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Operational Assessment is The First Step Toward a Hospital Turnaround

Hospital Turnarounds Start with an Operational Assessment

By , SVP of Business Development April 14, 2020 Financial Performance, Operational Improvement, Hospital Turnaround

Troubled community hospitals can begin to reboot by parlaying an evaluation of operational performance into an action plan. This path leads hospitals from survival mode to a strategic mindset so they can do more than just keep the doors open. A comprehensive operational assessment and accompanying action plan help improve overall operations including critical areas such as revenue cycle, supply chain, staffing and leadership.

Tackling an operational assessment may seem daunting. While the process is complex, a good place to start is by examining outsourced contracts, as some may have been in place for years and can be renegotiated or even eliminated. Then, move on to the following cost-reduction and revenue-enhancement strategies, which can help ailing hospitals get turned around and headed toward long-term sustainability.

Evaluate labor costs

Labor’s share of total hospital expenses has increased in the last 10 years, and a tightening labor market and other factors continue to drive up costs. A thorough review of productivity is critical in order to manage costs that are controllable. A productivity tool can help set productivity targets and also assigns accountability for meeting those targets and controlling labor expenses. Productivity evaluation also indicates the right level of staffing by shift and day for improved efficiency.

Analyze supply costs

Second only to labor costs, supply spend is a significant expense especially for small hospitals that lack group purchasing power. While a group purchasing organization (GPO) can help curb expenses, it’s advisable as part of an operational assessment for hospitals to evaluate whether their current GPO offers the best service and savings. In CHC’s experience, the right GPO relationship can deliver supply savings from 10 to 20 percent.

Supply inventory is another area to evaluate for cost saving opportunities. Have quantities been adjusted based on volumes, or on types of procedures such as those performed in orthopedics or the cath lab? Work with vendors to invoice for supplies when they are needed (just-in-time delivery) versus overstocking for anticipated procedures; this practice frees up dollars for other purposes. Also examine inventory “turns,” or the number of times per year that supplies are being replaced. A reasonable inventory turn is nine to 12 times per year. This examination could indicate unnecessary items kept in inventory.

Examine revenue cycle management

Because the revenue cycle is a complex function, points in the process may be broken. However, this also means there are many opportunities for improvement. One challenge is keeping the chargemaster code compliant and competitively priced. Another is keeping up with each payer’s unique rates and payment methodology. A review of these areas ideally should take place quarterly or at least annually.

Additional areas to evaluate and address:

  • Have insurance contracts been updated or renegotiated?
  • Compare charges to reimbursement. Charging for an item at a fixed cost does not ensure reimbursement at that level. Depending on the managed care plan, or Medicare or Medicaid, reimbursement could equate to 25 cents on the dollar.
  • How does the current healthcare landscape impact your organization’s long-term sustainability?

An operational assessment forms the basis for an action plan, which should identify who is responsible for the steps and results. Although an operational assessment at first may seem like a daunting undertaking, frequent review thereafter prevents straying from the plan and ensures progress is occurring across all areas.

Get more information

Learn about CHC Operational Assessment services.

Take a quiz to assess your hospital’s operational performance.

By , SVP of Business Development April 14, 2020 Financial Performance, Operational Improvement, Hospital Turnaround
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