10 Safe & Easy Cost Reduction Strategies in Hospitals

Colby Ezell / Cost Reduction / September 20, 2022

When people’s lives and health are in a hospital’s hands, they must think long and hard about where they can and cannot cut costs. Running health organizations involves many moving parts, and increasing the bottom line isn’t only geared towards increasing profit. Hospitals must constantly purchase new technology, maintain the highest level of cleanliness, cover a vast amount of expenses, and invest in the highest educated workforce.

With so many necessary expenditures in these institutions, CFOs have to look for other areas where they can save money without affecting patient care. Unfortunately, cost reduction strategies in hospitals are not always so easy to pinpoint. So how can hospitals cut costs? Check out these ten ways hospitals can save money.

1. Introduce Better Waste Management Systems

Waste management of hospitals is much more complex than many other organizations because they produce much more than traditional solid waste and recycling. Other by-products from hospitals include:

  • Sharps waste
  • Pharmaceutical waste
  • Infectious waste
  • Pathological waste
  • Radioactive waste

All of these types of biohazard waste impose health risks on staff, patients, and the general public and must be disposed of properly. Unfortunately, this means costs for waste removal can be high, and it’s vital that whatever waste management company hospitals choose to work with ensures responsible and environmentally safe solutions.

Hospitals must start by guaranteeing proper waste segregation, leaning towards environmentally-friendly treatments over incineration, and building a comprehensive system to address waste management needs. Choosing a reputable waste management company is a crucial part of this process, but one of the ways hospitals can save money is by monitoring and evaluating the cost-effectiveness of their chosen vendor. Hospitals can monitor for errors and overcharges through a waste management audit, improve contract terms, and implement additional systems that will benefit them in the long run.

2. Tighten Up Telecom Services

The telecommunications infrastructure of hospitals is much more extensive than that of the average business or nonprofit. Every day, extremely sensitive information must be uploaded, backed up, and distributed across various networks. Documents such as patient charts and invoicing can be much more easily accessible when stored on the cloud versus hard copies, but with that comes increasing reliance on technology and much higher bills.

And it’s not just paperwork that has moved to the digital world. Many medical devices also use internet connections to transmit important data or monitor real-time patient vitals. Every year, more technologically advanced devices are introduced into the medical sphere. These tools often use cloud-based storage, data transfer, and data display. With doctors relying on advanced products, maintaining connections at the hospital is more critical than ever.

Because the telecom systems of hospitals are so massive, it’s a challenging task to monitor these costs and search for savings. However, hospitals can save time and money by working with a third party to help them stay on top of telecom billing.

Hospital cost-saving ideas that these consultants can help with are:

  • Auditing: Invoices should be examined line by line to ensure there are no errors or overcharges.
  • Monitoring: Knowing exactly what services are being used versus those that aren’t utilized, hospitals can eliminate wasteful spending.
  • Bundling: Rather than having multiple different contracts for various services with different companies, save money by bundling with one telecom provider.
  • Renegotiating: When contacts come to an end, shop around for better pricing or renegotiate for more favorable terms.

3. Cut Energy Consumption and Lower Costs

Energy costs make up a substantial part of hospital expenses, and it’s no surprise. Lights and medical devices must be turned on 24/7, which can drive electric bills through the roof. Hospitals can do their best to make every aspect as energy efficient as possible. Some changes that hospitals have made to lower energy consumption and costs include:

  • Use energy-efficient light bulbs.
  • Utilize automatic light systems to avoid unnecessary lights.
  • Turn off electronic devices that aren’t in use.
  • Switch to renewable sources of energy.
  • Maintain HVAC systems and upgrade when necessary.

While these changes help preserve resources while also saving money, another one of the best cost reduction strategies in hospitals is to conduct an energy audit. Through the auditing process, hospitals can verify charges and fees on their electric bills to ensure they’re not overpaying. Refunds can be received from up to 36 months back (or more depending on the type of error…we have recovered some errors all the way back to 14 years!), so there are significant savings to be had, especially if a hospital hasn’t been keeping up with checking invoices. An energy audit can also help hospitals find the best rates and lowest cost options.

4. Audit Merchant Processing Services

One of the cost reduction strategies in hospitals that often gets overlooked is merchant processing. Assuming a hospital accepts credit cards (which most do), they must also employ a merchant processing service. The problem with these services is that they are often structured in a complicated manner with lots of variable fees. Unless hospitals have a full-time employee with expert knowledge of how these charges work, they will likely be overspending on merchant processing.

There are two ways hospitals can save money here, both of which can be handled by a third party running a merchant processing audit. First, they will comb through statements to see what fees are repeatedly showing up as well as search for errors and overcharges. Second, and likely the majority of the savings, can be found through analyzing complex interchange and pass through fees that have little to do with the negotiated rate on the contract.

5. Crack Down on Linen Services

Linen management is a crucial part of hospital management that affects the care, comfort, and safety of patients and staff. Linens are often exposed to infectious microorganisms, and proper laundry services are essential in preventing the spread of diseases. Having properly washed and sanitized linens directly affects the well-being of patients, and for this reason, it isn’t one of the first things that come to mind when it comes to hospital cost reduction.

