Mans Face

Cost Reduction Strategies
for Health Systems

Hospitals and healthcare systems are focused on managing their costs. More than just cutting, healthcare leaders are trying to find financial predictability in an industry that is anything but predictable.

Moreover, the balance between cost and delivering positive patient experiences is fragile.

Even so, healthcare systems that take control over operating expenses have a greater chance of success over others who don't. While looking at a P&L statement may be one of the most popular (and easily accessible) sources to identify cost-cutting opportunities, healthcare leaders should be cautious. According to Harvard Business Review, simply reducing spend in areas like staff, equipment, and supplies can hinder a hospital's ability to deliver an excellent patient experience.

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What cost reduction strategies can healthcare executives explore to reduce cost without sacrificing patient satisfaction?

1. Standardize and bundle contracts.

Market consolidation is continuing at a rapid pace strengthening the argument for standardization of services.  According to Hospitals and Health Networks, health system leaders should outsource specialties like IT, HR, foodservice, labs and pharmacies to reduce overhead and free-up hospital dollars for re – investment in technology, clinicians and other critical functions. 

Having too many vendors and protocols, however, can be a big waste of money. Not to mention, variability can also undermine quality and negatively impact patient satisfaction. Standardizing services through a single partner leads to lower overall costs and increased patient satisfaction. Look for a partner who can align culturally and operationally. A single partner also makes it easier administratively provided a strong governance model is established.

Here are a few areas where hospitals commonly save through standardization and bundling:

Clinical Engineering

Hospitals often have several contracts with original equipment manufacturers (OEMs) and maintenance vendors on any piece of equipment used to diagnose, treat and monitor patients. Reducing these contracts into a single contract with one clinical engineering provider can save thousands, if not millions.


Food is deeply personal. Some healthcare leaders worry that outsourcing limits creativity, results in higher costs, and a loss of control over operations. The reality is just the opposite. Leading-edge food companies make enormous investments in technology, menu and program development and production systems, all designed to optimize your financial resources and deliver customized solutions. The ability to leverage demographic data, develop psychographic profiles of individual communities to develop unique programs is a huge benefit. Foodservice standardization occurs in the production of the actual meal itself. It results from adherence to menu costs, recipes and reduction of waste. And control is increased through the provider's contract, which outlines clear financial and quality KPIs. You know precisely how they should be operating and what to expect in terms of results. Typical outsourcing in this category results in 8% savings across the system.

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Environmental Services (EVS)

When you consider that about 1 in every 31 patients in the United States has at least one healthcare-associated infection (HAI), environmental services isn't something healthcare leaders can (or should) take lightly. So at first glance, high quality environmental services and cost reduction might seem mutually exclusive. But health systems that opt to standardize environmental services can reduce the risk of HAIs and enjoy savings around 5%. The results are in rigorous and repeatable processes that ensure the perception and reality of clean.

2. Take a look at patient flow. Are patients are moving efficiently through your hospital?

Taking a closer look at the patient flow within a hospital can bring to light areas of improvement. Being able to standardize this process is a great way to reduce costs and improve the quality of care. Some hospitals hire specialized patient transporters to help move this process along and reduce bottlenecks. By using optimizing the patient flow the hospital will decrease delays and wait times, preserve specialized staff resources, and ensure the maximum occupancy for each bed.

3. Take a closer look at healthcare staff – and we don't mean layoffs.

Taking a closer look at staffing doesn't necessarily mean layoffs. And since hospitals are already facing a nursing shortage and competitive job market, layoffs might not even be a realistic option. Instead, other elements like training, minimizing overtime, associate retention, and recognition programs are essential to consider in a cost cutting strategy.

Train & Develop

Few would argue that sufficiently training and developing staff is vital to organizational health. However, some might be surprised to learn that 40% of employees who don't receive proper job training and development will leave within the first year. Therefore, extra training and development opportunities are also incentives for associates to stay. In a recent national survey, 70% of the respondents stated that additional support in the format of training and development gave them confidence in their employers and helped them stay in their position. For Millennials that number is even higher – 87%.


One cost reduction strategy that health systems can borrow from other business industries is focusing on a decrease turnover. Using resources to continuously hire new staff is expensive and unnecessarily time consuming. Employee satisfaction and providing a positive work environment is one key way to help combat turnover.

Make sure the healthcare staff is getting the proper amount of break time or time off between shifts. Monitoring things like overtime can help to prevent burnout from employees as well. Consider taking an engagement survey to get a sense of where your hospital can make the employee experience better. Start working towards them, and save in the long run as you retain your people. 


Publicly recognizing and expressing gratitude for your hospital's teams and associates is another way to reduce costs and improve retention. Consistently celebrating associates for great work has a measurable impact on associate engagement and retention. At Compass One Healthcare, for example, hourly associates who received a GEM award (our company's recognition program for hourly associates) were more than 20% more likely to be employed at the end of a 38-month period. Receiving a GEM award was also determined to be a stronger indicator of employee retention than variables such as age or hourly pay rate.

To improve retention throughout a healthcare system, and cultivate a sense belonging to a larger entity, consider a national recognition program that awards local hospitals in your system who are meeting business objectives.

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Optimize Scheduling & Staffing

Many hospitals can reduce business costs by evaluating the required staff on call at any given time. Looking at trends within a particular hospital can help leaders determine and plan the best staffing strategy. Examine trends in your hospital's data. Are there seasons or circumstances that indicate the patient census is likely to increase or decrease? If so, plan accordingly. This cost reduction strategy may take time and require the help of a third-party vendor but could save quite a bit of money in the long run.

4. See if your hospital is underdiagnosing malnutrition

Hospital readmissions are bad for patient outcomes and a hospital's bottom line. Annually, preventable readmissions cost billions. A key driver of readmission, if left untreated is malnutrition. Over 50% of hospitalized patients are malnourished when they arrive at the hospital. Unfortunately, the overwhelming majority of malnourished patients are not properly coded for malnutrition, yet many of them could improve reimbursements for the hospital.

Cost reduction strategies that streamline processes while maintaining high quality patient care are difficult to achieve but not impossible. Review current contracts and evaluate which services can be outsourced such as foodservice, clinical engineering, and environmental services. Explore ways to enhance your staff's working experience through training and recognition programs. Help cultivate an environment that people that encourages people to stay. Lastly, review key areas like patient flow and malnutrition coding to ensure your hospital is maximizing throughput and minimizing avoidable readmissions.

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Written By: Compass One Healthcare
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