In 2024, hospitals and health systems have witnessed notable improvements in financial metrics, yet they continue to grapple with increasing costs. Uncover five strategic approaches designed to help your healthcare organization reduce costs, enhance efficiency, and boost revenue generation.
2024 was projected to become pivotal for healthcare facilities, especially those with revenues under $500 million. Facing the dual challenges of high labor costs and operational expenses, alongside sluggish cash flow recovery and reduced payer reimbursements, these organizations are in a tough spot financially.
To achieve improved operational margins and ensure long-term profitability, it’s essential to focus relentlessly on optimizing care delivery across various settings. In this article, we’ll uncover five strategic approaches designed to help your healthcare organization reduce costs, enhance efficiency, and boost revenue generation.
Healthcare Operating Margins: the Big Picture
According to Strata Decision's Monthly Healthcare Industry Financial Benchmarks report, the reality was brighter than predicted. In 2024, hospitals and health systems have witnessed notable improvements in financial metrics, yet they continue to grapple with increasing costs.
In May, the median hospital operating margin reached 5.0%, marking the fifth consecutive month it has sustained above 4.5%. This indicates a period of encouraging financial performance in 2024. Despite these gains, there's a noted volatility; from April to May, the median change in operating margin experienced a near 1 percentage point decline, highlighting some ongoing financial instability.
The financial strain from elevated expenses is palpable across hospitals. The total drug expenses rose by 8.3% and supply expenses by 8.1% compared to the same month last year, significantly impacting operational budgets. This uptrend in costs is a critical factor that health systems need to manage proactively to safeguard their financial health.
There has been a robust 11.7% increase in inpatient admissions since May 2022, partly fueled by the broader application of the Two-Midnight Rule to Medicare Advantage patients. This change has had a substantial impact on hospital operations and patient throughput.
For physician practices, the financial pressure is intensifying. In May, the annualized expenses per physician rose to $1.09 million, a sharp increase of 12.8% from 2023 and an even more significant 21.1% from 2022. These rising costs are pushing up the required investment to support physician practice operations, with the median investment per physician FTE reaching $314,487 for the month, an 11.2% increase from the previous year.
Despite the financial challenges, there was also a positive movement in revenues. The annualized median net revenue per physician FTE in May showed an 11.4% increase from 2023, demonstrating robust growth. This revenue boost has been supported by higher physician productivity, with work relative value units (wRVUs) per FTE rising by 9.1% from the previous year.
This snapshot from May 2024 underscores a healthcare sector that, while showing signs of recovery and robust revenue growth, must continuously adapt to manage rising costs and fluctuating operating margins. The ongoing challenge will be to implement effective strategies to enhance operational efficiency and financial stability in a dynamically changing healthcare landscape.
Strategy #1: Enhancing Healthcare Workforce Retention
The challenge of retaining healthcare staff is deeply rooted in scarcity—there simply aren't enough qualified medical professionals and support staff to meet current and future demands. This issue, which existed long before the COVID-19 pandemic, is compounded by factors like population growth, shifts in demographics, evolving disease patterns, limited availability of quality medical education and training, and high rates of retirement among practitioners.
According to the World Health Organization, even before the pandemic, there was an expected global shortfall of 18 million healthcare workers by 2030. The pandemic has intensified this shortage, leading to heightened burnout and driving many practitioners to leave the profession. In 2021, nearly 340,000 U.S. healthcare workers exited their roles, and a study from Definitive Healthcare predicts that one in five healthcare professionals have resigned since 2020, with almost half planning to leave by 2025.
The data is alarming—a 2021 Advisory Board survey of 224 U.S. hospitals revealed that employee turnover was at its highest in 16 years, with median rates climbing to 18.8% in 2021 from 15.5% in 2020. However, the 2024 NSI National Healthcare Retention & RN Staffing Report noted an average 2023 turnover rate of 20.7% among surveyed hospitals, marking a decrease from the previous year, 22.7%.
Despite the positive trend, this is still an ongoing challenge, leading healthcare organizations to increasingly focus on enhancing employee engagement and improving the structural aspects of the work environment. With higher turnover, especially among physicians and nurses driven by burnout and the quest for better work-life balance, there is a pressing need to augment recruitment and retention strategies to maintain adequate staffing levels. Despite a slight moderation in agency costs for contingent labor in 2023, these expenses are still well above pre-pandemic figures, adding further financial strain.
