From The Editor | December 4, 2012

3 Ways Hospitals Should Prepare For The Fiscal Cliff

As our political leaders struggle to develop an agreeable plan to avert the fiscal cliff (a combination of expiring tax breaks and automatic spending reductions scheduled to take effect January 3, 2013), hospitals need to prepare for the worst. If the fiscal cliff occurs, healthcare providers will face a $10.7 billion reduction in Medicare payments, adding even more downward payment pressure to the reimbursement cuts healthcare facilities have already been saddled with from government and commercial payers. Even if this crisis is averted, the likely scenario is that Medicare will continue to be a target in efforts to reduce the federal deficit. Most hospitals can’t cover their costs from the Medicare payments they receive today and further cuts will only exacerbate this trend. Hospitals need to develop proactive strategies to ensure they are able to not only survive, but thrive, given the changing financial landscape of our healthcare system. I recently spoke with Dr. Andrew A. Ziskind, Managing Director at Huron Consulting Group, who outlined three specific steps hospitals can take to shore up their operations in anticipation of fiscal cliff implications.

  1. Identify Cost Savings — To operate at lower anticipated reimbursement rates, hospitals should examine every part of their cost structure to identify opportunities to eliminate waste and maximize savings throughout the enterprise. According to Dr. Ziskind, most hospitals can realize savings approaching 20%-40% by improving effectiveness in four key areas — performance improvement, clinical transformation, asset rationalization, and scale & integration.   

Performance improvement involves streamlining revenue cycle processes, optimizing workforce utilization, and enhancing other core processes such as supply chain management. Clinical transformation focuses on improving clinical efficiencies to reduce length of stay, patient wait times, duplicate testing, and other core measures. Asset rationalization is the practice of ensuring your hospital is “right sized” to meet its true demands (i.e. do you have the ideal number of beds and services for your patient volumes?). Having more than you need is a wasteful expense, while not having enough results in care access problems. Finally, scale & integration is the act of ensuring your facility takes advantage of economies of scale. Most often these economies of scale are realized by properly leveraging affiliations and acquisitions to lower costs.

A combination of process improvement and proper application of health IT is instrumental to maximizing improvement in each of these four areas. The chart below outlines the typical cost savings Dr. Ziskind says most hospitals can achieve in each area.


Also, it’s important to note that increasing efficiency in each of these areas shouldn’t result in lowering the quality of care. To the contrary, the focus should be on value, and the goal should be to improve the quality of care while lowering costs.

  1. Improve Care Coordination — According to Dr. Ziskind, hospitals can achieve a more efficient and effective care delivery system through coordinated care. By utilizing evidence-based initiatives to identify variation in care and improving communication and collaboration throughout the system, hospitals can cut costs, reduce overutilization and readmissions, and improve quality and reliability.

“While there have been huge investments in EHRs and CPOE over the last few years, I firmly believe the real value of these foundational investments won’t be realized until hospitals are able to leverage the information in these systems using clinical decision support and data analytics tools to change the way care is delivered,” says Dr. Ziskind. “For example, clinical decision support tools can alert clinicians if a test they ordered is a duplicate or if there may be other, more effective, tests to consider. Likewise, data analytics can be applied to identify patients at greater risk of certain conditions or complications. In each case, these tools will provide hospitals with the information they need to apply their resources more effectively.”

  1. Achieve Physician Alignment — Finally, Dr. Ziskind believes that clinical and financial alignment helps to ensure efficiency across the care delivery system, and ultimately contributes to improved outcomes. “With effective alignment, physicians are fully engaged in hospital initiatives to improve quality, increase operational efficiency, and ensure financial viability,” says Dr. Ziskind. “When physicians are part of your organization, they share the same goals as the hospital. Financial incentives and IT systems are also better aligned as a result.”

If nothing else, the fiscal cliff should compel hospitals to focus on the essentials — delivering the most cost-effective, efficient, and high-quality care possible. If successful, a hospital will have the foundation it needs to survive the changing reimbursement landscape.