However, it is quite possible to lower monthly costs through a linen auditing service. Many administrators don’t realize that invoices can be filled with errors or overcharges in an industry with so many moving parts. The hospitals are responsible for reading through invoices to ensure that billing is accurate. By working with a professional, audits can help guarantee that linen services are cost-effective and continue to monitor charges into the future.

6. Minimize Property Taxes (For-Profit Hospitals Only)

For-profit hospitals tend to get a bad rap when compared to nonprofits, but one Health Affairs study claims that for-profit hospitals actually spend more on charity care. While nonprofit institutions are given big tax cuts to offset their charitable care, for-profit organizations must pay property, state, and federal taxes.

Whether these tax exemptions for nonprofit hospitals are fair is a hot topic among hospital administrators. Still, the good news for those organizations that will have to pay property taxes is that there are strategies to reduce commercial property taxes.

The best option is to hire a professional for a property tax review. Someone with experience in capital-intensive businesses like hospitals can consider all elements of property taxation, such as valuation, property accounting, and local protest procedural rules to find as many savings as possible.

7. Consider Outbound Shipping Solutions

Institutions have traditionally focused their hospital cost reduction strategies on inbound shipping, but small parcel freight management is becoming more relevant in today’s world. For example, hospitals may utilize shipping services to move diagnostic samples, mail home prescriptions, or even deliver medical equipment.

Shipping couriers are also taking notice of hospitals’ needs and offering specialized services to allow for the safe shipping of sensitive materials. For example, there are cold shipping boxes, temperature-controlled trucks, same-day delivery, and careful packaging instructions available for hospitals to utilize.

The problem with small parcel shipping is that invoice and billing is often difficult to understand. Couriers repeatedly include errors or overcharges on invoices, and it’s the hospitals’ job to dispute these charges. This is a massive undertaking due to the amount of product that may be leaving a hospital daily. Hospitals can utilize a third party to continuously audit shipping carriers and guarantee they get the best pricing.

8. Automate Processes Where Applicable

Automating processes is a necessity in today’s world due to the demands of consumers. Patients want to be able to book appointments, see test results, fill out paperwork, and even speak with doctors online. Not only does having all of this available online please patients, but it also makes things much more streamlined in the hospital. Data can be accessed across all departments instantaneously.

This hospital cost-saving idea works as they phase out bulky storage areas to store hard copies of records. Further, it will save staff time when it comes to storing or locating patient information. Automated systems are also more secure than hard copies, lowering the risks of unauthorized access.

On top of record keeping and patient communication, hospitals can automate other systems in the hospital to save money. By automating accounts payable, hospitals will save money by avoiding checks and cutting down on administrative staff. It’s even possible to earn rebates when paying invoices with virtual cards, which can add up to massive amounts with the scale of hospital spending.

9. Outsource Functions Through Third-Party Contracts

While it may seem counterintuitive, outsourcing certain hospital functions is one of the best hospital cost-saving ideas out there. By allowing an organization with a specific specialization to take over that department, they can provide those services at a lower cost than if the hospital was to do it themselves. In addition, this allows hospital staff to focus more closely on healthcare and less on other tasks.

An essential part of outsourcing is clearly defining goals, choosing outsourcing companies wisely, and focusing on options with experience in the medical industry. Most hospitals will focus outsourcing efforts on non-clinical functions, but some medical services can also be outsourced if planned and appropriately handled.

Some examples of departments that may be outsourced include:

  • Food Services
  • Facility Management
  • Custodial Services
  • Waste Management
  • Data Entry
  • Medical Coding and Billing
  • Lab Work
  • Patient Sitting
  • Child Care

Outsourced services should be monitored to ensure that standards are being upheld once a third party is allowed to take over. It’s also crucial to make sure that expenses are tracked to guarantee costs have been reduced and that performance goals are being reached. With these additional vendor contracts, hospitals can maximize monthly refunds when paying with virtual cards – two cost-saving ideas for hospitals wrapped in one.

10. Hire a Cost Reduction Consultant

Hospital CFOs already have a lot on their plate running multi-million dollar institutions without spending endless hours coming up with hospital cost-saving ideas. However, there are cost reduction consultancy companies that can handle all of these hospital cost reduction strategies for them. In fact, P3 Cost Analysts don’t charge anything upfront for these services.

P3 Cost Analyst can run cost saving audits on services like telecom, utilities, vendor payments, shipping, and more. Rather than charging a massive fee upfront, they simply share in the savings that they find for hospitals. P3 often finds savings that hospitals would never know to look for and has saved previous clients millions of dollars.

Reduce Costs Without Affecting Patient Care

The critical part of all of these hospital cost reduction ideas is that they don’t negatively affect how patients are cared for. Hospitals must maintain the trust of the public they serve, so when looking to cut costs, they must simultaneously focus on preserving patient care.

These ten ways hospitals can save money do just that. And what’s even better, hospitals can delegate this task to a cost reduction consultant company like P3 Cost Analysts to guarantee that the job gets done by professionals with years of experience.

Reach out today for a cost reduction consultation to learn how to cut back costs at your hospital.

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