Long-term Care: 3 Ways NOT to Cut Costs

by | Jan 18, 2017

Long-term care facilities and skilled nursing facilities must respond to the rising cost of care and find ways to protect their bottom lines. According to an article in the Harvard Business Review that surveyed 50 US-based healthcare providers, many attempts to cut costs have resulted in lower-quality care and, in some cases, increasing costs.

Long-term care administrators often identify cost-cutting opportunities in the areas most familiar to them—personnel, equipment, space, and supplies. These cuts often give the impression of immediate results, but unfortunately they are often made without considering how they will affect patient outcomes and long-term viability. Further, because physicians are often left out of the decision-making process, the opportunity to standardize medical practices that increase quality of care and reduce costs is lost.

Below are the 5 ways long-term care facilities should NOT cut costs:

1. Cutting Back on Support Staff

When cutting costs, long-term care administrators’ first target is usually payroll, which makes up two-thirds of a typical long-term care facility’s costs. Support staff, administrative personnel, and other nonclinical staff are often the first to go—the logic being they their absence wont effect patient care as much as, say, physicians or nurses. According to Harvard Business Review, cutting large numbers of support staff often crates new expenditures and threatens patient care. Specialists’ time is roughly 10 times more costly than assistants’ time, and it makes little sense to have nurses and physicians performing tasks that employees with lower pay can easily perform. By integrating more assistants into their facility, the Anesthesia Assessments Center in Houston was able to reduce per-patient spending by 45% and see nearly 20% more patients.

2. Underinvesting in Space and Equipment

Space and equipment costs were typically far less than personnel costs. This means that idle space and equipment is less costly than idle technicians and clinicians. Investing in more space and equipment can lead to savings in personnel costs. An example is a surgical department where some orthoscopic surgeons perform 7-10 joint replacements in a day and others perform just 2 or 3. The low volume surgeons only have one operating room, the high volume surgeons have two, and therefore low volume surgeons often must wait for an operating room to be cleaned and prepped. According to the Harvard Business Review, the cost of building another operating room is far less than the cost of paying for a skilled surgeon’s idle time. The same logic applies to equipment.

3. Focus on Procurement Price while Ignoring Consumption

Products and materials account for roughly 25 to 30% of a long-term care facility’s total costs, and that’s why 96% of all facilities in the U.S. belong to at least one group purchasing organization (GPO). But many healthcare facilities focus too much attention on procurement costs and not enough on how those products are eventually consumed/used. An excellent price negotiation with your GPO is worth little if 15 to 20% of the product is going to waste.

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Prime Source GPO is a group purchasing organization that lowers costs, improves cash flow, and streamlines the supply chain of over 1000 assisted living and long-term care facilities across the country. As a top-choice for LTC facilities, we are proud to serve the needs of over 100,000 long-term care residents. For more information, please visit our homepage.