Factors behind lower revenue growth in hospitals

Public and not-for-profit hospitals in the U.S. are increasingly being challenged to do more with less. A report by Moody’s Investors Service in 2018 revealed a shrinking gap between revenue and costs, with the median operating cash flow margin dropping to 8.1% – the lowest level in ten years.

According to Moody’s analysis, a series of factors are contributing to the decline. Lower rates of reimbursements, increased merger and acquisition activity, and higher competition for ambulatory patient care are partly responsible. As the health sector transitions to less expensive care, the median growth for inpatient hospitalizations has been outpaced by the median growth in outpatient visits to physician-owned facilities. And if hospitals need to turn to debt to finance capital, this trend of declining revenue will be exacerbated further.

Using technology to achieve cost efficiencies

Digital innovations offer hospitals options for cost-saving measures that allow for profit growth, and the capability to elevate their competitive position in the market. One of the greatest expenditures in the healthcare sector is medical equipment. By strategically managing how medical equipment is purchased, used and shared, hospitals can reduce costs while continuing to deliver an exceptional quality of care.

A planned equipment management approach tracks existing medical equipment to maximize use, enables multi-hospital sharing, and reduces the overall inventory across a health system. With the introduction of real-time location systems (RTLS) to the healthcare sphere, hospitals have the means to track mobile equipment of all kinds by attaching low-profile tags that give real-time visibility both inside and outside facilities.

When the RTLS data is collected and analyzed, hospitals can make several changes that can positively affect operating margins and topline revenue.

Maximizing use of equipment

Asset tracking not only enables healthcare facilities to make the best use of medical equipment in one hospital’s department, it also opens the possibility of incremental revenue gained from interdepartmental charge-outs.

Further, with the introduction of centralized asset planning, a single healthcare system can support the scheduling of mobile equipment use across multiple facilities within that same system. This increases the utilization rates of equipment and enables medical professionals to expand their service line beyond the equipment in their own hospital. Sharing equipment across different sites and gaining higher rates of use ultimately serves to reduce capital expenditures by reducing the number of units of identical equipment stored at multiple sites.

Having data on asset use can also make it easier to schedule equipment for maintenance so that no patient’s care is delayed. A historical practice of ‘hiding the equipment I might need’ can be eradicated.

Data insights combat over-purchasing

The over-purchasing of medical equipment occurs for several reasons. When there is a lack of visibility on the amount of use of the equipment and the workflow, more equipment is purchased than necessary. In a study by GE Healthcare, mobile equipment has, on average, a 42% utilization rate. Using RTLS to track equipment assets helps healthcare staff make intelligent, data-driven decisions on ensuring the right equipment is available for staff and patients when they need it.

Another reason for over-purchasing is that accounting practices may favour the strategy of purchasing equipment rather than leasing. Leasing has associated interest costs, and the hospital may not be able to acquire optimal leasing terms. As well, in a health system, individual hospitals have the goal of maintaining an operating margin that is positive. Operational expenses, such as leases, affect the operating margin, whereas capital purchases of equipment inventory don’t. This results in hospitals taking a default position of buying equipment assets, without necessarily working to determine more efficient ways to utilize rented or owned equipment.

One of the knock-on effects of over-purchasing is that the hospital will incur higher maintenance costs on inventory, especially as the equipment ages.

Over-purchasing can be corrected by implementing an asset management program with a real-time location tracking system, which allows administrators to generate various levels of inventory reports for audits. Consequently, having data on usage, workflow and repair rates of medical assets puts hospitals in a stronger position when it comes to negotiating to buy new equipment.

With an ageing population and the commensurate demand on healthcare systems, the trend of heightened pressures on operating margins is not going to decline. Technological innovations now offer systems to optimize equipment use, so that healthcare providers and hospitals can be more efficient, reduce costs and deliver the highest quality of care.

To learn more about how RTLS technology can lower operational costs through the location, tracking and securing of assets, visit https://www.guardrfid.com/healthcare-rtls/asset-tracking/.

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