How Can Hospitals Reduce Costs?


Healthcare facilities often face significant financial pressures that are unique to their industry. Between costly medical equipment, highly-skilled nurses, doctors and other staff, and a myriad of other overhead costs, a common question that arises is “how can hospitals reduce costs?”

Unfortunately, knee-jerk reactions are often the first “solutions” that facilities go for. Things like layoffs and other traditional cost-cutting methods are used, but these are typically short-term measures that can hurt both the hospitals and their patients in the long run.

So, how can hospitals reduce costs in a way that isn’t detrimental to patients, staff, or the facility itself? Here are a few cost reduction methods – that don’t require laying off employees – more and more hospitals are putting into action.

1. Reduce Overtime

One thing that is true for many industries, not just healthcare, is that a high volume of overtime is a significant cost. For hospitals, too much overtime isn’t just a cost issue, it can also be a safety issue. A high amount of overtime may indicate that nurses, doctors and other hospital staff are overworked, which could put both employees and patients alike at risk. Instead of laying off employees, improve your employee scheduling processes so that you are staffed adequately at all times. This will help ensure that labour costs are reduced and your human resources are properly allocated.
2. Improve the Supply Chain
According to Dr. David Nash, the hospital supply chain can represent as much as 40 to 50% of a hospital’s operating cost – exceeded only by the cost of labour. Purchasing and distribution processes are both areas that can be more strategically approached to develop efficiencies, among others. For example, some hospitals are experimenting with more frequent batch deliveries or more quickly rotating supplies, while others have formed group purchasing organizations for greater buying power. A more strategic approach to the supply chain can help drive costs down.

3. Work Process Automation

As already mentioned, labour is typically the highest cost for hospitals. And this isn’t just a result of too much overtime (though this is definitely a contributing factor). Mistakes in manual workforce management procedures can significantly increase labour costs – this could range from tracking hours worked, to the allocation of time off and vacation, all the way through payroll and beyond. Furthermore, many hospitals don’t have the right processes in place to allow them to identify staffing gaps and other areas that create inefficiencies. By automating many of these work processes, hospitals can reduce labour costs significantly.

The question “how can hospitals reduce costs” isn’t one that is easily tackled. Because there are so many factors at play, there is no simple, one-size-fits-all solution. That said, by focusing on high-cost areas that can be controlled – supply chain, volume of overtime, and other labour-related costs – hospitals can begin to drive down overhead costs, while continuing to offer exceptional health care.   Watch a Free On Demand Healthcare Webinar


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