Jan 25, 2023
Discover six ‘’better than best’’ practices in cost savings for hospitals.
Episode Introduction
Adopting new habits can reap significant cost savings rewards. Lisa introduces six proven best practices including, creating an Accelerating Cost Savings team, why hospitals should follow the cost savings ‘’yellow brick road’’, and why frontline employees are your best source of innovation. Lisa also cites Tom Cruise as an illustration of how hospitals can benefit from cost reduction experts and reveals why reducing waste and understanding variation is the new area to uncover cost savings.
Show Topics
- Creating an Accelerating Cost Savings team
- The vital role of a cost savings roadmap
- Following the example of Tom Cruise
- The cost savings benefits of negotiation skills training
- Vendors and employees: the price of relationships
- Ask for new ideas from your frontline employees
- Implement a cost savings discipline
- Reducing waste and understanding variation
01:54 Creating an Accelerating Cost Savings team
Lisa said the creation of a leadership team for cost savings must include key department leaders, not just the CFO and their team.
‘’One of the best practices from the field that I have been involved with over the number of years, but particularly in the last two years that's been particularly successful during this challenging time, is creating a leadership approach to cost savings….. I've taken some wording from different hospitals that have used a version of this. We kind of created our own now, but it's called Accelerating Cost Savings team. So having an accelerating cost savings team and this team just can't be the CFO. The CFO does absolutely need to be involved but this needs to be a leadership team that consists of a CNO, the CFO, the Chief Medical Officer, VP of Supply Chain, VP of Performance Improvement, and key department leaders that come in and out of the group as needed. And this doesn't have to be an overbearing, "Oh, it's another meeting." This is a weekly meeting. It's usually kind of in conjunction with an outside partner. We've done this work and it's been really effective and I think from the feedback we get from hospitals and why these teams have been so successful in pulling together these cost savings initiatives and achieving tremendous outcomes is having a trusted partner as part of the team. And I'm soon going to be finishing up on lessons learned from one of these teams and we've had the opportunity to interview everybody on the team and get their feedback. We asked them 10 questions and we've pulled it all together and it's going to be really interesting research, but I do feel like having this team, even if they can meet, be a conference call, even if it's 45 minutes a week, I will tell you that it's transformative.’’
07:49 The vital role of a cost savings roadmap
Lisa cited Keith Cunningham’s philosophy of following the ‘’yellow brick road’’ to cost savings to achieve your goal.
‘’Number two is to have a detailed cost saving strategy, a roadmap. We work on these cost saving strategies and roadmaps for our clients and they take a totally different approach or a totally different and totally different outcome versus those hospitals that just say, "Okay, our strategy for this year is we need to take out $40 million and that's our goal and we're going to take out $40 million. Go do it. Go find it." And it's departments it's kind of divvied up. And that's a really hard way, I think to go about it. These goals are just getting bigger and bigger. So better than best practices. Have a strategy, sit down, spend the two or three days, bring somebody in that can lead the initiative and kind of pull it all together.Have a roadmap, this playbook that now you know, what's going to happen in January? What's going to happen in February? Where are we going to look for savings and which departments? It's not a broad takeout 5%. These are the areas we're really going to focus on and this is how we're going to do it. And this is...really going to focus on. And this is how we're going to do it and this is who's going to do it. I'm going to cite Keith Cunningham again. I just recently went to one of his training programs, it's called Plan or Get Slaughtered. It's amazing. I highly recommend that to those listening. But he talks about create the yellow brick road, like you want to get to 40 million in savings, what's the yellow brick road? He often talks about, what's the Google Map? If you want to go somewhere, you need a Google Map to get there. And sometimes we don't create the map, we don't create the steps, the roadmap.’’
11:46 Following the example of Tom Cruise
Lisa shared her reflection of why hospitals can benefit from experts when it comes to cost savings (inspired by Mission Impossible).
‘’ I think it was on LinkedIn or somewhere, but it was Tom Cruise. They were showing him in his new movie. It's the new Mission Impossible movie…..And they were just talking about all the experts he brought in. And I think that's what caught my attention because we, I think, downplay or we don't invest or we don't see value because we just think it's the money. Everyone is, "Oh, it's too expensive." Well, it's probably too expensive not to do that. So it caught my attention. So I just watched it, which it's kind of funny. And I probably should just put on my LinkedIn too, because it's so interesting. So what happens is in this Mission Impossible movie, from the seven minutes I watch, he basically has a motorcycle and he motorcycles off his ramp. I think they're in the Netherlands, into a canyon. And he's got a parachute, so the motorcycle's got to go drop. And then he got a parachute to the small space in the canyon and he does the stunt. You have to watch, it's remarkable. So they show him, during this seven minutes, that he basically practices motorcrossing on this ramp. Something like 1700 times, he's practiced this jumps. The small first jump is like 10,000, sorry, 10 feet, 20 feet until he can jump 70 feet or whatever it is. And he becomes this expert at jumping in a motocross jumping. And then he ends up, so parachuting out of a plane, he ends up doing it like 10, 15 times a day. A day. And he's doing all these things, so he could be so competent. He has all these experts. … We all think it's for the elite athlete, business elite, but it's possible for us to do the same thing. It's not meant just for the elite. Why aren't we any different? We're not different.
17:47 The cost savings benefits of negotiation skills training
Lisa emphasized the difficult and psychology-driven nature of negotiation with vendors.
