By Jennifer Larson, contributor
It’s a hard time for U.S. hospitals right now.
As the recession drags on and healthcare reform seems stuck in the planning stages, medical centers across the country are experiencing declines in revenue, non-operating income and investment income. Hospitals have seen a drop in elective procedures and are finding themselves having to absorb more bad debts, wait longer for reimbursements and treat a growing number of patients who can’t afford to pay in the first place.
Unfortunately, the situation may get worse before it gets better. Moody’s Investors Services noted earlier this year that the company expected “nearly all rated hospitals to report weaker financial performance in 2009.”
But, instead of wringing their hands, hospital leaders are advised to be thoughtful and proactive in a time like this. A new game plan will be crucial to their long-term success.
Evaluate Current Situation, Options for the Future
A January 2009 report from the American Hospital Association advises hospitals to be “conservative” in maintaining their “dual role as healthcare provider and economic engine” as they face the future. That means that hospitals need to take a long, hard look at their programs and services and reassess the costs and benefits in light of the current economic climate.
They will also need to manage their revenues and their debt to make sure they don’t fall behind in meeting the needs of their communities—now or in the future.
The Healthcare Financial Management Association (HFMA) outlines four essential keys for future success: leadership and planning, controlling cost while enhancing quality, preserving cash, and allocating capital wisely.
According to HFMA, many hospitals are already undertaking some or all of the following steps to deal with their current loss of income:
• Creating budget contingency plans
• Reducing capital spending
• Changing debt structure
• Reducing non-labor costs
• Containing labor costs
• Enhancing productivity and efficiency
• Engaging staff in financial performance improvement
• Protecting cash flow, and
• Increasing efforts to protect and expand volumes.
Some strategies are easier for certain hospitals to implement than others, but all hospitals must find their own best ways to strategically position themselves for a brighter future as the nation begins to emerge from the recession.
Develop Strategies to Survive, Then Thrive
The HFMA stresses that good leadership and careful planning are essential to sketching out a strategy for emerging from the recession ahead of the curve. It is important for hospitals to not make decisions in a crisis that will have a negative impact in the future.
Containing costs is also crucial. That may mean across-the-board expense reductions, purchasing less equipment for the next year, negotiating better prices with vendors and stringently reviewing all purchases
When it comes to containing labor costs, hospital leaders may have to consider tough solutions like implementing a hiring freeze for certain types of jobs, closely monitoring staffing decisions, reducing clerical work hours or even eliminating certain positions. Some facilities are even making changes to their benefits packages to save a few dollars.
At Northside Hospital in Atlanta, the economy’s nosedive spurred leaders to launch a new nurse staffing program, creating an internal flex pool of about 25 nurses who aren’t on the usual schedule. It is run by an in-house coordinator who can move people to where they are needed. The program has helped the hospital avoid overstaffing or sending nurses home because the patient census didn’t match up, while providing a foot in the door for some who would like to eventually get hired full-time.
“It becomes a feeder for our own openings that we will have in the future,” said David Votta, coordinator of human resources at Northside.
Many facilities, including Northside Hospital, also work with temporary staffing companies to help them manage their short-term labor needs. This allows them to handle temporary fluctuations in census or staffing without committing to the long-term overhead costs for nurses, physicians and allied health professionals.
“More and more hospitals are seeing the need to have several different types of employment options: new hires, float pools and travelers to fill their clinical positions,” said Ralph Henderson, president of nurse staffing for AMN Healthcare, the nation’s largest health care staffing company. “The challenge is finding the right mix, rather than expecting to fill all jobs on a permanent basis.”
Encourage Innovation
During the current downturn, some facilities have found it worthwhile to involve employees in looking for new ways to save money over the short- and long-term. A recent HFMA report found that some have reported success with productivity committees that brainstorm for ideas and even redesign processes.
Hospitals are also getting creative in order to protect or increase their volume of patients. Some, according to HFMA, report using more aggressive marketing tactics to reach out to the community or adding providers so they can serve more patients—and hopefully bring in more revenue.
Manage Cash, Credit and Long-Term Capital
Preserving a reasonable amount of cash on hand is also critical to the future success of hospitals that have been reining in their spending in response to the recession. Cash on hand can affect a hospital’s credit rating, which can in turn, affect its ability to fund future projects.
Hospital boards and executive committees will want to carefully examine the list of capital projects that have been approved but not yet started, and be prepared to delay some if needed. Any major delays may require a “Plan B” in order to meet organizational goals without spending as much capital.
Whatever strategies your hospital decides to implement, it is important to record and track those initiatives and document progress in regular reports. Keep your stakeholders and your staff members updated, as well.
As the country moves from this current crisis on to better days, financial experts encourage hospitals to revisit the strategic plan from time to time. Any plan that is meant to position your organization for future success must be up to date.
It may be challenging to juggle long-range planning with daily concerns, but ultimately, the effort will be worthwhile.
© 2009. AMN Healthcare, Inc. All Rights Reserved.