International Journal of Health Care Quality AssuranceEmerald Article: Hospital cost structure in the USA: whats behind thecosts? A business caseCharu Chandra, Sameer Kumar, Neha S. GhildayalArticle information:To cite this document:Charu Chandra, Sameer Kumar, Neha S. Ghildayal, (2011),"Hospital cost structure in the USA: whats behind the costs? A businesscase", International Journal of Health Care Quality Assurance, Vol. 24 Iss: 4 pp. 314 - 328Permanent link to this document:http://dx.doi.org/10.1108/09526861111125624Downloaded on: 06-06-2012References: This document contains references to 26 other documentsTo copy this document: firstname.lastname@example.orgThis document has been downloaded 981 times since 2011. *Users who downloaded this Article also downloaded: *Sameer Kumar, Neha S. Ghildayal, Ronak N. Shah, (2011),"Examining quality and efficiency of the US healthcare system",International Journal of Health Care Quality Assurance, Vol. 24 Iss: 5 pp. 366 - 388http://dx.doi.org/10.1108/09526861111139197François Des Rosiers, Jean Dubé, Marius Thériault, (2011),"Do peer effects shape property values?", Journal of PropertyInvestment & Finance, Vol. 29 Iss: 4 pp. 510 - 528http://dx.doi.org/10.1108/14635781111150376Norazah Mohd Suki, Jennifer Chiam Chwee Lian, Norbayah Mohd Suki, (2011),"Do patients perceptions exceed their expectations inprivate healthcare settings?", International Journal of Health Care Quality Assurance, Vol. 24 Iss: 1 pp. 42 - 56http://dx.doi.org/10.1108/09526861111098238Access to this document was granted through an Emerald subscription provided by INDIAN INSTITUTE OF MANAGEMENT AT BANGALOFor Authors:If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service.Information about how to choose which publication to write for and submission guidelines are available for all. Additional helpfor authors is available for Emerald subscribers. Please visit www.emeraldinsight.com/authors for more information.About Emerald www.emeraldinsight.comWith over forty years experience, Emerald Group Publishing is a leading independent publisher of global research with impact inbusiness, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, aswell as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization isa partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archivepreservation. *Related content and download information correct at time of download.
The current issue and full text archive of this journal is available at www.emeraldinsight.com/0952-6862.htmIJHCQA24,4 Hospital cost structure in the USA: what’s behind the costs? A business case314 Charu Chandra Department of Management Studies, College of Business,Received 29 August 2009Revised 10 December 2009 University of Michigan-Dearborn, Dearborn, Michigan, USAAccepted 23 December 2009 Sameer Kumar Department of Operations and Supply Chain Management, Opus College of Business, University of St Thomas, Minneapolis, Minnesota, USA, and Neha S. Ghildayal School of Public Health, Division of Health Services Research, Policy and Administration, University of Minnesota, Minneapolis, Minnesota, USA Abstract Purpose – Hospital costs in the USA are a large part of the national GDP. Medical billing and supplies processes are signiﬁcant and growing contributors to hospital operations costs in the USA. This article aims to identify cost drivers associated with these processes and to suggest improvements to reduce hospital costs. Design/methodology/approach – A Monte Carlo simulation model that uses @Risk software facilitates cost analysis and captures variability associated with the medical billing process (administrative) and medical supplies process (variable). The model produces estimated savings for implementing new processes. Findings – Signiﬁcant waste exists across the entire medical supply process that needs to be eliminated. Annual savings, by implementing the improved process, have the potential to save several billion dollars annually in US hospitals. The other analysis in this study is related to hospital billing processes. Increased spending on hospital billing processes is not entirely due to hospital inefﬁciency. Research limitations/implications – The study lacks concrete data for accurately measuring cost savings, but there is obviously room for improvement in the two US healthcare processes. This article only looks at two speciﬁc costs associated with medical supply and medical billing processes, respectively. Practical implications – This study facilitates awareness of escalating US hospital expenditures. Cost categories, namely, ﬁxed, variable and administrative, are presented to identify the greatest areas for improvement. Originality/value – The study will be valuable to US Congress policy makers and US healthcare industry decision makers. Medical billing process, part of a hospital’s administrative costs, and hospital supplies management processes are part of variable costs. These are the two major cost drivers of US hospitals’ expenditures that were examined and analyzed. Keywords Hospitals, Cost drivers, Cost analysis, Health services, United States of AmericaInternational Journal of Health Care Paper type General reviewQuality AssuranceVol. 24 No. 4, 2011pp. 314-328 Introductionq Emerald Group Publishing Limited0952-6862 US healthcare costs are increasing at a rate roughly three times inﬂation. In 2008,DOI 10.1108/09526861111125624 the US healthcare industry was estimated to be worth $2.3 trillion or 16.5 per cent of
