Getting Strategic About Cost Management

Transcription

1 Getting Strategic About Cost Management Brian Channon, Senior Vice President Kaufman, Hall & Associates, Inc. August 30,

2 Today s Objectives Some Polling and Reflection on Cost Issues in Your Organization Identify Some Obvious and Not-so-Obvious Barriers to Hospital Cost Reduction Kaufman Hall Principles of Cost Transformation Moving from Activity-Centric to Results-Driven Focus Outline an Approach to Strategic Cost Management What Are the Cost Reduction Building Blocks? What Are Some Relatively Untapped Opportunities Beyond the Low- Hanging Fruit? What Are the Keys to Success? 1

3 What Has to Fundamentally Change to Produce Sustainable Cost Reduction in Your Organization? A. We lack a strong understanding of our future financial needs to give the cost reduction effort context B. We are unsure where to look for savings opportunities C. We find many savings opportunities too politically sensitive to pursue D. We have difficulty realizing savings opportunities once they are identified E. We are unable to sustain improvements once savings are achieved Vote for One Only! 2

4 Strategic Cost Management in Brief 1. There is no shortage of initiatives to reduce hospital cost. 2. There is, however, a shortage of results. 3. Reducing cost provides an excellent platform to push through execution barriers and strengthen the organizational capacity needed to produce lasting results. What does strengthened organizational capacity mean to your organization? 3

5 What Are the Most Common Execution Barriers? 4

6 Obvious and Not So Obvious Cost Reduction Barriers If you build it, they will come So maybe we don t need to reduce cost after all. Is this a prevalent view in your organization? 5

7 Obvious and Not So Obvious Cost Reduction Barriers (continued) We ve already picked the lowhanging fruit, (productivity, supply chain, etc.) What does this point of view imply? 6

8 Obvious and Not So Obvious Cost Reduction Barriers (continued) We have tons of cost reduction opportunities, BUT Not In My Back Yard. Is there a way exploit this law of nature for organizational benefit? 7

9 Obvious and Not So Obvious Cost Reduction Barriers (continued) We re different so benchmarks don t apply to us How much time is spent arguing over the benchmarks? 8

10 Obvious and Not So Obvious Cost Reduction Barriers (continued) Lowering Hours / Unit Lowering Labor Cost 9

11 Obvious and Not So Obvious Cost Reduction Barriers (continued) We will get to cost reduction as soon as we: Complete our Epic installation Open our new patient tower Complete our merger Fill out our leadership team What does this suggest? 10

12 Obvious and Not So Obvious Cost Reduction Barriers (continued) Our Managers Our managers are our weakest link. Does the term learned helplessness apply? 11

13 Obvious and Not So Obvious Cost Reduction Barriers (continued) Managers must buy in to cost reduction targets. Is consensus possible with regard to cost reduction? 12

14 Obvious and Not So Obvious Cost Reduction Barriers (continued) If a man can t agree that = 4 then you ll never win the argument cuz facts don t matter. Man will occasionally stumble over the truth, but most of the time he will pick himself up and continue on. In the final analysis, for the believer there are no questions, and for the non-believer there are no answers. Abraham Lincoln Winston Churchill Don t bother me with the facts son. I ve already made up my mind. Rabbi Kagan Foghorn Leghorn There How What is should a insight Strong this did Tendency insight these inform wise Confirmation men cost arrive reduction? at? Bias! 13

15 Obvious and Not So Obvious Cost Reduction Barriers (continued) Maybe it is time to do a magic bullet inventory 14

16 Obvious and Not So Obvious Cost Reduction Barriers (continued) Cost Reduction ^ Since we have gotten out the low-hanging fruit the only way we can get additional savings is to totally redesign the hospital. What is the relationship between process improvement and elimination of waste and cost reduction in your organization? 15

17 Obvious and Not So Obvious Cost Reduction Barriers (continued) COST If we just reduce waste If we just improve throughput If we just get doctors to order less If we just Cost savings will fly out. Has cost ever flown out of your organization? 16

18 Obvious and Not So Obvious Cost Reduction Barriers (continued) We ve reduced cost before but haven't sustained our savings. Should this come as a surprise? 17

19 Strategic Cost Management: Overcoming Execution Barriers Common Execution Barriers Overcoming Execution Barriers Dive in to initiatives with no context or goal Strategic and financial context established Overemphasis on buy in on targets Set targets quickly Sub-optimizing by the way that cost and productivity are measured Aligning departmental targets with hospital goals and financial performance Anxiety over impact on quality, safety, satisfaction Provides extensive plan vetting and process to safeguard against these concerns Benchmarking as the end goal Benchmarking to inform targets Learned management helplessness Strengthened leadership capacity Halo effect related to hiring decisions and resource requests Instills opportunity cost discipline through hiring process and value improvement tools Lots of new and exciting improvement initiatives but no results in sight Provides tools, trackers, and mentorship to move from opportunities to financial results Allowing too much time for plan development and execution Fast-tracked and disciplined process to accelerate timing of results 18

