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The Future of Financial Health for U.S. Health Systems

The business of healthcare is encountering unparalleled challenges that put the financial stability of hospitals and health systems at risk as they prepare for the future. The risk associated with federal payment program penalties adds up to millions if not managed properly. At the same time, the industry’s shift toward value-based payment models is forcing hospitals and health systems to acquire more risk than some are prepared to manage. Additionally, as consumers are being given more options, organizations are trying to demonstrate their value to patients in order to hold back new competitors.

These market realities have introduced more complex and nuanced financial challenges for health systems at a time when they are already burdened with higher drug costs, increases in uncompensated care and shortages of specific labor resources that support key growth or foundational service offerings. Health systems are being forced to reassess and revaluate how they operate, and make some tough decisions in order to survive.

Organizations that thrive in this environment will be those that can transform their cost structures and create new revenue lines to prepare for and fund their strategic goals over the next five to seven years, as well as transition to value-based care.

Financial Stability Prognosis

It is imperative that healthcare organizations focus on two levers of margin improvement: cost reduction and revenue generation. These levers are a critical part of a health system’s overarching strategy toward total financial health and sustainability.

Health systems must develop a comprehensive financial strategy that includes an infrastructure for growth and prepares them for future policy changes. For instance, they need to understand where new sources of revenue could be built to attract new business within spaces like laboratory and pharmacy, and by participating in value-based payment models.

University Hospitals (UH), a $4 billion network of 11 community hospitals, three joint-venture hospitals and more than 50 health centers in Northeast Ohio, is an example of a health system that has reduced costs and increased revenue at the same time. By engaging Premier to improve financial and operational performance, they forecasted an aggressive care redesign plan that included workforce optimization, removing variation in supply chain and pharmacy utilization, generating revenue cycle improvements and stimulating new growth in surgery and advanced provider practice service lines. In just the first four years on this journey, UH has fostered improvements in safety, patient satisfaction and clinical outcomes, coupled with reduced costs and more than $30 million in increased revenue.

However, even the most progressive organizations face challenges in completing multi-year transformations. In many cases, they lack the internal bandwidth or expertise to take on the complex interdependent work required for change; moving too quickly or too slowly can be dangerous. The highest performing health systems are those that manage coordinated, interdependent work in a well sequenced fashion.

Sequential Change in the Era of Uncertainty

Change is the only constant in healthcare. Health systems embracing this challenge are transforming their cost structures while building clinically integrated care delivery models across the continuum. Key to this work is physician buy-in, which means aligning with frontline providers to deliver better, more reliable and more efficient care while reducing costs in the process. Additionally, health systems need the capabilities for leadership, clinicians and frontline staff to manage population costs and proactively address risks.

To that end, health systems must invest in integrated business intelligence capabilities that glean meaningful, strategic insights to make smart decisions, identify valuable opportunities, set realistic targets and monitor improvements in a coordinated and automated way.

This can’t be a piecemeal approach. It takes integrated analytics to evaluate performance, in comparison to peers on everything from workforce, non-labor expenses (i.e., drugs, purchased services and capital equipment), physician performance, variations in care, total cost per case and clinical outcomes. Organizations with a decision-making infrastructure that is supported by robust clinical, financial and operational analytics are able to target opportunities with the largest ROI, and effectively leverage internal resources to develop and act on an operational plan that supports a comprehensive organizational strategy.

With access to data on 45 percent of U.S. hospital discharges and years of industry experience, Premier has helped thousands of healthcare organizations assess, identify, build and sustain transformation initiatives that address margin improvement and strategic growth.

If your organization is struggling with how to thrive in today’s environment, tomorrow’s isn’t getting any easier. Let us help you.

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