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5 Ways Healthcare Administrators Can Reduce Costs

Friday, April 07, 2017 | 12:00 AM

A healthcare administrator’s job is to maximize hospital or clinical efficiency. Often, their actions have a direct impact on the hospital’s bottom line and can reduce costs. With the ballooning medical expenses in the United States, healthcare administrators are in the best position to have an immediate positive effect by controlling fixed and variable costs under two umbrellas: budgeting and collaboration.

  1. Budgeting: Fixed costs. Fixed costs are overhead costs associated with running a healthcare facility and remain mostly unchanged throughout the year. Because fixed costs represent more than 80 percent of a hospital’s annual costs, they pose the biggest threat to a hospital’s financial wellbeing. Consequently, regardless of how many patients visit the hospital each year, the fixed costs remain unchanged. Healthcare administrators can help reduce fixed costs by seeking ways to negotiate better building, utility, staffing and equipment rates.
  2. Budgeting: Variable costs. Variable costs are day-to-day costs of running the hospital and are associated with things that expire or must be replaced, such as medications and supplies. Healthcare administrators can look at the hospital’s usage history to accurately budget future consumption in order to lower variable costs and reduce spoilage.
  3. Collaboration: Third-party lab work. By outsourcing tasks like lab work, hospitals can reduce the fixed costs of maintaining lab staff and space. Setting this system up requires careful coordination and creating a simple work flow to maintain HIPAA compliance while ensuring the medical staff have everything they need to make lab work requests easy.
  4. Collaboration: Coverage. One of the main reasons for increased healthcare costs is the unpredictable nature of illness, which forces hospitals to be prepared to treat a certain threshold of patients each month. By coordinating with local clinics and hospitals, administrators across hospitals can work together to create a system that reduces redundancy and improves efficiency. For instance, a system could coordinate emergency and urgent care services to reduce one of the biggest costs of maintaining a hospital.
  5. Collaboration: Specializations. Specialization and specialized services are a large source of income in medicine. Cardiac surgery, for example, is one of the most profitable services in healthcare. Coordinating with local clinics and hospitals can help ensure that each hospital maintains a fair distribution of profitable and unprofitable services (e.g., ER).

The most effective healthcare administrators leverage data from research to guide their decisions, working closely with their counterparts in local institutes to find ways to meet local demands without introducing waste. With more than 80 percent of a hospital’s budget associated with fixed costs, collaboration to balance staffing, equipment and building needs is essential to balance cost reduction while maintaining high-quality healthcare.

Learn about University of Texas Rio Grande Valley MSHS in Healthcare Administration online program.


Business Wire: Fitch: Changing Marketplace & ACA Forces U.S. Hospitals & Insurers to Focus on Margin Preservation

NCBI: Distribution of Variable vs Fixed Costs of Hospital Care

Pittsburgh Post-Gazette: Regional Insights: How Hospitals Are Driving Up the Cost of Health Care

Healthcare IT News: Thomas Reuters Names Top 10 U.S. Health Systems

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