Cost containment in hospitals Dr. Subhodip Mitra, Junior Resident, Dept. of Hospital Administration, KMC, Manipal.
Cost containment in hospitals
Dr. Subhodip Mitra,Junior Resident,Dept. of Hospital Administration,KMC, Manipal.
Overview
Definitions. Essentiality, challenges and ways of achieving it? The global scenario. Improvement areas of hospital :i. Infrastructure.ii. Operations.iii. Information technology.iv. Material management.v. Finance.vi. Human resources.vii. Marketing. Summary
Definitions
Cost Containment : A detailed plan and process of maintaining organizational cost and
purchased prices within certain specified target limits over a period of time.
Cost Avoidance : An effort to prevent or reduce supplier price increases and ancillarycharges through the use of value analysis, negotiations, and a
variety of other techniques.
Cost reduction: A reduction in the costs incurred by an organization which has tangible results; i.e., a reduction in outside spend and/or the
availability of funds that can be used for purposes other than originally intended.
Why is it essential?
Rising material cost. Increments for staff. Less availability of manpower. Requirement of star players. Other increments: electricity,.etc. Quality : Accreditation. Reduction of income:- Government schemes trying to cap bills.- Poor reimbursement rates.- Hospital only source of revenue is patients.
Challenges
All hospitals are faced with challenges in today’s economic climate.
These include:
1. Containing spend and reducing costs are the highest priorities.
2. Accomplish this containment and reduction with less help. 3. Achieve results without jeopardizing on quality. 4. Targets need to be achieved in a timely manner.
How to achieve it?
Accomplishing these cost containment and cost reductionobjectives requires: 1.Experience. 2.Functional Knowledge. 3.Strong project management. 4. Correct business analysis skills. 5. Ability to effectively manage the change and make it
stick.
What to keep in mind?
There are four key areas where providers need to focus to succeed:
1. Be clear about the patients to be served and the business model.
2. Have highly efficient processes based on standardization and flow.
3. Develop models for workforce, technology, buildings and logistics that drive quality and lower costs.
4. Create systems to manage this and drive continuous improvement.
Areas of improvement?
1. Infrastructure.2. Operations.3. Infrastructure4. Material management.5. Human resources.6. Finance.7. Marketing.
1. Infrastructure
Building orientation and structure.
Scope for change and adaptability.
Layered hospital:1. Hot floor2. Hotel3. Office4. Factory
1. Infrastructure
Design approaches
• Minimizing waiting and circulation space.• Limiting the number of different room
types in favour of adaptable rooms to reduce patient transfers (which increase delays and costs).
• Reducing the use of water and energy and using sustainable sources of energy.
2. Operational management
Devolved management with flat structures. Deployment of lean techniques to eliminate
waste and maximize quality. Strong governance with and independent
knowledgeable oversight by a properly qualified board.
Measurement systems. The ability to compare performance against
others so learning can be adopted from elsewhere
2. Operational management
Strong relationship between a number of factors and effective management practices:
• Competition helps to improve managerial
standards. • Having senior, clinically qualified managers
improves results. • Larger hospitals invest more in management
and appear to be better managed .
2. Operational management
Developing the right set of metrics and reporting standards .
Real time availability and having the competences to interpret and act on this information.
Willingness to prototype and pilot new ideas.
Business intelligence models. Healthcare IT.
4. Material Management
Proper inventory control:
1. Setting up of various stock levels:a) Re-ordering level.b) Maximum level.c) Minimum level.d) Avg stock left.e) Danger level.f) Economic order quantity.2. Preparation of inventory budgets.3. Maintaining perpetual inventory system.
4. Material Management
Inventory Turnover Ratio:(a) Slow moving Inventories.(b) Dormant Inventories.(c) Obsolete Inventories.(d) Fast moving inventories.
ABC analysis.
Just in time.
Planned preventive maintenance.
5. Finance
Improve the working capital management:i. Maintaining efficient levels of both components of
working capital, current assets and current liabilities, in respect to each other.
ii. Ensures a hospital has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.
iii. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.
6. Human resources
Planning level rational assessment of manpower requirements by WISN (work load indicators of staffing needs):
1. Determine how many health workers are required to cope with actual workload in a given facility.
2. Estimate staffing required to deliver expected services of a facility based on workload.
3. Calculate work load and time required to accomplish tasks of individual categories.
4. Compare staffing between health facilities and administrative areas.
5. Understand workload of staff at a given facility. 6. Fair workload distribution establishment amongst staff.7. Assess the workload pressure of the health workers in the
facility.
Summary
Healthcare costs are increasing and cost growth is speeding �up
Traditional cost containments strategies can cut costs but �won't slow cost growth.
Costs should be contained at the healthcare system level by:�–Containing technology adoption, the most important factor of
growth.–Containing hospitalization costs, the most important spend
area.Costs can be contained at the hospital levels by:�–Improve clinical staff efficiency .–Outsourcing of non-core functions.–Excel in operations.–Adopt IT.