Health Systems Must Find Ways to Cut Expenses or They'll Go Out of Business

It’s the story old as time, true as it can be, but nearly all hospital executives say that costs should transform expectedly. With healthcare and money, it’s a beauty and beast-type tale. Transforming costs are important, but that transformation is not always pretty. Apparently, about one-quarter of U.S. hospitals and health systems don’t have cost reduction goals established for themselves over the course of the next half decade – that’s a real beast.

Additionally, though, as many as a quarter more say they hope to decrease costs by 1 percent to 5 percent over this same amount of time, a new Kaufman Hall survey suggests, but the report, called “2017 State of Cost Transformation in U.S. Hospitals: An Urgent Call to Accelerate Action,” said only 5 percent of hospitals and health systems hope to reduce costs by more than 20 percent over the next five years.

No matter where you’re viewing this information from, you can see it’s not an all-you-can eat meat barbecue, but in fact not much more than bone scraps fed to the dogs, not to be blunt. But, to be blunt, are these efforts good enough? Respondents said they simply haven’t experienced a lot of success in transforming costs. Three-quarters of hospital and health system executives said they have experienced “average” or “below average” cost transformation success.

Healthcare costs are not sustainable and the Kaufman Hall survey seems to show that many, if not most, health systems aren’t prepared for making impactful cuts that could have real impacts on the overall health of the health systems.

According to a breakdown by Healthcare Dive, respondents said that one issue “hampering success is that their hospitals don’t have the data and insight to create true cost-cutting efforts.” Kaufman Hall, which conducted the online survey of more than 150 senior hospital and health system executives, said most hospitals and health systems need to cut costs – wait for it – by an astonishing 25 percent to 30 percent across the next half decade to compete, but only a small percentage of respondents expect to save more than 20 percent in that period.

Kaufman Hall said regulations, narrow networks and consumer demands are pressuring health systems to find ways to cut. The results show health systems aren't ready to implement meaningful cost containment strategies. The Dive points out some facsinating facts as pointed out by a Health Sector Economic Indicators report by Altarum’s Center for Sustainable Health Spending found that overall national health spending growth decreased in the second quarter. The results here seems to indicate that health system spending growth dropped to 1.3 percent in the second quarter of this year. Year-over-year hospital spending increased by 1.1 percent in July and 0.8 percent in June, which was the slowest growth rate year-over-year since January 1989.

A leading cause for the slowed growth is coming from forces outside of hospitals that are leading to less utilization.

But, like any business, when faced with fewer customers and fewer incentives, as it were, they’ve got to find a way to cut costs, often in creative and unexpected ways. Looks like we may be experiencing a little of that with America’s current health systems. 

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Scott Rupp


Scott E. Rupp is a writer and an award-winning journalist focused on healthcare technology. He has worked as a public relations executive for a major electronic health record/practice management vendor, and he currently manages his own agency, millerrupp. In addition to writing for a variety of publications, Scott also offers his insights on healthcare technology and its leaders on his site, Electronic Health Reporter.

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