As hospitals try to rebound while coping with the COVID-19 pandemic, Dr Rajen Ghadiok, Domain Leader – Healthcare delivery, Praxis Global Alliance and Mehak Batra, AVP – Healthcare and Pharma & Life sciences, PGA Labs believe that cost savings can be achieved by selectively centralising and regionalising the administrative and/or overhead functions. They analyse a few strategies that can help yield operational savings and increase both bottom line and top line for hospitals
COVID-19 pandemic continues to be a primary concern for the healthcare industry and workers alike. With plans and protocols around patient care, testing and treatment changing almost every fortnight, concerns around hospitals’ financial operations, revenue cycles amidst the shortage of staff and medical supplies, are becoming a cause of concern.
The COVID-19 pandemic has thrown a spanner into the works. The result, a grinding halt, disruption of services and a run to reorganise and restructure.
OPD and diagnostic services such as imaging, and ultrasound have experienced a dramatic drop in demand, and the stock prices of major hospitals have also seen a correction of 25-40 per cent from March this year, but the trend now, is slowly reversing, with 15-20 per cent uptick in the volumes of elective procedures from the last quarter. Elective surgeries, which are the most profitable cases for hospitals – are expected to return to the normal volume levels in Q1 of FY21, for the divisions that have been operating during COVID-19.
Similarly, OPD services have also experienced an adverse impact along with the imaging procedure volumes – with a decrease of 50-70 per cent in the pandemic hit regions. Medical tourism which contributes to ~10-12 per cent of revenue for the domestic hospitals has also been nil during the pandemic.
Of all the patients that visit the hospital – 40 per cent are cash payers, 35 per cent are privately insured and 25 per cent of them have government insurance. The rising cases of insured (government + private) COVID-19 patients and limited funding support has resulted in an increase of debtor days by 30-60 days for private insurance and 90-180 days in the case of government insurance. Hospitals are hence, left struggling to tackle this revenue gap both in the long-term and in rolling forecasts, while the payment cycles have not changed.
Strategies to help increase top-line and bottom-line for hospitals
There are firstly qualitative factors such as usage of advanced medical equipment, complexities of critical cases, the types of services hospital offers, frequency of these services, quality of employees, and management policies on patient handling, and then there are secondly, quantitative factors such as the number of patients, beds, capacity occupancy levels, infrastructure availability and back up facilities that influence the revenue of a hospital.
Cost savings can be achieved by selectively centralising and regionalising the administrative and/or overhead functions. The following strategies can help yield operational savings and increase both bottom line and top line for the hospitals:
- Manpower resources:
Staffing in hospitals (including doctors, visiting consultants, nurses, paramedics, medical staff, etc.) is the single greatest expense for hospitals which makes up for 40-50 per cent of the overall costs. Current staffing grids for inpatient units reveal a less than ideal correlation between staffing and volume. Strategies across both doctors and staff like holding recruitment, working with limited staff, managing work schedules, contracting labor and overtimes, eliminating redundant positions, and the reassignment of highly qualified staff to fill gaps can help improve financial performance. Using data to drive staffing decisions, flexible staffing, adjusting staffing based on patient census data, and reducing benefits for full-time staff can additionally help in reducing costs.
- Re-engineering department functions
Revisiting each department’s processes and removing unessential steps, like re-engineering processes like scheduling running of air handling units in non-critical areas, replacing/repairing inefficient facilities, rescheduling OPD timings during peak hours only, reducing surgery setup time, reducing wait time are some of the opportunities that ensure expenses grow at a slower pace.
- Focusing marketing efforts on core/new products and customers
During the times of economic uncertainty, deploying a care management strategy that will focus on quality and outcomes is much needed to make short term gains. Hospitals should focus on driving more footfall with strategies like adding profitable service lines (e.g. for the rising geriatric population, and an increasing number of people with chronic disease), promoting access and convenience in content and campaigns, engaging consumers where they work and live, and delivering an elevated patient experience with telehealth will all help in growing case volumes and profits.
- Reassessing digital strategy
The current crisis has brought in a dire need for holistic, scalable, and connected digital solutions. It is imperative for hospitals to migrate from traditional fragmented technology infrastructure to cloud-based solutions. Government’s recent launch of the National Digital Health Mission would boost the use of digital technologies like e-prescriptions, electronic medical records, and teleconsultation. Strategies for care delivery focused on centralised clinical command centers and digital continuous care delivery like telehealth (remote diagnosis), video consultation, e-prescriptions can help reduce inefficiencies and improve outcomes.Comprehensive digitalisation of hospital processes like cloud-based, interoperable electronic health records; simplified admission, discharge and other processes; data driven staff recruitment and scheduling, and deploying blockchain technology to help health information exchanges, supply chain management and revenue cycle management can help enhance efficiency and counteract the overhead costs associated with the traditional complex tech infrastructure and design.
- Re-evaluating supply costs for hidden savings
Doing vendor analysis for reviewing contracts, reconciling, and renegotiating contracts, adopting e-commerce channels for procurement, doing vendor consolidation, adopting substitute/ new products, requiring vendors to submit purchase orders and auditing the supplies are some of the ways that can help achieve high cost savings.
COVID-19 has adversely impacted the revenue of hospitals – with the dramatic drop in the volume of elective medical procedures, OPD and diagnostic services operating at 20 per cent, IPD services at 15 per cent occupancy of emergency cases, and the steep financial deficit coupled with non-deferrable fixed costs has led hospitals to depend heavily on refinancing and financial support.
For the future, we need to rethink how to structure the system, how to make it a lot more versatile, lean, efficient and economical while addressing the present day needs of medicine across the board.
Cost management approaches to significantly reshape and reduce costs. Enhanced planning and execution of current operations, managing overheads, low value adding functions and digitisation are the need of the hour. Hospitals can effectively achieve cost efficiency by understanding its readiness for cost savings, focusing on key drivers of staffing, productivity concerns and streamlining overhead functions while ensuring that cost optimisation targets are integrated with overall plans and budgets.