A report released by Moody’s Investor Services early in the fall of 2014 painted an alarming picture of the financial health of nonprofit hospitals. They have posted their second year of revenue declines and have experienced record-breaking low rates of growth of revenue. Median revenue growth has historically been around 7%; in 2014, it has dropped to 3.9%. Reasons for the low rate of growth of revenue include a dramatic drop in amount of funds coming from private reimbursement, an increase in bad debt from higher-deductible insurance plans, and a shift to outpatient care – which is reimbursed at a lower rate. Containment of expenses was insufficient to keep up with the drop in revenue. A quarter of hospitals reported operating losses in 2013, and half reported a decline in operating income. Moody’s concluded that if expenses continued to exceed revenue, the situation will rapidly become unsustainable. In order to improve the financial situation, management will have to make some changes. Cost-containment measures will have to be implemented while the cash flow problem is corrected. Complicating the situation is the Affordable Care Act, which ties federal reimbursement to quality of care. Cost-containment measures will have to be carefully selected in order to not reduce quality of care. Traditional methods of containing costs, such as layoffs and staff reductions, are likely to reduce quality of care and make the financial situation worse. Instead, a better plan might be:
- Streamline the hospital supply chain to reduce costs. A more efficient restocking process reduces cash tied up in stored inventory and reduces waste due to products expiring before use.
- Demonstrate high quality of care by reducing “never” events and preventable events. Both the government and private insurers have stopped reimbursing for care that is sub-standard. Processes implemented by management to ensure quality of care, making patient safety a priority, and using a well-managed, expert staff have all been shown to reduce the rate of “never” and preventable events. Demonstrating high quality of care will increase revenue from reimbursement and will attract more patients to the hospital.
- Replace layoffs with reductions in overtime. This simple change will improve quality of care by eliminating mistakes due to fatigue and will make staff happier. It will also trim costs.
- Reduce length of stay. Errors in care can extend stays, and errors in communication with nursing homes and families can also extend stays. Reducing the length of unnecessary stays can save millions.
- Reduce delays and errors in billing. If mistakes are made in billing, revenue can be delayed significantly or even lost forever. For example, mistakes in preauthorization forms can end up costing the hospital significant sums.
Peoplesoft software, used correctly, can be used to implement many of these points. Peoplesoft is an excellent tool that can be used to streamline hospital financial management and the supply chain. It can also be used to reduce errors in billing and to manage staff. It was designed to allow you to manage your hospital efficiently in all ways. We can assist you in solving your financial management problems. Don’t hesitate to contact us if you have any questions.
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