3 Keys for Hospitals to Achieve Sustainable Financial Stability

No one said it would be easy for hospitals and health systems to achieve financial sustainability in today’s ecosystem.

The nation’s aging patient base, rising costs, staffing shortages and evolving reimbursement models represent a handful of major challenges plaguing providers.

So, what will C-suite executives need to do in the coming years to create a foundation for long-term financial sustainability? And what kind of savings should organizations target between now and then?

For starters, organizations will need to realize cost reductions of 15% to 20% by 2030, a new Oliver Wyman analysis suggests.

Persisting Revenue Uncertainty Poses a Huge Challenge

That’s a sizable percentage under any circumstances, but doubly so with revenue uncertainties mounting.

The end of stimulus funds and reimbursement enhancement from public health emergencies will reduce safety valves, the report notes, while the restart of Medicaid redetermination has pushed millions of patients out of that program. This could lead to greater long-term costs associated with preventable emergent care.

The long-term impact to future net revenue due to the large number of Americans shifting out of commercial insurance to Medicare is another huge issue to consider. Before the pandemic, 59% of America’s insured population were enrolled in commercial plans, the report states. By 2030, this figure is projected to drop to 55% as Medicare enrollment swells.

That 4% difference will have a significant negative impact on health care organizations’ revenues as tens of millions of patients opt into Medicare coverage when they become eligible. Combined underpayments from Medicare and Medicaid were nearly $130 billion in 2022, up from $76 billion in 2019, notes an AHA Fact Sheet released earlier this month.

3 Key Savings Areas in Need of Innovative Strategies

1 | Optimizing high-value operations.

Traditional process redesign in four core areas — staffing, perioperative services, length of stay and administrative functions — will be effective. However, leaders should target annual savings beyond the traditional 5% to 7% range due to broad changes in the field.

Perioperative services are often rife with value-generation opportunities that can be captured through greater throughput. Focus areas could include operating room specialization, eliminating unused block time in schedules or turnover-time reduction. Enhancing sepsis detection, managing toward a discharge date, standardizing discharge rounds and optimizing the post-acute network are all high-impact levers for reducing length of stay.

Takeaway

Staffing poses the most immediate challenge. Redesigning key processes and team-based care can bring relief to a tired workforce and reset the cost structure, the report states. In nursing, for example, organizations can create specialized teams or designate individuals to facilitate higher volumes of task repetition. This will result in greater familiarity and efficiency. These teams can get more done at a higher-quality level.

For example, a centralized virtual nurse hub to manage the discharge process across multiple units or hospitals can result in significantly shorter time to discharge for patients and higher satisfaction for floor nurses.

Other areas to explore include automating standard processes and leveraging hybrid teams across roles and modalities to provide a new avenue to pool resources. Telesitting, for example, reduces the need for in-person sitters while reducing falls, and virtual stroke teams can provide 24/7 consultation while reducing shift coverage requirements for physicians.

2 | Rethink and redeploy sites to align with changing care delivery and payment models.

Care continues to shift out of traditional cost centers as less-invasive treatments develop, payer pressures intensify and new technological developments enhance feasibility of care at home. As a result, health systems should reframe how they deploy and plan for future brick-and-mortar locations.

Takeaway

Three groups of sequential tactics can reshape the use and scale of physical care delivery sites while generating estimated savings of 7% to 8%, the authors note.

• Shift care to the best, lowest-cost site.
• Create focused centers of excellence where volume allows.
• Optimize bed mix and consolidate footprint based on utilization trends.

3 | Treat value-based care like a service line.

Executing against all the cost transformation challenges you face will be difficult, especially given the variability of each organization’s starting point. Value-based care models can help close the gap.

Takeaway

Build a chassis around prevention and wellness. The goal should be to keep patients out of expensive inpatient settings. Designing care models and investing in the right capabilities enables systems to achieve long-term sustainability. A system managing the care of 50,000 Medicare patients, generating savings of $2,000 per member per year, produces $100 million in incremental revenue opportunities, the report explains.

Additional insights are available in the full Oliver Wyman report.