While there are no quick fixes, effective workforce retention begins with refining recruitment, onboarding, scheduling, interaction, and compensation processes. This not only helps attract and keep staff but also allows them to dedicate more time to patient care rather than administrative duties.
Reducing labor costs and enhancing job satisfaction can be achieved by optimizing the deployment of physicians, nurses, and support staff. Leveraging AI-powered scheduling tools and analytics can facilitate cost-effective staffing solutions and improve retention rates, ultimately supporting the financial sustainability and operational efficiency of healthcare institutions.
Strategy #2: Streamlining Payroll Accuracy
In the quest to bolster operating margins, pinpointing and stopping cost leakages within your health system is crucial. One significant yet often overlooked area is payroll errors, which can deeply impact your financial health.
Research by EY reveals that organizations typically achieve an 80.15% payroll accuracy rate. Each payroll error incurs an average cost of $291 to rectify, both directly and indirectly. Beyond the immediate financial implications, payroll inaccuracies can expose organizations to expensive litigation. The survey also indicates that one in six organizations faced legal challenges due to payroll mistakes in the previous year. Moreover, these errors can significantly frustrate employees, potentially eroding morale and exacerbating turnover rates—particularly problematic for health systems already navigating a labor shortage.
So, why are payroll errors so prevalent? In healthcare, payroll complexities arise from various factors like compensation differentials, fluctuating pay rates, performance-based pay, intricate overtime rules, and holiday pay calculations. These complexities make tracking and processing time and attendance for physicians, nurses, and clinical staff particularly challenging, especially when reliant on manual processes, spreadsheets, and disjointed systems.
Implementing intelligent automation to track time and attendance accurately and compute gross pay can dramatically reduce or even eliminate payroll errors. Automation not only minimizes these costly mistakes but also significantly cuts down the administrative burden associated with time tracking and payroll processing, leading to substantial cost savings and operational efficiencies.
Strategy #3: Optimizing Clinical Space Utilization
In an era where expanding healthcare facilities physically is synonymous with steep construction and leasing costs, hospitals and health systems are increasingly challenged to find cost-effective ways to increase patient access and clinical capacity. The national average for new commercial construction of hospitals has spiked by over 15% since 2019, pushing many to reconsider their strategies for growth.
Instead of expanding their physical footprint, many hospitals can enhance patient throughput and boost revenue by optimizing the use of their existing clinical and exam room spaces. Despite the apparent benefits, 75% of health systems still struggle with obtaining accurate data on exam room utilization due to reliance on manual tools like Excel and disjointed systems that do not sync with real-time provider schedules. This often results in underutilized spaces due to outdated scheduling, which doesn't reflect changes in provider availability.
Closing this gap between current utilization rates and optimal levels could significantly minimize scheduling delays and increase patient capacity, directly impacting revenue positively. The solution lies in adopting advanced exam room management tools that integrate directly with real-time provider schedules, offering dynamic visibility and allowing for proactive adjustments in room allocations to maximize clinical capacity.
A successful example of this strategy in action is at Texas Children’s Hospital. Recognizing the need to further improve patient access, Texas Children’s enhanced space utilization by developing a specialized analytics application through the Health Catalyst® Data Operating System (DOS™) platform. This tool enabled a comprehensive assessment of current space usage, revealing significant opportunities to expand clinic services without physical expansion.
The application collects appointment data from the Electronic Medical Record (EMR), calculates the optimal demand for rooms, and shows real-time room availability, empowering providers to make efficient use of available spaces. This proactive approach has allowed Texas Children’s to add approximately 550 additional appointments, generating an additional $86K in revenue in just six months. The system has been embraced by over 20 outpatient specialties, drastically improving the visibility of room demands and availability and ensuring that space is used as efficiently as possible.
Strategy #4: Accelerating Payer Enrollment
Amidst a climate of tight margins and pressing revenue needs, hospitals and health systems face a crucial challenge: enhancing cash flow swiftly and efficiently. A significant hurdle in this pursuit is the sluggish and often cumbersome process of payer enrollment. On average, a physician will navigate 20-25 different insurance payer applications, each with its unique requirements. This can lead to a heavy administrative load, bogging down the enrollment process with complexity and potential errors.
The stakes are high—healthcare executives are well aware that delays in provider enrollment can stall reimbursements, directly affecting the bottom line. For perspective, a provider can generate around $10,000 daily for their facility, so even a slight acceleration in the enrollment process can result in substantial revenue gains. For example, speeding up enrollment by just five days could enhance revenue by $50,000 per provider.
