Cost reduction, disruption top of mind for healthcare leaders

Healthcare executives looking to the future understand that their organizations may need to disrupt the space and focus on cutting costs, according to a recent survey of senior leaders.

The survey, conducted by Hammond Hanlon Camp LLC between Jan. 2016 and Dec. 2017, collected responses from ­senior leaders from 100 of the largest U.S. health systems.

Survey highlights

The vast majority of healthcare executives––85 percent––see the industry as being at “significant risk” of disruption, and many have already begun to develop strategies to prepare for a “transformative future,” according to the survey.

To get ready, 71 percent of organizations have invested in technology and digital health tools, and 67 percent agree that diversifying service lines for different revenue streams will be important. Namely, taking on private care may be a solution.

“It’s becoming more difficult to generate any margin on government-insured patients, and there will only be more of them,” a CFO said in the survey. “It’s important that we develop new profit streams that can offset those losses.”

Executives were also in agreement that cost reduction is important––90 percent of respondents said it was a “high priority” or “very high priority.” Furthermore, its importance rose from 2016 to 2017.

“There is not a scenario I can foresee where you can allow higher cost,” one chief operating officer said in the survey. “Everything is pushing us to be very aggressive [around reducing costs].”

This may be partly due to declining operating margins––an average of 3.7 percent in 2017 compared to nearly 4 percent in 2016. Nearly half of executives also anticipated their margins would drop again in 2018.

Labor (68 percent), supply chain (42 percent) and pharmacy (42 percent) were the most cited areas of cost reduction focus.

“We’ve done a lot of holding off new hires and new positions to make sure we’re not overstaffing,” one respondent said. “[Efforts are] focused more on non-clinical and administrative areas. We do more vetting for new positions: Even if the position was approved in the budget, it still might not be approved to be hired.”

More than two-thirds of executives also believe their systems should transition to value-based payment models faster, but 73 percent of leaders ranked their organization as a 3 on a scale of 1 (very slowly) to 5 (very quickly).

More health systems are looking to make strategic partnerships to adapt as well; 29 percent of health systems planned to form one during the second and third quarters of 2017, compared to 71 percent that planned to form one during the last quarter of 2017 or the first quarter of 2018.

Another widespread priority, identified by 85 percent of executives, was cybersecurity. Budgeting decisions played a role in how organizations are dealing with data breach threats.

“If we are 98 percent secure, is reaching 99 percent security worth another $5 million in investment?” one chief medical officer questioned. “It’s hard to know when the marginal cost exceeds the benefit. It’s a difficult decision to have in an era of financial constraints.”