Sarah Gabriel, Financial Leadership Council
Nearly three out of four health care executives believe that improving clinical operations and care delivery performance provides the single largest opportunity for cost savings.1
Leaders at Arch Health System2 (AHS) agree. After launching a system-wide “Cost and Value Positioning Initiative”—which uses data to link cost and quality—AHS administrators identified $69 million in potential savings from clinical redesign.
But administrators quickly realized they faced a barrier common to many systems: skeptical clinicians. To actually realize savings associated with clinical redesign, finance leaders had to work closely with clinicians concerned with how cost reductions could potentially affect clinical quality.
How one system unearthed a $69 million clinical redesign opportunity
The next decade will bring challenges for hospital and health system CFOs as reimbursement rate increases slow and more of the patient population shifts from private to public payers. Adding to the complexity are an uncertain regulatory environment and continuing cost pressures. Barring a fundamental change in operating procedures, many hospitals will find it difficult to maintain positive margins, particularly on Medicare business.
Recognizing the effect these challenges could have on revenues, the finance team at Mountain States Health Alliance (MSHA) modeled their Medicare margins over the next five and ten years. The baseline scenario was eye-opening: their Medicare margins would decrease from -7% today to -16% in 2016 and -27% in 2021. Based on these projections, the MSHA finance team, led by Chief Financial Officer Marvin Eichorn, created a comprehensive, dynamic plan with distinct financial improvement goals for recovering Medicare margins.
Breaking even on Medicare: Do you have a plan?