gross domestic product (GDP) and is projected to be 17.9 per cent or $2.6 trillion by Hospital cost2010 (Foster and Hefﬂer, 2009). In 2008, 43.8 million US people were uninsured – 17 per structure incent of the total population, up 6 per cent from 2000 (Centers for Disease Control andPrevention, 2009a). In 2008, employer health insurance premiums increased 5 per cent the USA– two times the rate of inﬂation. The annual premium for an employer health plancovering a family of four averaged nearly $12,700. The annual premium for singlecoverage averaged over $4,700 (The National Coalition on Health Care, 2009). Table I 315shows US national health expenditure and GDP projected to 2010. It also showsnational health expenditure as: GDP percentage; and expenditure per capita, whichshows an alarming growth trend over 50 per cent and the health expenditure per capitaover 45 per cent, respectively. Healthcare is currently a major ﬁscal problem. If thistrend continues to 2010 and beyond then corporation managers will stop offeringhealthcare (some already have) to employees, or they will keep passing along premiumincreases to employees as many currently do (Murdock, 2008). If the healthcare burdenis left in the average consumer’s hands then it will cripple the economy. Approximately44 million US people either cannot afford healthcare, or simply do not have healthcarefor some reason. Consequently, they use hospital emergency rooms as their familyclinic (Lavey, 2006; Centers for Disease Control and Prevention, 2009b). This isobviously more expensive and inefﬁcient than seeing a clinic family practice physician(Taheri et al., 2000). But, more importantly, it takes precious time away from patientswith potentially life-threatening problems. The US healthcare rising cost trend will continue unless the industry can ﬁnd waysto reduce the burden placed on the consumer. People cannot continue to affordhealthcare at this increasing rate. One way to accomplish affordable healthcare is toﬁnd ways to reduce costs and run a more efﬁcient operation (Woolhandler andHimmelstien, 2007). Hospitals comprise about 30 per cent of the healthcare industry’sexpenditure (Figure 1). We examine healthcare’s rising costs, speciﬁcally related tohospital expenditure and focus on key hospital operations. Costs are broken down intoﬁxed, variable and administrative overhead and spending – areas that are mostout-of-control. Medical billing and supplies processes are signiﬁcant and growingcontributors to US hospital costs. We identify cost drivers associated with theseprocesses and suggest improvements to reduce hospital costs in the medical billing andsupplies processes areas. We use Monte-Carlo simulation models to analyze costsassociated with medical billing and supplies processes. These models provide lowerbound saving estimates for implementing improvements in these processes used in UShospital operations. We examine the following questions to determine where hospital spending can besuccessfully trimmed: what hospital cost is ﬁxed, variable and general overhead? Whathospital spending can be better controlled? How can the spending be controlled andwhat savings can be quantiﬁed by analyzing hospital spending?Current industry trends: hospital costsCurrent industry trends reveal escalating healthcare costs. The entire US healthcareindustry accounts for 16-17 per cent, or approximately $1.9 trillion dollars GDP (Goldand Diller, 2006). Of that, hospital costs comprise roughly 30 per cent, which increasedover 9 per cent per year for the past ﬁve years and continue to increase (NationalHealth Expenditure Data, 2004-1960). There are three major expenses in a hospital:
