How Big Hospitals Can Save, Make and Invest Money for Growth and Prosperity

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Looking to the future, big hospitals must identify innovative ways to save, make and invest money in order to position themselves and their communities for future growth and prosperity

Large hospital systems play a vital role within communities; they stimulate the local economy as a major employer and key purchaser of goods and services and improve the health and well-being of residents by providing educational and preventive programs like health fairs and screenings. Yet, despite the economic engine that is big hospitals, these institutions often face ongoing financial challenges that can impact their ability to provide care.

According to a Forbes’ survey of America’s most profitable hospitals in 2010, the average American hospital barely breaks even due to rising operating expenses and shrinking reimbursement revenue streams. This remains a major concern today with many urban hospitals struggling financially and rural closings creating a critical void.

Diligent focus and revamped processes save money

One of the most significant issues impacting the financial wherewithal of U.S. hospitals is a patient’s ability to pay for care. Nonprofit hospitals, which represent the majority of hospitals in the country, collectively lose billions of dollars on unpaid care each year. Because these hospitals often serve a large number of uninsured and underinsured patients, a concerted effort is required to help determine an individual’s ability to pay in order to increase reimbursements.

Hospitals can ramp up efforts to ensure patients who enter their doors are qualified, registered, or enrolled in a government or insurance program. For example, many hospitals now use patient navigators to review an individual’s ability to pay upon arrival and work to automatically enroll those without coverage in a program, whether that’s Medicare, Medicaid, corporate or commercial insurance.

Diligent focus on a hospital’s balance sheet can also maximize savings. By working with a financial partner to identify opportunities to refund or refinance existing debt in this low-interest rate environment, large health systems can potentially save tens of millions a year. Additionally, an ongoing review of the cost of goods and a heightened interest in the relationships hospitals have with various suppliers can result in consistent savings. Increasing the number of bids received, especially for large purchases, often results in better prices for goods and services.

Implementing an electronic payments strategy, when possible, can save some hospitals hundreds of thousands of dollars annually. According to SunTrust research, companies make more than 57 percent of all payments through paper-driven processes and checks. With a median cost of $1.50 to receive and process a paper check, a company processing 20,000 checks per month could save $360,000 annually through automation. In addition, according to Paystream Advisors Research, it can cost 20 times more to process an invoice in a low automation environment. For a large hospital system, the savings is clear.

Strategic Service Alignment, Hiring Enhance the Bottom Line

Due to the intense competition among big hospitals systems today, many have elected to focus on branding around specific lines of service. Whether trauma, cancer, orthopedics, or cardiac, in order to boost profitability, large systems are seeking to be designated as a “center of excellence.” This designation enables a hospital to create brand awareness and captures a greater percentage of a particular type of business. Typically, the more volume a hospital does in one area, the greater the margins. For hospitals that may not have the money to become a center of excellence on their own, affiliating with another high profile organization like MD Anderson or Johns Hopkins is an option. This allows them to tap into the reputation of the national brand and secure a position as a market leader in a particular line of service.

While many big hospitals are seeking to add additional services like home healthcare or rehabilitation services to enhance the bottom line, it’s important to first shore up the basics. Inpatient surgical procedures whether neuro, cardiac, vascular surgery or others, are still the most profitable for hospitals. It is critical, therefore, that hospitals hire and retain the best, brightest, and most qualified specialists to perform these procedures. If hospitals have the right team in place, people will continue to return and recommend these doctors, attracting new business to the hospital.

Investing for Maximum Return

Where to invest is an important conversation hospital administrators wrestle with daily. Developing niche services such as telemedicine can have a huge impact. A hot trend in the industry, telemedicine may include sending robots or other medical devices to outside locations–even other countries–with doctors performing medical care remotely. This can play an integral role in improving access to and efficiency of care. It can also help the medical community serve rural areas that cannot support an extensive health system and can grow the hospital’s patient base opening new markets. While expensive, it is a worthwhile investment that allows hospitals to reach or expand their target audiences.

Establishing facilities and services outside of the hospital, like primary care networks that serve neighborhoods or ambulatory surgery centers that allow for off-site surgical procedures, can also pay large dividends. For sub-acute needs like rehabilitation from orthopedic surgery, off-site recovery locations can provide the same level of care in a much less costly setting. The idea is to provide the highest level of care in the lowest cost of care environment.

Finally, investing in technology, equipment and infrastructure is costly but necessary to improve a hospital’s bottom line. Recently, technology in healthcare has become less of a differentiator and more of a cost of doing business. According to Healthcare Financial Management, systems such as electronic medication administration records (eMARs) can save hospitals anywhere from $37 million to $59 million over a five-year period, based on the size of a health system and the scope of their implementation.

Investments to upgrade physical facilities also have large payoffs. Hospitals continue to spend money enhancing accommodations and creating a comfortable place for patients to stay. Because there is so much competition for each patient, this is a necessary and constant capital expenditure that helps boost the brand of the hospital and indirectly, its revenue.

While big hospital administrators are certainly on the right track, they must continually identify ways to save, make and invest money. Before making any financial decisions, however, it’s important to talk with a strategic partner to help develop a plan that will best fit the institution’s needs and goals, both short and long term. While hospitals have made significant strides, they must continue to find ways to stay ahead of the curve in the ever-changing health system landscape.

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About Author

Henry Grady
Henry Grady

Henry Grady, industry manager for SunTrust Bank’s not-for-profit health care specialty group, is responsible for the firm’s relationships with a large number of hospitals and health systems throughout the United States. Prior to this position, he spent close to nine years leading the firm’s corporate and executive services department as well as the business valuations division. He was also charged with aspects of business development within the investment banking department of the firm. Earlier in his banking career, he spent three years managing the firms’ equity sales trading division. Prior to his trading experience, he spent 15 years in numerous areas of the firm’s capital markets group; with 12 of those years focused in the corporate syndicate department.

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