One of the beliefs of psycho-economics (the study of behaviors in finance) is that losses are more important to corporations or individuals than gains. For instance, if we were negotiating a renewal contract with your hospital and we lowered your price, but then asked for our payment terms to change from 45 days to 30 days, we would get push back because it would be perceived as a loss to you – not a gain. It’s a natural human reaction to change! This is important information that we as value analysis professionals should keep in mind.
With this said, you should also be aware that your hospital, system, or IDN is losing (not gaining) money if you are doing nothing to greatly improve or lower your healthcare organization’s cost-base. Based on psycho-economic studies, this too should be of concern to you. Here are three areas that we have observed where healthcare organizations are doing nothing that should give you pause:
Where We Can Do Better in Hospital Value Analysis
- Savings that don’t stick: It’s our estimate that 19% to 47% of all savings initiatives lose money. This occurs because no one tracks, trends, and monitors their savings initiatives over the long-term. We call this a “saving it and forgetting it” attitude! This approach to cost management is causing healthcare organizations to lose tens of millions of dollars each year. Is this the way you do business?
- Savings beyond price: There is a whole new world of savings beyond price (i.e., utilization management) just waiting to be tapped into. Healthcare organizations are losing 7% to 15% each year by doing nothing to attack this cost driver. On average, we are talking about losing $2,203 per occupied bed, or 2 million dollars annually. How can you afford to leave these savings untouched?
- Savings that we ignore: It is rare that we encounter a hospital, system, or IDN that is attacking their purchased services costs, thereby losing 11% to 18% in new savings opportunities. As an example, one of our clients, who hates losing money, is on track to save $4,495,882 (or 24.6%) with our Utilizer® Dashboard on their purchased services. Are you, too, ignoring this goldmine?
Now that you know that it is a psychological fact that nobody wants to lose money (and will even disregard an actual gain in the process to avoid it), how can you leave any money on the table by doing nothing to capture it?
Show Management the Money They Are Losing
By the way, this is a tactic that we encourage our clients to employ when eliciting the support from their senior management for any of their initiatives: Show them the money they are losing by doing nothing. This course of action will usually tilt their decision in your favor, 97% of the time.
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