This task, however, is far from straightforward. Each insurance payer presents a distinct set of hoops to jump through, from specific form requirements to portal navigation challenges. Such complexities make payer enrollment a prime candidate for strategic innovation and simplification.
By leveraging automation and intelligent software, healthcare systems can significantly streamline the enrollment process. These technological solutions enable accurate tracking of care team members' time and attendance, automated calculation of gross pay, and minimization of errors in applications. Such precision not only accelerates the enrollment process but also drastically reduces the administrative burden, freeing up staff to focus on more strategic tasks.
Moreover, addressing the complexities of pay structures, especially in healthcare, demands a robust system capable of handling compensation differentials, varying pay rates, and intricate overtime rules. Intelligent automation serves this need by simplifying the tracking and application of these variables in payroll processes, reducing the risk of costly errors and the resultant litigation risks.
To truly optimize the enrollment workflow, healthcare organizations should consider establishing a centralized database containing up-to-date payer information. This resource would provide easy access to essential data like network participation requirements, claim submission protocols, and credentialing criteria, making the enrollment process more fluid and less prone to delays.
Strategy #5 Reducing Credentialing-Related Costs
Credentialing providers is notoriously tedious and time-consuming, often involving data collection from multiple sources like training institutions, state licensing boards, and professional organizations. Many healthcare facilities struggle with understaffed credentialing teams, which only compounds the challenge.
The administrative overhead of medical credentialing is substantial. Verifying a healthcare provider's credentials to confirm they possess the necessary licenses, certifications, and skills to care for patients requires significant time and resources. Typically, the credentialing process spans 90-180 days, but it can extend even longer if an organization relies on manual or outdated systems. Each step, from completing detailed applications to conducting primary source verifications and background checks, is crucial before providers can gain privileges and start delivering care.
One frequent issue is the inaccuracy or incompleteness of data collected during the credentialing process, often due to human error or outdated information. This problem is exacerbated by a lack of standardization in credentialing practices. Each organization may have different requirements, and these requirements can change, making it challenging to stay current with the latest standards. Such variability not only adds complexity but also places additional pressure on credentialing specialists, making these roles hard to fill and retain amid a broader industry shortage.
Furthermore, provider turnover necessitates re-verification of credentials whenever providers leave, adding to the administrative burden and costs.
To streamline and enhance the efficiency of the credentialing process, healthcare organizations can benefit significantly from implementing a configurable medical credentialing solution. Such technology automates workflows, improves data accuracy, and provides easy tracking of credentialing status, thereby reducing redundant efforts, minimizing errors, and speeding up the entire process. This allows providers to start delivering patient care and generating revenue sooner.
The use of centralized verification sources, which are consistently reconciled and validated against primary data, helps maintain accurate and clean provider data. Centralizing real-time provider data not only improves data quality and accessibility but also enhances transparency and reduces provider frustration by eliminating repetitive information requests.
Furthermore, training providers on the credentialing process can demystify requirements and improve submission accuracy. Dedicated staff support to guide providers through the process can also be incredibly beneficial.
Ultimately, investing in automation technology transforms the credentialing landscape. Modern software solutions offer configurable workflows tailored to an organization’s specific needs, creating a robust, scalable, and repeatable process. Advanced features such as direct document uploads by providers, digital form autofills, and eSignature compliance not only streamline data collection and verification but also align with security standards like SSL encryption and HIPAA regulations.
Monitoring tools and reporting capabilities, such as customizable dashboards, alerts, and detailed reports, provide real-time visibility into the status of credentialing, privileging, and payer enrollment activities. Automated notifications for expirations, reappointments, and required payer re-credentialing keep the organization compliant and ready to maximize every reimbursement opportunity.
Optimize Your Workflows from Credentialing to Retention
At Credsy, we understand the challenges of outdated, manual systems that slow down operations and delay revenue realization. Our innovative platform tackles these issues directly, enhancing data accuracy, ensuring compliance, and expediting the revenue cycle.
Transitioning to our automated system not only streamlines your processes but also positions your organization as a leader in the modern healthcare administrative landscape. Our solutions directly address the inefficiencies of traditional credentialing, offering a more agile and reliable approach that can significantly impact staff retention by reducing administrative burdens.
Connect with Credsy today to embark on the path toward a cutting-edge, automated credentialing system. Let us help you place your organization at the forefront of healthcare innovation, where efficiency meets compliance, and every process is optimized for success.