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A different way for healthcare providers to approach cost control

Even before the global pandemic struck, the writing was on the wall for many healthcare providers. Many were unprofitable prior to COVID-19, and with drops in elective surgery and the impact of COVID-19, these economic fissures have continued to widen. According to the American Hospital Association, half of US hospitals could be in the red by the end of 2020.

Such uncertainty often prompts short-term cost control measures, such as organizational restructuring, headcount and salary reductions, reducing vendor spend and extending accounts payable. These temporary measures jeopardize the strides healthcare providers have made in recent years, such as the development of patient-centric virtual registries, putting patients at the heart of clinical research, and embracing the use of technology-enabled solutions such as virtual consultations

Based on our research of cost optimization across global organizations in 10 industries, we believe healthcare providers need to take a holistic view of cost control as an enabler, not an inhibitor, and do two key things:

Innovate your way to profitability

PA believes that hospitals cannot cut their way to growth or improved patient services. However, they can innovate their way to profitability.

Digital enablers, like artificial intelligence (AI), robotic process automation (RPA), digital twins and virtual assistants, have the potential to bring innovation to healthcare providers. Other sectors, like financial services and online retail, have been using these digital enablers for years. Most organizations want to use AI and automation to become more efficient and more innovative – controlling costs while unlocking new advantages. For example, we recently helped the UK's National Health Service (NHS) reduce the pressure on its workforce during the coronavirus pandemic with a chatbot triage system.

By strategically investing in the right technologies, hospitals can make major advancements in care outcomes – we’ve helped clients achieve a 25 percent productivity improvement by applying digital tools to source-to-contract and procure-to-pay. But investment brings high acquisition and implementation costs, maintenance and contract costs, per-procedure costs and additional expenses related to workflows and training. To make inroads, healthcare providers will need to ensure they have a thorough understanding of the risks and limitations of each technology, a strong governance model, and the ability to demonstrate success and justify wider scaling.

Digital twins – realistic, virtual replicas of physical assets, systems or processes that can monitor performance, model scenarios and make insight-driven decisions – also hold a wealth of possibilities. Hospitals have a wealth of data and are looking for tools to help them predict key operating parameters: patient admissions; scheduling of critical staff; ward and surgical suite availability. Also predicting the need for critical supplies and equipment. Imagine the possibilities for healthcare providers if they were able to look ahead as many other industries have demonstrated. Digital twins of hospitals can be used to enhance resilience and aid their ability to manage a range of future scenarios, such as the resurgent elective care demand.

Think systems, not silos

Our cost-out research found that every industry has an opportunity to make substantial improvements to the way they optimize costs – and our experience tells us that this situation is the same for healthcare providers.

Another key action is to think of cost as an integrated cross-functional system that needs all parts working effectively to deliver long-term, sustainable success, rather than as a loose set of levers to pull at various times and in certain circumstances for short-term impact. We see varying degrees of maturity across healthcare providers. Some systems already view cost through the whole value chain. However, many mid-sized providers are not as advanced. This causes a disconnect across the organization and specifically drives inefficiency. To achieve a more sophisticated understanding of costs, healthcare providers need to consider cost across four areas: patient services, support services, purchased supplies and services, and, where relevant, bad debt expense. This incorporates all expenses, from general, fiscal and administrative costs through to revenue cycle management and investment in the digital enablers outlined above. We’ve identified several areas of the revenue cycle for healthcare providers, helping spot areas of opportunity for improvement. It’s a mindset shift where, rather than aiming to pare back people and services, leaders reimagine what healthcare provision would look like if designed from scratch. A profitable healthcare system is within reach – but it will take imagination and ingenuity to get there.

The road ahead

We believe healthcare providers need to take a holistic view of cost control as an enabler, not an inhibitor. Our approach treats innovation and cost optimization as symbiotic, not competitive, forces.

This means technologies such as RPA, analytics and digital twins can come to the fore and help redesign optimal ways to serve patients, current business models can be optimized, and services reimagined to create new possibilities. All of this improves margins while delivering high quality services.

Contact the authors

  • Charles Koontz

    Charles Koontz

    PA healthcare expert

    Charles helps healthcare organizations improve patient outcomes through digital transformations

    Insights by Charles Koontz
  • C.V. Ramachandran

    C.V. Ramachandran

    PA operations and improvement expert

    C.V. successfully combines a top-down strategic approach that integrates pragmatic improvement actions with change management to deliver measurable results for clients across a wide range of industries.

    Insights by C.V. Ramachandran
  • Bret Schroeder

    Bret Schroeder

    PA healthcare expert

    Bret has over 20 years of business strategy and operations experience focused on helping companies leverage technology to improve business performance.

    Insights by Bret Schroeder

Contact the healthcare team