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Hospital leaders are under tremendous pressure to improve their current operations and navigate reform effectively. This is an unprecedented inflection point with unknown risks, costs and challenges, including:

  • quality initiatives signaling the move from pay for reporting to pay for performance;
  • reduced payment to hospitals; and
  • increased pressure on stand-alone hospitals as reform accelerates the trend toward consolidation.

While executives continue to process the many details and implications of reform, one thing is clear. Maintaining the status quo is not an option. As Rich Umbdenstock, president and CEO of the American Hospital Association, said at the AHA's 2010 annual meeting, "The health care mantra used to be 'Do more with less'. ... That's changing to 'Do better with less.'" What was acceptable performance even two to three years ago simply will not sustain a hospital operation today or in the future. Reform requires everyone—hospitals, physicians and ancillary providers—to elevate and change their game.

Take Another Look

Leaders are faced with a two-pronged challenge: preparing for the future under reform, which includes new and radically different strategic imperatives (e.g., accountable care organizations, bundled payments) while closely examining every aspect of their business to ensure that their organization is fiscally and operationally ready to meet the challenges of reform.

While the two parts of this challenge seem at odds, they are actually complementary. In fact, optimizing current operations is a powerful funding mechanism for successfully implementing reform initiatives.

Optimizing current operations, maximizing revenue, reducing waste and cutting costs mean a sure path to positioning an organization for success under reform. Effective boards not only expect their executives to ensure that all options for cost cutting have been explored, but also that they are doing so by fundamentally transforming operations in a way that leads to sustainable benefits. Given health care organizations' size and complexity, there is no shortage of opportunity, even for the best-run organizations.

Too many executives still believe that because the low-hanging fruit in such areas as coding, managed care contracts, bad debt, investable assets and productivity have been plucked, all the fruit is gone. In fact, there is much more to harvest, though it often is obscured behind such rationalizations as, "We've always done it this way" or "We don't have the tools and information to make that work" or "Our culture will not respond to that type of change."

Leaders must challenge one another and be open to taking a fresh look across the organization—even at areas for which they have direct responsibility. Everything must be on the table, with no sacred cows and no fragile egos standing in the way. The CEO and the board must create a culture in which it is understood that new efficiencies, cost savings or other opportunities in any given area are not indicative of someone falling down on the job. The dynamic nature of health care coupled with the intense demands of reform require continuous, careful examination of all potential improvement areas, with no stone left unturned.

Revenue Cycle Opportunity

One area that has proven time and again to be worth increased scrutiny is an organization's revenue cycle—all the steps involved in being reimbursed in an accurate and timely manner for the care provided. These steps are an integral part of patient access, service delivery and revenue realization processes. The typical revenue cycle is more complex and multifaceted than ever—one that includes hundreds of tasks that span dozens of departments. Therefore, process breakdowns and lapses in communication are common, though hidden, and often result in lost revenue.

In a typical revenue cycle, resolving systemic process breakdowns and improving effective contracts, documentation and revenue capture mechanisms can create a revenue improvement of 3 to 6 percent—or even more—of an organization's bottom line. Through a transformational change in revenue-cycle operations, even the highest performing organizations of virtually every size and kind can get significant results.

For example, one 334-bed facility captured $8.8 million in benefits—nearly 3.3 percent of its net patient revenue, while a large, high-performing, multihospital system realized more than $45 million in improved revenue following an end-to-end reengineering of its revenue cycle. These benefits recur year after year as a result of fundamental restructuring of processes and establishing a culture of accountability.

Stepping Up to the Challenge

To realize the fundamental changes truly needed to optimize current operations and prepare for the demands of reform, hospital leaders need to create organizationwide urgency for improvement efforts, clearly communicating to their stakeholders how each cost-saving or revenue-enhancing initiative is tied to the organization's mission and viability. To accomplish this, executives must be open to challenging their peers—and to being challenged—as well as focusing on new and visionary solutions to persistent problems.

Leaders also must keep their organizations ahead of the reform curve, making changes that will create durable solutions.

To do better with less, we need to take the things we've been doing well and capitalize on opportunities to raise performance to the next level. Ultimately, making these improvements is a business imperative, one that will enable leaders to control the future of their organizations.

James E. Orlikoff (j.orlikoff@att.net) is the president of Orlikoff & Associates Inc., and a senior consultant to the AHA's Center for Health Care Governance, Chicago. Ken Saitow is a managing director of Huron Healthcare, Lake Oswego, Oregon.