 4 in 10 respondents indicating they have already recouped their investments in that area. Other investments, however, are not yet recovered, with only about 1 in 4 respondents identifying IT system costs as being recouped and only 1 in 10 identifying recouped savings through consulting investments. A sizable group of executives, 22%, say they have not yet recovered any investments.
Providers are deploying a mix of strategies to widen the chasm between revenue and expenses. To boost revenue this year, providers are placing the highest importance on fostering patient loyalty and retention through improved patient experience and satisfaction initiatives. Second-tier strategies have providers increasing revenue through existing patients, by focusing on collections (56%) and improving clinical documentation (55%). Third-tier strategies are focused on volume, through adding service lines (36%), acquiring physician practices (34%), acquiring outpatient facilities (17%), and going through a merger (13%). Interestingly, healthcare providers expect increased volume to pay off the most when it comes to boosting revenue, demonstrating they still have one foot on the fee-for-service “dock” while they’re boarding the value-based payment “boat.”
On the cost savings side of the equation, providers have more mixed views about capturing short-term savings than they do about securing long-term savings. In the short term, defined as within the year, 37% believe standardization within their organizations provides the best opportunity to curb costs. Reducing bad debt (24%), staff reduction (14%), and shared services (12%) round out the top four strategies. In the longer term, however, defined as three years into the future, a majority (55%) of providers identify care coordination as the top opportunity to reduce costs. Telemedicine, narrow networks, ICD-10 and reducing physician preference items were not seen as primary opportunities to reduce costs, with all earning under 10% of respondents.
As one of the healthcare industry’s leading providers of business and operational services, Parallon is uniquely equipped to provide a broad spectrum ofcustomized services in the areas of revenue cycle, purchasing, supply chain, technology, workforce management and consulting. We offer unmatched scale, infrastructure and access with more than 70 domestic and international facilities in the United States, U.K., and China.
Modern Healthcare Custom Media’s (www.modernhealthcare.com) dedicated team of writers and researchers develops custom content solutions designed to educate and engage readers. These custom content solutions provide in-depth information on a specific trend, topic or solution that is top-of-mind for healthcare executives.
This briefing summarizes the results of a custom research survey conducted by Modern Healthcare Custom Media on behalf of Parallon. The purpose of the research is to gauge how healthcare providers are improving margins by double digits.
Invitations to participate in a web-based survey were sent via email to 15,000 healthcare executives in June 2015. As an incentive to complete the survey, respondents were offered the chance to win a $500 gift card.