24,4 316 Table I. indicators IJHCQA Healthcare industry 2004 2005 2006 2007 E2008a F2009a F2010aNational health expenditures (NHE) (US$ billion) 1,855 1,981 2,113 2,241 2,379 2,509 2,624Private health insurance (US$ billion) 646 690 731 775 817 854 892Gross domestic product (GDP) (US$ billion) 11,868 12,638 13,399 14,078 14,441 14,150 14,647NHE as % of GDP 15.63 15.67 15.77 15.92 16.47 17.74 17.92US population (millions) 292.8 295.6 298.4 301.3 304.2 307.2 310.2Under 65 (millions) 256.5 258.8 261.2 263.4 265.5 267.7 270.0Over 65 (millions) 36.3 36.7 37.2 37.9 38.7 39.5 40.2NHE per capita (US$) 6,335 6,701 7,079 7,439 7,818 8,169 8,459Number of people uninsured, all ages (millions) 42.1 41.2 43.6 43.1 43.8Number of people uninsured, under 65 (millions) 41.7 41.0 43.3 42.8 43.6Notes: a E-estimated, F-forecastedSources: NHE – Centers for Medicare and Medicaid Services (2009); GDP – Bureau of Economic Analysis (2009); Forecast GDP – BMO Capital MarketsEconomics (2009); Population – US Census Bureau (2009); Uninsured Population – Centers for Disease Control and Prevention (2009b)
Hospital cost structure in the USA 317 Figure 1. Historical and forecast NHE and hospital expenses for the USA (1995-2010) (1) ﬁxed; (2) variable; and (3) administrative/overhead costs.We deﬁne administrative costs as non-patient contact costs incurred by hospital staff.These are non-revenue generating activities that need to be allocated to the revenuegenerating departments and are typically allocated according to users in eachdepartment or by facility space department staff use. There are some argumentsregarding costs that comprise administration: maintaining medical records; medicalrecords ﬁling; billing; nursing administration; general and administration departments(IT, ﬁnance and plant operations); supplies ordering; and central services. A 2003 studyshows that hospital administrative costs range from 19.3 per cent to 24.8 per cent(Mehrotra et al., 2003). The US hospital administrative costs are approximately 8.4 percent to 11.1; 60 per cent higher than Canada’s and 97 per cent above Great Britain’s(Mehrotra et al., 2003). There are several reasons that US administrative costs are highrelative to other countries. Its insurance system consists of more than 1,500 serviceproviders through which insurance can be obtained. Each company markets, createsand sells its own insurance to US individuals and companies. To complicate mattersfor hospitals and their billing departments, most carriers have different billingrequirements (Mehrotra et al., 2003). Hospital variable costs are expenses that vary by patient with different medicalneeds. In other words, variable expenses can be viewed as expenses that are outside thephysicians’ control. Examples include: laboratory tests; medications; medical suppliesand nursing expenses. Variable expenses account for approximately 35 per cent to 42per cent of total patient expenses (Roberts et al., 1999). Variable hospital expenses are asigniﬁcant issue for hospital managers who are reluctant to make changes to the wayvariable spending occurs because cutting them compromise patient care. Supplies arethe second largest expense for hospitals after salaries (McGourty and Shulkin, 2005).The problem is that many hospital managers allow each department to purchase theirown supplies, causing them to act independently creating wasted time and spending. If
IJHCQA staff in each department order their supplies then managers lose purchasing power.24,4 Hospital staff rely on nurses and doctors to manage inventory as well as patient care, the latter is where clinicians’ focus should be. Fixed and administrative costs are the most difﬁcult to differentiate. Because of ﬁxed costs’ nature, these are also the most difﬁcult spending areas to control. For our purposes, ﬁxed costs are related to equipment amortization, facilities, building leases,318 utilities and building maintenance. Capital expenditure amortization can be affected through capital spending cuts. Conscientious employees and corporate awareness can help curb utility expenses. Building leases are not changeable unless one can take less space or somehow adjust the contract. Building maintenance is a requirement and an ongoing expense that is hard to control. Hospitals can keep the building well maintained to avoid extremely expensive unexpected repair costs. For these reasons, we focus on the variable and administrative costs. In the short term, there is more value that can be extracted from those two cost categories. Based on administrative and variable costs data, it can be deduced that hospital ﬁxed costs comprise 34 per cent to 46 per cent of hospital expenses. These costs to change the way hospitals operate. Hospital managers have very little proﬁt margin, not because their revenues are ﬂat or decreasing, but, because their costs are increasing at a rate more than three times inﬂation. Each year, hospital costs are becoming a larger percentage of US GDP. By 2010, healthcare costs will be nearly 20 per cent of GDP. In a country where, for the most part, people are wealthy, there is a concern because 45 million people cannot