Blog
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December 16, 2024
In today’s healthcare environment, many hospitals face a troubling reality with days cash on hand plummeting to its lowest point in a decade. Cash reserves have dropped by 28% in just 18 months, and bond ratings are also being lowered as reimbursement further shifts from private to government payers, who typically reimburse at substantially lower rates. Meanwhile, with Medicare Advantage plans ramping up payment denials to a dispiriting 56%, hospital administrators are left wondering: how can you maintain access while providing quality patient care?
A decade ago, the fee-for-service model was predictable as hospitals were reimbursed for each service provided. It provided financial stability up to a certain level, but it also resulted in siloed patient care. Today, bundled payments have replaced this approach, requiring hospitals to manage a fixed budget for an entire episode of care. Although intended to drive efficiencies and enhance the quality of patient care, this model has also increased financial pressures.
As repayment rates decline and delays become increasingly common, hospitals face the difficult task of investing in new clinical services and maintaining adequate operating margins while working to enhance patient outcomes. The constrained budgets under bundled payments must now cover all associated costs of patient treatment, complicating financial management further.
Delays and denials are not just minor setbacks; they are severe strains that disrupt cash flow and hinder a hospital’s ability to manage shortfalls from private and public payers.
Operating expenses rose significantly from January 2022 to July 2024, exacerbating financial challenges with:
The growing financial pressures, combined with ongoing reimbursement delays, present a significant challenge that continues to impact healthcare organizations. Forced to cut back on critical patient care, many rural hospitals are at risk of closure and jeopardizing the communities they serve. Without immediate and effective solutions, these essential lifelines may vanish entirely.
On top of these financial hurdles, hospitals are under immense pressure to reduce complications and avoid readmissions that fall outside the bundled payment structure. Excess readmissions not only inflate costs but also force hospitals to absorb the financial burden of unreimbursed expenses for patients who are readmitted without reimbursement.
According to an AHA survey, 50% of hospitals and health systems report having more than $100 million in unpaid claims. In 2022 alone, hospitals and health systems spent $20 billion attempting to overturn denied claims, yet only half of these claims were ultimately paid.
The constant struggle to recover the cost of services, manage readmissions, and fight denials creates a vicious cycle of financial strain without consistent net patient revenue. Given these constraints, hospitals must look beyond traditional cost-cutting measures and find new ways to enhance efficiency.
Let’s address what feels like the most obvious approach. The answer is not as easy as pouring more money into healthcare. In 2022, U.S. healthcare spending reached $4.5 trillion, one of the highest in the world. Despite this significant investment, the American healthcare system is plagued by inefficiencies and subpar outcomes. Hospitals are wasting an estimated $10 billion each year pursuing payment delays and denials — funds that should be redirected to enhancing patient care quality. This gap raises an urgent need for healthcare organizations to reevaluate how they manage their financial resources.
Traditional cost-cutting strategies are no longer enough. Effective financial management in typically ignored areas like non-clinical spending can significantly impact operational efficiency.
Areas that have been easy to overlook and are ripe for efficiency boosts include:
Recognizing the need for efficiency is one thing — implementing the necessary steps to move forward is another whole new challenge. To effectively mitigate the inefficiencies above and maintain healthy margins, healthcare organizations must adopt a different approach that optimizes procurement and administrative processes and enhances supply chain management. While most hospitals recognize this urgent need, many lack the specialized resources to make it happen.
Partnering with experts, like LogicSource, can make all the difference. With years of experience in managing non-clinical expenditures under our belt, we’ve worked closely with leading healthcare systems to identify and unlock hidden savings opportunities across the board. Our proven track record speaks for itself: one of our regional healthcare partners achieved $20 million in annual run rate savings across multiple categories with our customized solutions.
Optimizing non-clinical spending is not just a “nice-to-have” strategy in this economy; it’s a necessity to ensure that hospitals can continue to provide high-quality care without compromising their financial stability. By partnering with LogicSource, health systems can enhance their operational efficiency and better navigate the challenges posed by delayed reimbursements and claims denials.
Managing Partner, Healthcare and Life Sciences
Managing Partner
Matt Gattuso is Managing Partner of Healthcare and Life Sciences at LogicSource, responsible for bringing innovative non-clinical procurement solutions to health systems. With nearly three decades of distinguished leadership experience, Matt provides a wealth of operational expertise and a proven track record of results-oriented success. Prior to LogicSource, Gattuso held significant leadership roles at Owens & Minor, PDI, Infection Prevention, and Covidien, a Medtronic organization.
David Kirshner serves as managing partner for the healthcare practice at LogicSource. He previously served as CFO for several healthcare organizations, including the University of Rochester Medical Center, Boston Children’s Hospital, and Lifespan Health System.
