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Data and evidence anchor healthcare’s financial renaissance

April 05, 2021
Health IT
Dr. John Cherf
By Dr. John Cherf

Even as brighter days appear to lie ahead for healthcare providers, COVID-19 continues to strain our healthcare system. Postponements of elective procedures, as well as a steep decline in the volume of emergency department and urgent care visits, caused revenue deficits for the majority of hospitals and health systems in the U.S. The American Hospital Association estimates $323.1 billion in financial losses for U.S. hospitals and healthcare systems in 2020. These losses, coupled with increasing supply and labor costs, are cause for concern to hospital leaders responsible for their organization’s financial viability. It is important that healthcare providers prepare for the post-COVID-19 era now.

The challenge that faces healthcare providers is not simply navigating the pandemic’s ongoing financial impact, but simultaneously forging a path to recovery. In response, many hospital leaders have accelerated cost reduction initiatives to meet financial targets. Prior to the pandemic, a study published in JAMA found the cost of waste in the U.S. healthcare system ranged from $760 billion to $935 billion annually, accounting for 25% of total healthcare spending annually.

Controlling product variation represents one of the greatest financial opportunities in the months and years ahead, yet few hospitals have a thorough understanding of where that variation lies. Thriving in a post-COVID environment will be contingent on how well an organization uses data and evidence to fully understand cost-per-case, cost-per-discharge, and patient encounters. This insight will enable healthcare providers to establish process improvements that will optimize savings while maintaining the highest level of patient care.

Data to draw upon
Thankfully, we have an abundance of data in healthcare, from product and price to use, performance and outcomes. Better yet, we can put that data and clinical evidence to use to tackle a sensitive and personal cost issue: physician preference items (PPI). Today, up to 60% of a hospital’s total supply spending comes from PPI. In healthcare, we have learned that variation is often unwarranted, drives up costs and can even affect the quality of care we deliver. Most other industries have effectively managed variation or standardization for decades. It’s time for similar advances in healthcare.

The aim to rein in this spend isn’t uniformity; it’s standardization. Standardization reduces costs and improves outcomes. Physicians are empiricists by nature. While patient care remains paramount, physicians are beginning to understand the financial pressures facing hospitals, which have only been exacerbated by COVID-19. Data and evidence can facilitate the right conversations between supply chain, financial and clinical teams to reduce variation and standardize products without sacrificing quality of care, the imperative for physicians.

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