afford to buy healthcare (Lavey, 2006). We look at some speciﬁc expenses that can be reduced through more efﬁcient operations and waste elimination. We use a statistical model with scenario analysis to determine the potential savings related to changes in the way hospitals treat their medical supply procurement process. The model is also used to determine potential savings related to hospital administration costs including bill processing and the insurance claim process. These two spending areas waste processing time and money spent. This model clearly pictures potential savings and since scenario analysis is being used, there will be a most likely outcome and best and worst-case scenarios. Method We use @Risk Program (2007) Monte Carlo simulation modeling software, which is an add-on tool, with a spreadsheet interface to run scenarios. Various business scenarios are studied to understand possible outcomes using average estimates and adding an element of variability to them. By adding variability to the modeling, we can come up with expected outcomes to give a more realistic view how the proposed changes affect hospital costs. Owing to hospital operation complexity, we model two business processes. The ﬁrst looks into the medical billing (administrative costs) and the second medical supplies (variable costs). There is other Monte Carlo simulation modeling software having similar capabilities as @Risk. Standard statistics tools used to produce similar results (Figures 2 and 3) will require more elaborate efforts compared to @Risk or other similar software such as Crystal Ball, which are speciﬁcally designed to carry out Monte Carlo simulation and regression sensitivity analysis shown in these ﬁgures. Results shown in Figures 2 through 5 are based on running Monte Carlo simulation using @Risk simulation modeling software.
Hospital cost structure in the USA 319 Figure 2. Supply process model results for 2000-2004The ﬁrst model reviews the hospital medical billing process – a process that is anadministrative expense because it is related to non-patient activities done behind thehospital scenes. Hospital administrative costs run around 19 per cent to 24 per cent oftotal hospital costs, which is signiﬁcantly higher than other modern hospital coststructures. The reason this process is signiﬁcant to analyze is because of the
IJHCQA24,4320Figure 3.Medical billing processmodel results for2000-2004 processes’ cumbersome nature. There are more than 1,500 US companies that market and sell health insurance, which have multiple products that further compounds the confusion – a problem primarily because most companies have their own billing requirements as well. All insurance companies do not require the same data. Hospital managers remain ﬂexible and abide by this process because as a for-proﬁt business
Hospital cost structure in the USA 321 Figure 4. Estimated minimum, average and maximum supply cost savings for years 2000 to 2004 Figure 5. Medical billing savings (minimum, mean and maximum) per yearentity they need customers to generate revenue and remain proﬁtable. The burdenhas been placed on hospital staff to comply with insurance carrier requirements.Figure 6 illustrates a Monte Carlo simulation model used to estimate total annual UShospital medical billing cost savings based on available estimates of various inputparameters. The second model reviews hospital supply processes. Supply expenses are part ofthe hospital’s variable costs – a signiﬁcant statistic to consider because hospitalsupply expense is the second largest next to salaries ( Johnson, 2004). Supply expensescomprise 18 per cent of US hospital total operating expenses (Editor, 2005). We look at
IJHCQA24,4322Figure 6.Monte Carlo simulationmodel for total US hospitalmedical billing savings hospitals’ current inefﬁcient supply process and offer a solution to make this process more efﬁcient and save hospitals signiﬁcant capital. The model uses the streamlined process and scenario analysis introducing variability in an attempt to measure cost savings. The reason supplies expense is an important factor is not only because expenses are so high but also the process is inefﬁcient. Most hospital managers let each department handle their own supply ordering. Hospitals lose buying power and fail to use centralized purchasing department staff expertise. Doctors and nurses spend hours ordering supplies, thereby taking away signiﬁcant time from patients. Using the process in this article, hospital managers will be able to free time and use a more efﬁcient process (Efﬁciency cure, 2004). Figure 7 illustrates a Monte Carlo simulation model that estimates total annual US hospital supply cost savings based on available estimates of various input parameters.
