Skip to content

Boost Your Hospital’s Bottom Line With These 4 Tips

This article originally appeared in Becker’s Hospital Review.

Navigating tight margins is a challenge for many hospitals and health systems across the country. While some organizations are adapting to the changing post-pandemic dynamics and seeing an uptick in margins, many still face financial strains. If your organization is struggling with shrinking margins, here are four tips for improving its financial health without major overhauls or big investments.

1. Beware of pressing the panic button.

When it comes to improving margins, it can be tempting to focus primarily on cutting costs. However, prematurely cutting expenses for quick gains may ultimately cost you more. Especially in today’s environment, few systems can afford to risk disrupting essential services or reducing quality and morale. Similarly, rushing into unnecessarily meticulous assessments right off the bat can be disruptive to staff and quite costly.

A better approach is to start with surface analytics and then dig deeper into areas of potential opportunity. This will help you objectively identify opportunities that offer the highest return on investment.

It can also help you get to the root of the problem. For example, issues might show up in the revenue cycle, but you need to look deeper at the operations and underlying dynamics in order to identify the true source of the issue – and fix it.

2. Prioritize recurring revenue.

If your organization only focuses on collecting unpaid bills or cutting costs, they’re just addressing the symptoms – not the drivers – of underperformance. Instead, focus on initiatives that will provide long-term sustainability, reducing the need for constant restructuring and allowing for more predictable planning.

An ideal way to do this is by exploring recurring revenue opportunities. Whether it is through tailoring your services to meet market needs, optimizing your revenue cycle, renegotiating managed care contracts, or creating a mutually beneficial partnership with another healthcare organization, finding new ways to generate revenue can help alleviate compressed margins. Additionally, there are federal programs to enhance profitability and align with community needs, and some of these programs are unknown or underutilized by health systems across the country.

For example, many health systems can benefit from the Federally Qualified Health Center (FQHC) Look-Alike model, which can increase payments, expand care, and potentially enhance outcomes. This model introduces new revenue opportunities without changing the operations of your existing physician clinics. It also makes the impacted clinics eligible for the 340B Federal Drug Pricing Program, helping you obtain costly medications at a fraction of their market prices. FQHC Look-Alike status optimizes your existing resources and is not disruptive or expensive. You can continue serving your existing patients while broadening your offerings.

3. Keep your mission in view.

Improving performance should never detract from your organization’s strategy or mission, and any changes you make should harmonize with your organization’s purpose.

That means any changes should improve efficiencies without compromising patient care, optimize physician contracting while preserving relationships, and benefit stakeholders, including patients and employees. Implementing changes without considering the effects will likely limit success.

It can be challenging – but not impossible – to make financial improvements while continuing to focus on patients’ needs and employee morale. We recently partnered with a struggling health system to identify and enhance major new income streams. We renegotiated the system’s physician and managed care contracts and restructured its compensation plan, finding growth and cost-saving opportunities and exploring new revenue sources.

The system now has more sources of steady, lasting income – and an approximate 5-to-1 return ratio because of these efforts. This significantly outperforms the return ratios typically seen with most firms. And by putting solutions in place that lead to ongoing revenue streams, this system stands to benefit financially for many years beyond its initial investment – without sacrificing patient care or employee morale to do it.

4. Know when to ask for help.

Amid today’s pervasive labor shortages, inflation, and higher costs from sicker patients staying in hospitals longer, margins are under constant pressure. External consultants can often help offer fresh perspectives, spot opportunities for new revenue streams, and implement operational improvements.

However, not all consultants are created equal. Health systems are best served by partners who use a non-disruptive, cost-effective approach. When working with an advisor, look for a partner that will work to identify solutions that have lasting value instead of focusing only on quick fixes.

If you are facing labor shortages and rising costs, remember: You have options beyond drastic overhauls and big spending.

Need help improving your hospital’s margins? Connect with KSM’s healthcare consulting team today for a deep dive into your options.

George Batalis Partner, Healthcare Consulting
Kevin Newingham Director, Healthcare Consulting

We're Looking for
Remarkable People

At KSM, you’ll be encouraged to find your purpose, exercise your creativity, and drive innovation forward.

Explore a Career Full of Possibilities