Profitability ....

Profitability Enhancement

Price increases are no longer a primary method to enhance profitability. Revenue is now based more on higher risk reimbursement methods. Today, price increases become less of an option. Per Diem, DRG and capitation charging has changed hospital finance predictability drastically. To increase profitability we must reduce costs and/or increase volume.

It is possible to meet planned performance and productivity percentages along with planned expenses per KVI and still not be profitable. First-rate organizations monitor and analyze hours and expenses. Invariably adjustments are made to meet plans. Unfortunately, this does not mean that an entity will be profitable.

There are two reasons for this:

•Managed care environment revenues are no longer based on what services are provided. Fee for service, in which a hospital is paid some amount for each procedure, test, etc., is no longer a primary reimbursement method for hospitals. Today some type of flat fee is paid. It can be by type of illness (Medicare DRG), patient day (Per Diem) or per enrollees in a health plan (Capitation). In all of these methods if the hospital expenses are greater than the revenue, the hospital assumes the loss.

•Budgets will to some extent include the current inefficiencies as an accepted part of work in a department. The planned performance, productivity and expense per KVI measures are not necessarily an indication of highly efficient work. They are more an indication of what is accepted. Planned goals may be met, but the cost of meeting them may be higher than what is truly needed.

Hospitals now take the risk for inefficiency and ineffectiveness. Rework of any type, unneeded diagnostic procedures, inefficient use of labor and materials are all costs that hospitals now absorb. Ultimately, the more generic the payment method, the greater the risk assumed by the hospital.

The best option for successful operations is cost reduction. Cost reduction can provide a lasting effect that can reduce costs and increase profitability. This system can track your financial history and lock in improvements.