Hospitals in the USA play a vital role in the healthcare industry. But in today’s economy hospitals in USA are facing a serious financial crisis despite the various revenue sources. This is due to the increase in the number of uninsured people seeking medical services, lower reimbursement rates from the Center for Medicare and Medicaid Services (CMS), staff shortage, etc. Many hospitals are facing bankruptcy and some are eventually shutting down.

Why are hospitals in the USA facing economic recession?

The following are the few reasons why hospitals are facing financial difficulties

1. Lower reimbursement rates – Financial burden on the hospitals have increased due to the falling reimbursement rates from the CMS. According to the study done by the American Health Association, there is a steady decrease in the reimbursement rates for Medicare and Medicaid services. When the cost incurred on the service is more than the reimbursement received, the hospital suffers a huge loss. Hospitals in the USA received only 87 cents for every dollar spent on Medicare patients in 2016.  Hospitals in the USA received only 88 cents for every dollar spent on Medicaid patients in 2016. In 2016, 66% of hospitals received less Medicare payments, while 61% of hospitals received less Medicaid payments. With the increase in the aging population, Medicare and Medicaid services will become a financial burden for the hospitals.
2. Increasing the number of uninsured and older people – The increasing number of uninsured and older people implies that many hospital services will go unpaid affecting their medical billing cycle. This increases the hospitals’ debt, as the state and federal laws insist on providing care for all regardless of their financial ability affecting the overall healthcare revenue cycle. In addition to the increasing number of the uninsured population, people are living longer. Therefore, they need more care and longer hospital stays.
3. Rising cost of hospital equipment – Hospitals must have updated equipment to retain their patients. When hospitals change to new technology they incur significant cost on the equipment and on training their staff in operating the new device. There is no more long hospital stay because of the technological advancements. This affects the medical billing revenue cycle. Also, there is an increase in labor costs due to the acute shortage of registered nurses.

Top seven approaches to maximize profitability

Industry experts say that the key to maximizing a hospital’s profit is to cut down the costs and increase the reimbursements. Following are the top seven practices that a hospital can take up amid the poor economic conditions.

• Cut down staffing costs by data-driven decisions
• Cut down costs by managing vendors
• Involve physicians in cost-cutting efforts
• Partnering with other organizations
• Partnering with local physicians
• Attracting new physicians
• Changing the quality of service

Let us look into each of them in detail.

1. Cut down staffing costs by data-driven decisions – Labor is the biggest cost for hospitals. It is important for the hospitals to have the right headcount in their facilities. Hospitals can employ staff on a part-time or hourly basis. This is called “flexible staffing”. The hospitals can adjust the staff strength based on the patient census data. The hospital management must also monitor the efficiency of the staff. They can review the average hours spent on a case and compare it with the benchmark value. The hospital must communicate about the efficient staffing benchmark throughout the organization. The hospital management must collaborate with the physicians, nurse practitioners, etc to meet the expectations. Hospitals must not have a blanket approach to layoffs. The hospital management must take a close look at their business before laying off employees.
2. Cut down costs by managing vendors – Hospitals can cut down supply costs by working with vendors. This will improve contracts and encourage physicians to take fiscally responsible supply decisions. The hospital management should not shy away from approaching vendors for discounts. Hospitals must have only the required number of vendors. The hospitals can also ask the vendors to submit purchase orders for equipment or implants that were not included in the written agreement with the facility.
3. Involve physicians in cost-cutting efforts –  Hospitals should encourage physicians to keep a watch over the supply costs and other activities, such as unnecessary tests and inefficient treatments that may drive up the hospital costs. The hospital must support the use of products from vendors that are cost-effective but still of high quality, especially in areas such as orthopedic implants, which can be considerably costly for hospitals. In addition, experts say the use of protocol-based care can cut down costs associated with unnecessary tests or treatments.
4. Partnering with other organizations – During tough economic times, some hospitals can outsource or partner with other organizations for certain services, such as food and laundry services, clinical services, etc. By outsourcing certain services to more efficient providers, hospitals can share the savings with the service provider. However, hospitals must be sure to select truly efficient providers. Often, hospitals outsource services such as laundry, food and nutrition, information technology or human resources as they do not have the capital to invest in these. Some hospitals have also begun to outsource clinical services such as emergency room staffing, anesthesiology, etc to become more efficient.
5. Partnering with local physicians –  Hospitals can join hands with local physicians and surgery center management companies to offer outpatient services. This reduces competition and also improves the hospital’s revenue cycle management.
6. Attracting new physicians  – Identifying and attracting new physicians to bring cases to the hospital is another way to increase profits. Physician-owned hospitals can bring in more physicians as partners, while other types of facilities can recruit new physicians who are willing to visit patients at their hospitals.
7. Changing the quality of service – Hospitals can change or increase the quality of services they offer to be able to compete in the market.  For instance, a hospital can invest money to develop their cardiac or cancer treatment centers which will attract more patients from different areas.  New programs and treatment centers will also influence more doctors and nurses to join their hospitals. This may cost a lot but it has the potential to bring in higher profits because specialized care cost more money and attracts more patients who otherwise cannot receive this care in other hospitals.

Hospitals that focus on enacting these best practices are likely to see improvements in their profitability. Hospitals can also benefit from using today’s economic conditions as an opportunity to improve their overarching approach to business, creating a more sustainable organization in the future. Schedule a demo with us to know more!