Bending the healthcare cost curve in spite of the crisis

While the world is busy bending the curve in the fight against the COVID-19 pandemic, healthcare is busy bending a curve of their own – the cost curve – as businesses fight for survival.

As a result of healthcare organizations pushing back procedures, patients staying home, and office visits delayed, many healthcare providers are now reeling financially. Many are looking at ways to reduce expenditures, and as such, looking to cut idle capacity.

Healthcare providers may be tempted to cut costs through the reduction of human capital without considering the long-term impact. Using the traditional/linear cost and revenue curves (Graph 2, when a company pursues layoffs as an immediate response to the sudden and unforeseen reduction in revenue, they may be able to stifle the effects for the short term but at the cost of maximizing capacity for the long term, when the market bounces back.

What then should a healthcare provider do?

First, pause, and take a deep breath before acting. Look at the longer term view to see how to get the best long term value instead of destroying your capacity for delivering value in exchange for immediate savings.

Capacity should be viewed as value-generating potential. Instead of destroying a key conduit needed to deliver value to your customers, figure out how to focus your capacity (people) on the existing value stream during these times of disruption.

The following model outlines how re-focusing on the value stream through your existing resource pool (aka capacity) will enable a sharper and quicker rebound in the revenue, which we’ve seen historically

This is easier said than done when you’ve had to close your doors, seen your patients and care plans impacted, watched as your staff and facilities sat idle, or felt deep uncertainty about when normal healthcare operations will resume. However, there are still ways you can adjust your revenue and cost curves:

• Refine your new value streams. As things like telehealth have quickly transformed how accessible providers are to their patients, healthcare providers need figure out how improve these offerings and further embed this new touch point into other care services. Now is a great time to implement accelerated alternative care models like virtual care, home healthcare visits and telehealth.
• Drive overdue process improvement. This can be a rare opportunity to take care of all the things you intend to do, but never get around to completing. Many healthcare providers are taking this opportunity to look at underlying root causes of these challenges, such as optimizing their medical supply chain by implementing sound inventory practices like par levels and safety stock algorithms. You may also considering taking this time to update your facility standards with improvements to protect patients against COVID or the next unforeseen health concern (shields, spacing tape, etc. for staff members in addition to patients.
• Repurpose idle capacity to innovate. Tackle the loss of demand by enabling and up-leveling your existing staff to identify over-looked opportunities. Consider cross-training your staff to create flexibility or move practitioners from more elective care to front line care to augment the capacity of your front-line staff.
• Get a handle on your operations. Work with suppliers and across your supply chain to drive efficiencies and improvements that weren’t as high impact until now.
• Support external process improvements. Work with suppliers to improve efficiencies so you can get the supply you need. With many care services disrupted, you likely have idle capacity. Consider lean workshops with suppliers to do Daily Management System and Kaizens to help end-to-end care delivery.

These tactics focus on approaching the disruption in a way so that when demand picks back up, you haven’t lost the opportunity to position your health system to differentiate and take advantage of the situation.

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While today’s challenges have never been greater, providers are capable of not only surviving but also thriving during these challenging times. It means being willing to resist temptations to cut expenses by repurposing capacity in a way that will prepare your organization for the future.