‘’It's really hard. This isn't just getting into an office and dunking it out with somebody on pricing. Negotiation, is a lot of influence driven, it's a lot of psychology, it's a lot of alignment. And most people-don't like it. Most people are not good at it. And either you need to have skills training, like you talked about, you have to practice. Having a coach is really important because you need to be able to bounce off ideas or here's my experience in this situation, you want to try this? Negotiations can move the financial needle big time. I'm talking, I have seen, again, situations where we've had the absolute best analytics, strategy, alignment and we may not have been in that negotiation for whatever reason and I just see it, the returns diminish. Versus, a well executed negotiation strategy just has, just compounding dividends.’’
18:59 Vendors and employees: the price of relationships
Lisa Larter highlighted the impact of relationships on discussions around money.
‘’ I think one of the things that people forget is that employees who work in hospitals develop relationships with vendors. And when you have to try to negotiate something with someone you have a relationship with it's hard. There's all kinds of emotional stuff that gets in the way because you're trying to protect the relationship. And so when you have that outside person that helps you formulate the strategy so that you can negotiate from a place of, I guess, authenticity and integrity it's just so valuable. Most people are uncomfortable talking about money period. And so when you are putting somebody into a situation where they have to negotiate something that isn't really their money, let's be honest it's not their money, it's the hospital's money, there's all this garbage that shows up in terms of your mindset and belief on what is possible. So I think I really like that one, having somebody to help you because it's a really difficult skill to do by yourself.’’
22:48 Ask for new ideas from your frontline employees
Lisa said the most innovative, entrepreneurial insights don’t necessarily come from leadership or the lab.
‘’Number four, and I feel like this used to be done a lot more and this isn't an idea box but it's a lot of different ways to do this, but it's asked for ideas on the front lines. It's an interesting study that shows that about over 62% of new innovations and ideas and entrepreneurial insights come from employees and not from leadership or the lab, it comes from them. And I know that hospitals have these kind of virtual ways that people can put their ideas in. I feel like there really needs to be a more engaged, substantive process and maybe a kickstart to it all. We used to do very frequently, don't do them as much now and I think hopefully we will now somewhat post-COVID, but we call them Excite Programs. So we'd come in and we'd lead these Excite Programs, it's about two and a half hours and we would really have a lot of fun and have some ideas and some teamwork environment and track those all the way through. But I think it has to start with some kind of formal engagement, some kind of formal way to bring people together versus an idea box. Certainly that's probably a podcast for another day. But how you get those ideas is important too. Sometimes the way we do it isn't the most effective way and it may mean dedicating some time, more than paper or an email or something that deploys a tactical way versus a meaningful way if that makes sense.’’
26:02 Implement a cost savings discipline
Lisa said every CFO should know their top 50 highest costing plans.
‘’So, number five. Better than best practices, having a cost management discipline. This is so much there. A lot of the cost savings are lost, hard work, all this work that we do in getting those cost savings is lost from the time of signing the deal through the renewal. And some of the best cost savings lie in how you manage your costs, we talked about in our last podcast, but having the drift versus the lift. But putting in place this discipline that says, I need to know what's going on every single month in these certain things. And having a dashboard, what are the most expensive items we use consistently? I want to see that in a dashboard every month. If, let's say, I'm a CFO I want to know what are my top, highest costs-I'm CFO. I want to know, what are my top highest costing plans? What are the top 50? How do we utilize them last month to this month? What's brand new in that high cost area? There's certain things that I'd want to keep my eyeballs on, really. And in terms of contracting, I know there's audit departments that take a look, but this discipline of monthly management or really dedicated review, particularly in purchase services areas or high cost areas, would probably reap more cost savings than the actual cost savings initiatives. So that's my number five.’’
29:07 Reducing waste and understanding variation
Lisa predicted that analyzing waste and variation is going to be the new area for cost savings in 2023.
‘’And I'm going to wrap up my number six with looking at eliminating and reducing waste and understanding variation. Pricing is a big component, making sure you want to pay the best pricing. But, really, a best practices is there's a lot of waste that goes on and, how do we take out unnecessary waste? How do we understand variation? And that exercise alone and that initiative alone really has the potential for significant savings, and it really has the potential to have this really sustainable, important cost savings. And that becomes what we talked about in previous episodes, which it becomes a movement. You really start getting people to say, " Okay, where is their waste? Where is their variation?" But this is, I think, where a lot of the industry needs to really be focused on because as we move into, unfortunately, a period of time where we have high inflation and a lot of the challenges, although I do feel like there's a period of moments, several months now, we can reestablish and reset those agreements, but I, unfortunately, feel like inflation might take over. And so hospitals are going to have to look at waste and variation very closely. That's going to be the new area for cost savings.’’
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You’ll Also Hear:
Why your hospital should name its high performing cost savings team. ‘’I've heard of things like Back to Black, Accelerating Excellence… you should name your team.. it's a movement, name it.’’
Overcoming objections to forming your cost savings team, and how just one person in the OR made a difference to one hospital.
‘’Don’t be careful, be competent.’’ Additional inspiration from Tom Cruise; or why hospitals should invest in trusted cost savings experts.
Why every hospital needs to Google ‘’sales negotiation’’. ‘’You’ll see the hundreds of companies that come up that your vendors are taking their programs. They know how to negotiate, they are skilled.’’
What To Do Next:
- Subscribe to The Economics of Healthcare and receive a special report on 15 Effective Cost Savings Strategies.
2. There are three ways to work with VIE Healthcare:
- Benchmark a vendor contract – either an existing contract or a new agreement.
- We can support your team with their cost savings initiatives to add resources and expertise. We set a bold cost savings goal and work together to achieve it.
- VIE can perform a cost savings opportunity assessment. We dig deep into all of your spend and uncover unique areas of cost savings.
- If you are interested in learning more, the quickest way to get your questions answered is to speak with Lisa Miller at lmiller@spendmend.com or directly at 732-319-5700