All organizations can benefit from expense reduction strategies to improve the bottom line. While efforts already may have been underway in certain areas of the practice, the financial crisis caused by the COVID-19 pandemic likely kicked emergency review and expense reduction into high gear. Healthcare organizations, like many other employers, were forced to make tough choices to survive. Organizations may think of cost reduction strategies in three simple categories:
- Buy Less – the organization purchases less or eliminates spending on a particular cost category
- Use Less – the organization maintains purchase levels of a product or service but rations out the use of the product or service so it has greater longevity. This causes price per unit to drop or frequency of purchase to be reduced.
- Spend Less – the organization negotiates with stakeholders to pay less for the same product or service
Healthcare organizations should take time to think about the expense strategy that is in place so that it not only minimizes costs during business as usual but enables quick decision making with spend during an emergency event. Bucketing expense categories into one of the three strategies and identifying emergency reduction techniques for these categories is an effort that will enable practice leadership to quickly assess and deploy changes to spending.
To complete this exercise successfully and safely, the cost drivers for critical areas should be well understood. Leadership needs to have a clear understanding of what leads to increased spending to understand if the strategy selected would be successful if deployed. For instance, reduction in locum tenens spend may not be reasonable if that spend currently is being used for a role critical to the response such as a respiratory therapist.
Lastly, it should be recognized that not all expense categories can or should be reduced during an emergency event. It is likely that practices will incur expenses for additional supplies, new technology, or even additional staffing needs in some cases. There are two strategies on which healthcare organizations may rely going forward. The first is to have emergency funds that can be transferred from other budget items when emergency expense reduction is necessary. Having a clear understanding of how much spend can be shifted between categories quickly will enable decision makers to think about the second consideration: how much contingency funding should be earmarked for emergency events. Knowing how much is on hand for emergency spending forces decision makers and suppliers to have healthy conversations about purchases. It sets the stage for positive negotiations and limits the tendency towards impulse purchases.
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