Healthcare - Looking For Savings Under Every Rock

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Midbrook Medical knows the importance that as the new 2010 Patient Protection and Affordable Care Act comes into play, healthcare facilities are still determining the long and short term financial impacts and what course of action they will need to take. This combined with the protracted recession which has resulted in dramatic drops in elective surgery are causing many hospitals to struggle financially.

Moody's analysts highlighted three established risks for non-profit hospitals.

Established Risks:
1. Revenue growth. Revenues are low compared with other recent years, and non-profits will continue to struggle with revenue growth as CMS lowers annual Medicare increases and adopts to reimbursement strategies.

2. New payment methodologies. Bundled payments and quality-based reimbursements are requiring hospitals to reconfigure how they should coordinate care, and they are running counter to the current fee-for-service environment.

3. Sluggish economy. Slow economic growth and prevailing high unemployment rates are leading to slower patient demand, which directly impacts hospitals' balance sheets.

Robert T. Yokl, President and Chief Value Strategist of Strategic Value Analysis In Healthcare recently reported in the April 2012 issue of Healthcare Purchasing News: "To survive during the next 10 years, most healthcare organizations anticipate needing a 20 percent reduction in their labor and non-labor expense streams to offset the revenue reductions that are expected from the Patient Protection and Affordable Care Act enacted in March 2010. In my opinion, to meet this monumental goal of a 20 percent improvement in hospital operations will mean reinvention of what healthcare organizations are doing now — top to bottom."

One of the largest operating costs for healthcare organizations are equipment maintenance costs. Most healthcare providers buy service maintenance agreements from the manufacturer on the expensive medical equipment they purchased. These are bought in an effort to protect the healthcare provider against costly repairs should the equipment malfunction during the year. These agreements can guarantee costs allowing healthcare facilities to budget but they come with an expensive price tag. The typical OEM annual service agreement cost between 10 to 15% of the purchase price of the medical device. With many of the medical devices costing in excess of a $500K, it does not take a lot of equipment to quickly ratchet up operating costs.

With pressure mounting from several directions, health care systems may be looking outside more often and with a wider lens, according to some experts. "I think it's very likely we'll see outsourcing grow," said Joanne Spetz, professor at the Philip R. Lee institute for Health Policy Studies and Center for the Health Professions at UC-San Francisco in the August 2, 2012 California Healthline Daily Digest of News, Policy & Opinion.

Healthcare organizations will need help identifying methods to help them become more efficient and cost effective in developing an overall strategic maintenance plan. These strategic plans must encompass all parameters, reasons and justifications for various service levels combined with the various costing strategies to create a service maintenance program that can not only save a healthcare organization 20% or more of their current service maintenance costs but continue to provide the "budget ability" needed by hospital departments.

A number of service organizations exist in the marketplace that can provide a "combined service program". While a number of these are the larger Equipment Manufacturers that have created multiplatform service programs, there are also other choices that should be considered. These include many third party service companies that are found around the country and other service plans that involve utilizing insurance mechanisms to guarantee savings.

With all the different choices available, it is often the best decision to employ a knowledgeable organization that can help lay out the strategy to create a Comprehensive Service Program that finds every dollar of savings under every maintenance rock.

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Elizabeth Lathers

Jamie Crowley
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