Ethan Rhodes
Making a hospital profitable is a complex task that requires a comprehensive approach. While most community hospitals are non-profit, a large minority are for-profit, and there are steps that can be taken to increase profitability. Hospitals can focus on reducing costs and increasing reimbursement, and they can also outsource services such as laundry, food, and human resources to save money. Renegotiating contracts and improving data collection and analysis can also help increase profitability. In addition, hospitals can improve their bottom line by investing in healthcare IT and digital technologies, which can reduce hospital stays, increase productivity, and improve safety.
| Characteristics | Values |
|---|---|
| Size | Larger hospitals tend to be more profitable. |
| Affiliation | Hospitals that are part of a larger health system tend to be more profitable. |
| Location | Urban hospitals tend to be more profitable than rural hospitals. |
| Profit Status | Non-profit hospitals tend to have higher operating margins. |
| Medicare Patients | Hospitals with a larger share of Medicare patients have lower operating margins. |
| Admissions | Hospitals that increased their admissions per bed per year were more profitable. |
| Revenue | Hospitals that increased revenue, especially from non-Medicare payers, improved profitability. |
| Reimbursement | Hospitals can increase profitability by increasing reimbursement and reducing costs. |
| Outpatient Services | Hospitals can increase profitability by focusing on outpatient services. |
| Technology | Adopting technology can help hospitals raise revenue. |
| Outsourcing | Outsourcing services can improve profitability in the long run. |
| Contracts | Renegotiating high-risk contracts can improve profitability. |
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What You'll Learn
Increase revenue from non-Medicare patients
Hospitals can increase their profitability by focusing on two key areas: reducing costs and increasing reimbursement. Here are some strategies for increasing revenue from non-Medicare patients:
Firstly, hospitals can focus on increasing admissions per bed per year. This strategy has been effective for hospitals that have successfully improved their profit margins. Additionally, hospitals can increase their patient volume by attracting patients from higher socioeconomic backgrounds who are more likely to have commercial insurance. Hospitals can also increase their admissions by providing more profitable services. Technologically intensive services, for example, are better reimbursed and can help hospitals raise revenue.
Secondly, hospitals can renegotiate contracts to ensure timely and agreed-upon payments. Contracts that are deemed high risk should be renegotiated to include a material harm clause, which allows for the readdressing of terms that become financially harmful to the hospital. Renegotiating contracts can be valuable and result in significant financial gains.
Thirdly, hospitals can outsource services to improve efficiency and profitability. Outsourcing can be a smart financial decision, especially when the hospital lacks the funds for equipment upgrades or training. By outsourcing, hospitals can redirect funds to more profitable services. Common services to outsource include laundry, food and nutrition, information technology, and human resources. Some hospitals have also started outsourcing clinical services such as emergency room staffing and anesthesiology to improve efficiency and better manage patient demand.
Finally, hospitals can increase revenue by adopting a value-based model that rewards hospitals for positive patient outcomes rather than the number of tests and procedures conducted. This new model is being phased in and may alter the landscape of hospital profitability.
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Outsource services to improve efficiency
Hospitals can outsource services to improve efficiency and, in turn, increase their profitability. This strategy is particularly useful when a hospital does not have the capital to invest in equipment upgrades or training to increase the efficiency of their internal services. By outsourcing, hospitals can redirect funds to more profitable services.
Hospitals often outsource services such as laundry, food and nutrition, information technology, and human resources. Some hospitals have also begun to outsource clinical services, such as emergency room staffing and anesthesiology. This can be beneficial in clinical areas that require around-the-clock coverage and high demand for services. For example, an emergency department management company can introduce management oversight and best practices, allowing more patients to be seen and improving profitability.
When considering outsourcing, hospitals must select efficient providers that can offer greater efficiency through larger-scale operations. The provider should be more efficient than the hospital's current operations to ensure improved outcomes.
Outsourcing can also be a strategy to reduce costs. By outsourcing certain services, hospitals can negotiate better rates and improve their financial position. This is particularly beneficial for hospitals facing financial pressures, such as rural hospitals, which often have lower patient volumes and higher costs.
Additionally, hospitals can focus on increasing revenue by renegotiating contracts. Hospital leaders should examine contracts to ensure that reimbursement rates, payment terms, and timeliness are as agreed upon. Renegotiating high-risk contracts can lead to significant financial gains and improve the hospital's profitability.
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Renegotiate high-risk contracts
Renegotiating high-risk contracts is an important strategy for hospitals to improve their profitability. Hospital leaders should regularly examine their contracts and ask key questions to identify high-risk agreements. These questions include:
- Is the revenue in line with expectations, considering reimbursement rates and the volume of policyholders?
- Are the agreed-upon payment terms being met, including the timing of payments?
- Does the contract contain a material harm clause that allows for readdressing financially harmful terms?
