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SPANNING THREE DECADES OF VALUE MANAGEMENT LEADERSHIP

October 1, 2002

5 Reasons Why Non-Salary Expenses

Are Still Too High At Our Nations’ Hospitals!

“ Most Hospitals Think Their Non-Salary Costs Are In Line With Their Peers,

 When In Fact They Are Still 6% to 9% Off the Mark!”

Robert T. Yokl, President, The HCP Group, Ltd.

Most healthcare organizations say that, “they need and want to save every dollar they can harvest to survive and thrive in these turbulent times”, but most fail to make a real effort to do so – and frequently are overconfident that they have squeezed all waste and inefficiency out of their healthcare organization. Yet, based on our experience, there is still 6% to 9% in non-salary savings at our nations’ hospitals today that goes untouched, just waiting to be reaped.  Here are five reasons why this is happening:

1.      Denial or The Illusion of Success

I once had a hospital president tell me that his biggest challenge was, “finding space for all of his hospital’s functions and activities”, and that attacking his non-salary cost wasn’t a priority.  So what he was really telling me was that a bigger bottom line wasn’t a priority or paying his loans down wasn’t a priority or increasing his investments wasn’t a priority either.  I wonder if his board of directors would agree with his philosophy?

2.      Failure to Act or Lack of Management Commitment

Too many hospitals have a culture of comfort, when what they really need is a committed culture, which is always on the attack to reduce their non-salary expenses.  This effort should not be happening just when a crisis arises, but as a built-in cultural value that motivates every one to drive out all costs in order to build a better bottom-line.

3.      Lack of Measurement or Management by Gut Feel

I can’t count the number of times I’ve been told by healthcare executives that they feel good about their food costs, drug costs, operating room costs, etc. without them having one iota of data to support their claims.  When they do give us an opportunity to assess their hospital’s non-salary expenses, we find hundreds of thousands of dollars in savings in their food, drugs, operating room supplies and purchase services. It all comes down to “perception is reality” in too many healthcare organizations. When in reality they are either not measuring at all or measuring the wrong things or the right things poorly.

4.      Plate Is Full or We Only Can Keep Two or Three Balls in the Air at One Time

I’ve heard just about every excuse as to why hospitals don’t have the time to save money, e.g. new building program, joint commission inspection, new computer installation, moving to new location, doing our budgets, etc., I sum up these exercises as PLATE TOO FULL to save money.  While many of these activities are mission critical, if a healthcare organization doesn’t continuously attack their costs, they won’t have the money to do all of the things they want, need or would like to do.

5.      Lack of Resources or We Don’t Have a System That Works

A new reason why healthcare organizations aren’t attacking their non-salary expenses that has arisen over the last few years is that hospitals don’t have the resources to save money due to the nursing, pharmacist, respiratory therapist, radiology technician shortage or whatever shortage they are having at the time I speak to them.  However, what the real problem is that they don’t have a system in place to save money without overtaxing or depleting their limited resources. Their solution to this challenge is to do nothing and hope someone comes to the rescue when they run out of money.

Non-salary costs (escalations, inflation, extravagances and bloating) are always our enemy and we must always be on the attack.  As opposed to the common practice of avoidance, denial, failure to act, faulty measurement, having our plate too full or the lack of resources that we perceive as reasons that are holding us back from non-salary savings. When in reality, based on HCP’s extensive studies, 6% to 9% in non-salary savings is still achievable at those healthcare organizations that have a committed culture to save, then adapt, innovate, reshape and redouble their non-salary cost management efforts.

 Copyright © 2002 The HCP Group, Ltd.

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply/Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Supply/Value Chain”.