Hospital cost structure in the USA 323 Figure 7. Monte Carlo simulation model for total US hospital supply cost savingsAnalysisIn the current supply procurement process, departments operate independently whenpurchasing supplies and assuring adequate stock. Hospitals operate this wayprimarily because different departments need different supplies and doctors andnurses may prefer different product brands. This sounds a reasonable approach atﬁrst, but, from an operational perspective, there are many problems. First, the basicsupply needs in different departments are primarily the same. Department-speciﬁcitems are what differentiate them. Second, having nurses and doctors order suppliescauses concern. Supply chain processes in hospitals should be centralized. It will bemore efﬁcient and less expensive than the current process. Hospital departments areoperating in silos as decentralized functions. They need to have communication andconsistency between departments to create an efﬁcient supply purchasing
IJHCQA environment. The centralized supply chain process will effectively integrate the procurement activities across all departments in a hospital as it will force economy of24,4 scale, economy of scope and improved negotiating capabilities with suppliers for the entire hospital operation (Efﬁciency cure, 2004). Both hospital supply chain process efﬁciency and effectiveness will be enhanced through centralized supply procurement business model. This process, however, is not without costs. To implement this process324 hospital staff may have to invest in inventory management and automated supply ordering systems. However, these two systems will free up time for doctors and nurses so they are able to focus solely on patient care. Hospital managers will need to hire a full-time experienced supply manager in charge of the entire vendor maintenance process, vendor management procurement process, terms and conditions negotiation, etc. This process also allows the materials manager to consolidate suppliers, reduce brand variation and total items and makes the process more efﬁcient (Contino, 2001). Variable hospital costs are approximately 35-42 per cent of total hospital costs (Roberts et al., 1999; Alexander, 2006). Supplies are the second largest hospital expense at 18 per cent of operating expenses (Editor, 2005). Using @RISK software to estimate cost savings allows users to provide value ranges for any analysis (we use 2000-2004 spending data). Table II lists various inputs to the supply cost model. The variable cost percentage is the mean value of the ranges given in the literature. Using the @RISK software, a distribution is ﬁtted to the variable cost percentage that coincides with value ranges given. Estimated cost savings is a per cent savings estimate after process implementation discussed above. Savings are conservatively estimated at 10 per cent. There is also a slight distribution ﬁt to the expense savings to give that value some variability. The ﬁrst graph in Figure 2 depicts outcome values based on the above data. Standard deviation varies because the potential savings are relatively unknown, but are perceived to be potentially large. The graphs were done using a lognormal distribution because multiple factors affect the three input variables. Distribution shows that with 90 per cent certainty, the result, based on these inputs, by implementing the new supply process, will save between $3bn and $20bn dollars per year – signiﬁcant savings that cannot be ignored. The second graph in Figure 2 is a regression sensitivity tornado graph, which highlights the variables that carry the most weight in the outcome analysis. In the healthcare example, estimated expense savings variable is the biggest cost savings driver by a signiﬁcant margin. Our second analysis is related to hospital medical billing processes and related expenses that are part of the hospital’s administrative expenses. We saw earlier that the hospital administrative expenses are 19 per cent to 24 per cent of total hospital expenses (Mehrotra et al., 2003; Alexander, 2006). The medical billing process is cumbersome and costly to hospitals. Data in Table III were used as inputs to the medical billing process cost model. Hospital managers have to make sure that different Variability Input variables Estimated average (standard deviation)Table II. Percent hospital care of total healthcare expense 30 5Inputs to the supply cost Supply cost per cent of total hospital expenses 18 2savings model Estimated per cent cost savings 10 5
paperwork and requests from each insurance company are correct so they will be Hospital costreimbursed for their services. Salary per employee was gathered from the Almanac of structure inHospital Financial and Operating Indicators (Alexander, 2006).The salary informationwas adjusted for wage index and reduced to account for the medical billing specialist’s the USAlower wage. A statistical distribution was ﬁtted to the medical biller’s salary to accountfor salary variability. We also looked at Medical Biller Salary (2006) on Salary.com.The time savings was an estimate based on the process’s cumbersome nature 325described in the literature. This conservatively estimates the time saved. A distributionwas also ﬁtted to this number to account for time saving variability. Full-timeemployees was also estimated and averaged based on hospital size. Some variabilitywas also added to this ﬁgure because hospitals are managed differently and thenumber of employees needed