How health care leaders can transform beyond traditional cost cutting

Health systems need to optimize clinical and operating model functions, maximizing short-term performance to fund long-term growth.

In brief

• Health providers are in an unprecedented market that is putting significant pressure on them; Yesterdays solutions will not solve today’s problems
• In order to be viable for the foreseeable future, health systems needs to simultaneously improve operations, restructure their model, and advance their operations with digital
• By utilizing this framework to address both specific operational challenges and existential financial challenges, providers can chart a course to long-term financial sustainability

Financial stability framework

To be successful, health systems will need to coordinate dozens of interrelated initiatives all at once, with blistering speed and at scale. Fortunately, the framework to achieve financial sustainability (described above) is flexible. It can be applied at the macro level to the overall journey to financial health, as well as to individual operational challenges facing organizations, like being over capacity.

Optimize operations

In today’s climate, traditional optimization of operations is still critical to cutting costs, capturing savings and improving margins. Health care organizations should begin by evaluating their overall operational efficiency. There are several opportunity areas where organizations typically find success optimizing operations:

• Evaluating spans and layers of an organizational structure
• Optimizing supply chain channels and relationships with vendors
• Addressing referral management and patient access

Most hospital operators know these levers of performance improvement and have employed them as tried and true methods for reducing costs and improving revenue capture. But today’s problems cannot be solved using yesterday’s tools alone.

Restructure the model

While optimizing operations is essential for reducing costs, the willingness of an organization to rethink and restructure its business model will be essential to address long-term financial stability. Many health care systems have grown through acquisition and new partnership models, which if not integrated thoughtfully can lead to inconsistent governance, misaligned incentives and suboptimal physician enterprise operations, from primary care providers to acute and post-acute sites of care. These dynamics create time and resource waste, which create unsustainable financial conditions and negatively impact patient experience.

Organizations can mitigate some of these concerns by:

• Reorganizing programs to break down silos between acquired entities
• Outsourcing noncore business functions or creating highly effective shared services functions
• Scaling focused acquisitions to adopt transformative technology platforms

This can help pave the way to delivering a superior, digitally enabled experience for providers and patients.

Advance with digital

Digital enablement has allowed organizations across every sector to deliver personalized experiences at scale, drive standardization, and create operational and economic efficiency. Leading health enterprises are already advancing with digital and analytical capabilities to understand, predict and better address patient needs; improving employee experience by automating redundant, non-value-added tasks; and creating new care pathways and access points via digital solutions and devices.

Leverage key technology enablers by:

• Automating workflows in the back and front of the house using intelligent automation and robotic process automation
• Standing up remote monitoring across inpatient settings
• Pushing care to the home through virtual care and “hospital at home”

Organizations must balance the complexity of implementing technological solutions with their organizational operational readiness. Implementing digital solutions requires thoughtful analysis of current opportunities and enablement of foundational capabilities. Done well, these capabilities support financial sustainability while positioning organizations to be on the leading edge of health care.

To help illustrate how we’ve seen providers succeed in their transformational journeys using the financial sustainability framework, here are some common examples of situations that health systems face.

How to address: constrained volume and poor patient experience

When a recent client realized that patients with specialty referrals were taking longer than six months to be seen, and patient call abandonment rates were hovering around 15%, the client recognized it needed help. These challenges limited this system’s ability to grow its customer base as patients looked to its competitor for quicker, easier access to care. All levers of the financial sustainability framework were implemented to improve access. The full impact came when the client was able to leverage the use of omnichannel methods to communicate with patients (e.g., chatbots, interactive voice response, text messaging, apps). Enabling the digital front door helped to decrease friction in interactions with patients, improve clinician productivity and increase accessibility to the system. When patients can schedule appointments within 14 days, it stops them from shopping around, meaning that referrals are more likely to stay within the system. Focusing on all these improvement areas helped this organization directly improve patient volume, reduce potential leakage and improve the overall patient experience. This client and others like it who utilize the Financial Sustainability framework to address issues with access, are able to reduce leakage by more than 10% while growing internal volume by 5% to 7%.

How to address: lack of standardized core business operating model

Lack of standardization across core business operating models

Another common situation we have helped providers and payers address is the lack of standardization across core business operating models. Non-health companies and payers have been using offshore labor as a viable cost-saving option for both outsourcing and captive shared services for decades. We are now seeing providers pursuing varying degrees of outsourcing and offshoring as part of their margin improvement strategy, with a mix of delivery models. One health system sought our help during design and implementation of an end-to-end target hybrid operating model comprising shared services, local organization and third parties. The work spanned the gamut, from designing the migration strategy to rethinking the service delivery model. In this case, we helped the client explore global shared services that ultimately led to the migration of employees to a greenfield shared services center in Southeast Asia. The types of functions migrated to an offshore center included accounts payable, credentialing, marketing, financial clearance and clinical authorization, among others. Such a change to the operating model required a deep understanding of the integration and transformation impact, including clear headcount planning and clear mapping of roles and activities performed. Labor arbitrage of this scale can enable systems like this client to realize cost savings of 10% to 30%.

How to address: liquidity constraints

Liquidity constraints

Another issue many of our clients are facing is constrained liquidity – financial pressure has impacted their cash on hand, impacting their ability to fund strategic initiatives. One client we worked with had an ambitious vision for growth that included funding for acquisitions, ERP (enterprise resource planning) implementation and service line growth. Unfortunately, due to constrained liquidity, many large transformations were being put on hold. We helped this client realize that while the cash culture existed at the executive level, it was failing to cascade throughout the organization due to misaligned incentives. Instilling a cash culture began with educating the organization on why it was beneficial for its day-to-day operations. In optimizing operations, we helped streamline processes to drive efficiencies across the board (e.g., supplier consolidation, accounts receivable improvement) and were able to set cash targets in addition to profit and loss goals. This enabled the organization to release cash and proceed with projects without having to go out to market for capital. We were able to meet the urgency of the moment by increasing cash on hand by 5% to 7% of net patient revenue in approximately four to five months.

Fernanda Gregorio, Jaymee Lewis Desse, and Sumedha Niranjan contributed to this article.