By renegotiating high-risk contracts, hospitals can significantly improve their financial position. For example, one hospital advised by Ms. Worsham will gain $500,000 in a year due to successful renegotiations. This strategy is particularly valuable when hospitals face financial pressures, such as economic downturns, increases in uninsured care, and growing competition for outpatient services.
To enhance profitability, hospitals should also consider outsourcing certain services. This approach can increase efficiency and allow hospitals to redirect funds towards more profitable areas. Common services to outsource include laundry, food and nutrition, information technology, and human resources.
Additionally, hospitals can focus on increasing admissions per bed per year, adopting new technologies, and providing more profitable services to improve their financial performance. It is crucial for hospitals to regularly assess their contracts and take proactive steps to renegotiate high-risk agreements to ensure long-term sustainability and improve profitability.
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Focus on profitable services
Focusing on profitable services is a key strategy for hospitals to increase their profitability. This involves identifying and prioritising service lines that generate higher revenues and contribute more significantly to the hospital's bottom line.
One approach is to adopt technology to raise revenue. Technologically-intensive services tend to be better reimbursed, so hospitals can invest in well-reimbursed technologies to increase their profitability. This strategy is particularly relevant in today's healthcare landscape, where there is a growing emphasis on outpatient services. By acquiring these technologies, hospitals can not only improve their financial performance but also adapt to the changing dynamics of healthcare delivery.
Another aspect to consider is the fee-for-service model, which incentivises hospitals to conduct more tests and procedures to earn more money. While this model is being phased out in favour of a value-based model, understanding the reimbursement landscape is crucial for hospitals to adapt their strategies accordingly.
In addition to technology and reimbursement models, hospitals can also focus on profitable services by increasing their admissions per bed per year. This strategy has been linked to improved profitability, as it allows hospitals to serve more patients and, consequently, generate higher revenues.
Outsourcing is another lever hospitals can pull to focus on profitable services. By outsourcing certain functions, such as laundry, food and nutrition, and information technology, or even clinical services like emergency room staffing, hospitals can free up resources and focus on their core competencies. Outsourcing can lead to increased efficiency and allow hospitals to allocate their funds towards more profitable endeavours.
Lastly, hospitals can consider their location and patient demographics when focusing on profitable services. For-profit hospitals, for example, may choose to locate in wealthier areas with a higher proportion of residents holding commercial insurance. This strategic decision-making can have a significant impact on the hospital's profitability and its ability to serve its target market effectively.
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Join a hospital system
Joining a hospital system can be a great way to increase a hospital's profitability. Here are some reasons why:
Firstly, hospitals that are part of a larger health system often have increased negotiating power with insurers, which can lead to higher reimbursement rates and improved profitability. This is especially beneficial for smaller hospitals or those in rural areas that may struggle with low patient volume and higher costs. By joining a hospital system, these hospitals can gain more leverage in contract negotiations and improve their financial situation.
Secondly, being part of a larger system can lead to improved operational efficiency. Hospitals within the system can share resources, best practices, and expertise, reducing costs and improving the overall quality of care. For example, hospitals can outsource certain services, such as laundry, food, and information technology, to specialized providers within the system, freeing up resources to focus on patient care and more profitable services.
Additionally, hospital systems can provide economies of scale, allowing member hospitals to benefit from group purchasing discounts, centralized administrative functions, and improved access to capital for equipment upgrades and facility expansion. This can drive down costs per patient and increase the hospital's profitability.
Furthermore, joining a hospital system can enhance a hospital's ability to attract and retain specialized medical staff. By offering competitive salaries, better career development opportunities, and a larger patient base, hospitals within a system can ensure they have the necessary expertise to provide a wider range of profitable services. This can lead to increased patient admissions, improved patient outcomes, and, ultimately, enhanced profitability.
Lastly, hospital systems often have a stronger presence in the community, which can lead to increased patient referrals and community support. Through collaborative marketing and community engagement initiatives, hospitals within the system can raise their profile, attract more patients, and establish themselves as trusted healthcare providers in the region. This can be particularly advantageous for smaller or rural hospitals aiming to increase their patient volume and market reach.
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Frequently asked questions
Hospitals can increase their profitability by reducing costs and increasing reimbursement. This can be achieved by outsourcing services such as laundry, food and nutrition, information technology, human resources, and even clinical services. Hospitals can also improve their profitability by utilizing revenue cycle analytics and modern technology, such as a medication order system, to improve efficiency and patient care.
Hospitals can also increase profitability by improving their contract negotiation skills and analyzing monthly spending to identify areas where they are overpaying. Telecom cost reduction strategies, for example, can save hospitals between 25-40% on average.
Hospitals can focus on reducing readmission rates by collecting and analyzing data across the continuum of care, such as follow-up care. This can help to improve patient outcomes and increase profitability, especially under the new value-based model, which will reward hospitals whose patients have the best outcomes.