for billing can vary greatly. The model’s average savings were $900 million to $1 billion dollars a year bystreamlining the medical billing process. The distribution graph in Figure 3 shows thatwithin a 90 per cent certainty, based on information in Table III, savings resulting fromstreamlining the medical billing process will be within $300 million to $2 billion dollarsannually, which are signiﬁcant. The regression sensitivity tornado graph in Figure 3shows that the estimated time saved carries most weight. The next largest factor isemployee number and the salary per employee is least. Figure 5 shows estimated minimum, mean and maximum medical billing expensesavings for years 2000 to 2004.Findings and limitationsHealthcare industry spending, speciﬁcally hospitals, can be improved. We have lookedat three types of hospital spending: (1) administrative; (2) variable; and (3) ﬁxed costs.We examined medical billing process and expenditures speciﬁcally, which are part of ahospital’s administrative costs. The other analysis was related to hospital suppliesexpense processes, which is a variable cost. Based on our research, those two speciﬁccosts were the most problematic that needed to change. Data gathered in the literature,supported by our analysis, show that changing the medical supply process has asigniﬁcant impact on the industry. Waste is endemic to the entire process and needs tobe eliminated. We believe that improving processes will likely result in a cost savingsbetween $2 and $20 billion. Our other analysis – the hospital billing process – showedthat increased spending in this area is not entirely a hospital inefﬁciency fault. The Estimated input VariabilityInput variables (mean) (standard deviation)Medical billing salary (salary.com) ($) 26,813-30,287 3,000Estimated time saved (%) 30 10 Table III.Medical billers (employees) 15 4.5 Medical billing processNumber of hospitals (from US Census Bureau, 2005) 7,569 0 inputs
IJHCQA health insurance industry with their multiplicity of complex requirements and24,4 administrative paperwork is a primary factor. But, hospital managers need to confront the insurance industries. The US administrative costs are double Canada’s, so by streamlining medical billing processes, we believe that hospitals could save $600-$700 million annually. However, we were limited by meager concrete and current data for estimating cost savings. We were still able to estimate signiﬁcant lower bounds for326 annual savings from Monte Carlo Simulation model based on available data by improving hospital supply and billing processes in the US healthcare delivery system facing increasing operational inefﬁciencies and rapidly escalating costs every year. We make two recommendations; ﬁrst, hospital managers need to implement the new supply chain process immediately. Let clinicians do what they are paid to do and take care of patients. There is a need to hire full-time supply chain managers to handle and monitor the entire process through an inventory tracking and automated ordering systems, which increases buying power. Our second recommendation is to make the medical billing process consistent and cohesive, which increases process efﬁciency and reduces potential errors. We covered only two speciﬁc types of spending. A more comprehensive hospital cost and process study should be done to ensure the greatest efﬁciency. More detailed research is needed to examine healthcare system successes in other countries. Plans to change US healthcare should be based on proven methods currently in operation to ensure feasibility and cost efﬁciency. The US service providers cannot afford to let healthcare costs escalate. If signiﬁcant changes are not undertaken to improve this economic sector then this industry will continue to affect the US economy negatively. Conclusion Our study points to an awareness of increasing US hospital operation costs. The US hospital total operation expenditure fell into three categories: ﬁxed; variable and administrative, which helps us identify the areas for greatest improvement. We tried to elevate this awareness to a level where action is undertaken. Solving the problem is vital to healthcare and the US economy, overall. We only looked at two speciﬁc costs associated with medical supply and medical billing processes, respectively. There are many other costs to consider and analyze. Using a simple Monte Carlo simulation modeling framework, we identiﬁed major cost drivers within a US hospital associated with the processes we studied. The model showed signiﬁcant potential savings in hospital operations. Inefﬁciencies can be corrected in an effort to stop US healthcare costs escalating. We looked at US hospital spending trends, which are alarming. Healthcare, the US’ largest industry, is 16 per cent of GDP and hospitals are 30 per cent of the healthcare industry and growing rapidly, around 9 per cent per year. We looked further into hospital and two particular costs, namely, the medical billing process (administrative) and the medical supplies spending (variable) were then analyzed. For each cost we analyzed, @RISK Monte Carlo simulation modeling software was used to simulate the potential savings from process streamlining. The medical billing process is a challenge and hospital managers need to confront insurance carriers who have complex processing claim procedures. A streamlined process will cut hospital administrative costs signiﬁcantly. The medical supplies spending process has the greatest savings potential.