20 Five Immediate Cost Reduction Building Blocks 1. Build a Compelling Case for Change 2. Build a Compelling Case for the Identified Opportunities 3. Establish Targets & Accountability 4. Strengthen Your Cost Intelligence Owner: Brian Channon 5. Hardwire Value and Affordability 19

21 Building a Compelling Case for Change: Quantify the Need Required to support identified strategic capital expenditures $ M Survive on Medicare reimbursement $ M Expense reduction need $ M Gap to maintain desired capital access 20

22 Building a Compelling Case for Opportunity: Validating Cost Reduction Opportunities Budget gap $ M Internal historical performance Expense reduction opportunity $ M $ M External benchmarks Triangulation of data builds a compelling case that sufficient expense reduction opportunity exists to meet the need 21

23 Strengthen Accountability and Improve Execution: Eight Target-Setting Tips 1. Make sure productivity targets and reports are aligned with financial statements 2. Do not fear that people are overwhelmed 3. Avoid signaling if you possibly can 4. Targets are necessary, but not sufficient -- plans are required 5. Stretch targets must allow for slippage in planning and execution 6. Don t confuse benchmarks with targets 7. Refuse to accept ( I can get it done if you will see to it that... ) 8. Beware of an unwillingness to set targets! 22

24 Understand Your Risk-Reward Payoff / Ability to Make Tough Decisions 23

25 Worked Hours By Pay Period Strengthen Cost Intelligence 8,114 7,914 Relationship of Staffing to Volume (PPE 8/8/09-7/24/10) Memorial OPERATING ROOM WT OR Minutes 7,714 7,514 7,314 7,114 6,914 6,714 6,514 6,314 39,847 41,847 43,847 45,847 47,847 49,847 51,847 53,847 55,847 57,847 Volume By Pay Period A High Fixed Cost Structure Points to an Overdependence on Volume and Affords Little Downside Protection 24

26 Number o f Rooms Strengthen Cost Intelligence Cath Lab Cases in Progress versus Capacity :00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 Mondays Tuesdays Wednesdays Thursdays Fridays Open Rooms What role does capacity play on cost in your organization? 25

27 WHPUOS Use Historical Trends Data to Support Achievability of Benchmarks Productivity Trends (PPE 1/10/09-12/26/2009) Memorial OPERATING ROOM Wkld = WT OR Minutes /08/09 09/08/09 10/08/09 11/08/09 12/08/09 01/08/10 02/08/10 03/08/10 04/08/10 05/08/10 06/08/10 07/08/10 WHPUOS Average WHPUOS Historical Top Quartile Benchmark 26

28 Hardwire Value and Affordability Core versus Non-Core Programs Core versus Non-Core Assets Core versus Non-Core Functions Core versus Non-Core Locations Core versus Non-Core Positions Core versus Non-Core Projects Core versus Non-Core Improvement Initiatives 27

29 Keys to Successful and Sustainable Cost Reduction Begin with an end in mind, i.e., compelling reason to reduce cost Engaged management team willing to make tough decisions Stretch targets set and aligned with no whining, no haggling, no excuses Changes in the way business is done (without resorting to boiling the ocean approaches to redesign) Strengthened accountability resulting in managers stepping up to produce well-informed cost reduction plans Ongoing strengthening of management capacity, capabilities, and selfsufficiency Adopt a first things first perspective in making resource allocation decisions 28

30 For More Information Brian S. Channon Senior Vice President and Strategic Cost Management Leader Visit to access this and other articles 29

31 Qualifications, Assumptions and Limiting Conditions (v ): This Report is not intended for general circulation or publication, nor is it to be used, reproduced, quoted or distributed f or any purpose other than those that may be set forth herein without the prior written consent of Kaufman, Hall & Associates, Inc. ( Kaufman Hall ). All information, analysis and conclusions contained in this Report are provided as -is/where-is and with all faults and defects. Information furnished by others, upon which all or portions of this report are based, is believed to reliable but has not been verified by Kaufman Hall. No warranty is given as to the accuracy of such information. Public information and industry a nd statistical data, including without limitation, data are from sources Kaufman Hall deems to be reliable; however, neither Kau fman Hall nor any third party sourced make any representation or warranty to you, whether express or implied, or arising by trade usage, course of dealing, or otherwise. This disclaimer includes, without limitation, any implied warranties of merchantability or fitness for a particular purpose (whether in respect of the data or the accuracy, timeliness or completeness of any informati on or conclusions contained in or obtained from, through, or in connection with this report), any warranties of non -infringement or any implied indemnities. The findings contained in this report may contain predictions based on current data and historical trends. Any such predictio ns are subject to inherent risks and uncertainties. In particular, actual results could be impacted by future events which cannot be predicted or controlled, including, without limitation, changes in business strategies, the development of future products an d services, changes in market and industry conditions, the outcome of contingencies, changes in management, changes in law or regulations. Kaufman Hall accepts no responsibility for actual results or future events. The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report. All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client. In no event will Kaufman Hall or any third party sourced by Kaufman Hall be liable to you for damages of any type arising out of the delivery or use of this Report or any of the data contained herein, whether known or unknown, foreseeable or unforeseeabl e. 30

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