Most hospital managers allow departmental staff to purchase supplies. Investing in Hospital costan automated supply ordering system and a supplies manager allows nurses and structure indoctors to concentrate on patient care. A supply chain person would streamline theprocess, reduce costs, utilize buying power by negotiating lower pricing and add other the USApotential beneﬁts to hospitals. Hospital spending is out of control, but the good news isthat this is known. There is time to correct this trend before the problem worsens. Allhospital processes need to be streamlined into the most cost effective method while 327allowing the highest patient care level possible. That is really the bottom line.Americans want to say that they have “quality, affordable healthcare”.References@RISK Program (2007), Palisade Corporation, available at: www.palisade.com/Alexander, J.A. (2006), Almanac of Hospital Financial and Operating Indicators, Ingenix, Utah.BMO Capital Markets Economics (2009), United States Economic Outlook, available at: www. bmonesbittburns.com/economics/forecast/us/usmodel.pdf (accessed 14 August 2009).Bureau of Economic Analysis (2009), Current-dollar and ‘Real’ Gross Domestic Product, US Department of Commerce, available at: www.bea.gov/ national/xls/gdplev.xls (accessed 14 August 2009).Centers for Disease Control and Prevention (2009a), Health Insurance Coverage, available at: www.cdc.gov/nchs/FASTATS/hinsure.htm (accessed 13 August 2009).Centers for Disease Control and Prevention (2009b), Lack of Health Insurance Coverage and Type of Coverage. Early Release of Selected Estimates Based on Data From the 2008 National Health Interview Survey, available at: www.cdc.gov/nchs/ data/nhis/earlyrelease/ 200906_01.pdf (accessed 14 August 2009).Centers for Medicare and Medicaid Services (2009), National Health Expenditure (NHE) Amounts by Type of Expenditure and Source of Funds: Calendar Years 1965-2018 in Projections Format, available at: www.cms.hhs.gov/NationalHealthExpendData/ downloads/ nhe65-18.zip (accessed 13 August 2009).Contino, D.S. (2001), “Budget training: it’s overdue”, Nursing Management, Vol. 32 No. 8, pp. 16-17.Editor (2005), “Supply costs dominate high-cost DRGs”, Healthcare Financial Management, Vol. 59 No. 1, p. 100.Efﬁciency cure (2004), An Oracle White Paper, available at: www.oracle.com/industries/ healthcare/oracle_health_ﬁnal.pdf.Foster, R.S. and Hefﬂer, S.K. (2009), Updated and Extended National Health Expenditure Projections, 2010-2019, Ofﬁce of the Actuary, Department of Health & Human Services, Centers for Medicare and Medicaid Services, Baltimore, MD.Gold, R. and Diller, W. (2006), S&P Industry Survey: Healthcare Products and Supplies, available at: www.netadvantage.standardandpoors.com.ezproxy.stthomas.edu/NASApp/Net Advantage/showIndustrySurvey.do?code¼hefJohnson, G. (2004), “Building an operational plan for success in your hospital’s supply chain strategy”, HFMA CFO Forum Quarterly Insights Newsletter, Summer, available at: www. medassets.com/NR/rdonlyres/DF3D4F6F-1D08-4CE5-85A0-26B03C69D3A6/0/082004 HFMACFOQtrInsights.pdfLavey, C. (2006), S&P Industry Survey: Healthcare Facilities, available at: www.netadvantage. standardandpoors.com.ezproxy.stthomas.edu/NASApp/NetAdvantage/showIndustry Survey.do?code¼hps
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