Reduce Operating Expenses:
Find Green Dollars

with COO Faye Deich, RN Sacred Heart Hospital, Eau Claire, WI

Two days before Christmas, Sacred Heart Eau Claire Chief Operating Officer Faye Deich communicated a tough message to the leadership team: She needed them to reduce supply expenses by $700,000 by year-end in June, starting now.

“They barely blinked when I made the request,” explains Deich. “The leadership team is very mature and disciplined. I credit our agility and alignment as an organization to the consistent leadership training we’ve participated in over the past 10 years.”

Finding Green Dollars

Also helpful was the fact that the team could return to a cost reduction model they used back in 2007 when they delivered $5.1 million in savings on controllable expenses to replace revenue lost to a local clinic. Developed by consultant Michael Rindler, “strategic performance improvement” calls for team-based cost reduction and seeking out “green dollars” (real expenses rather than budgeted expenses). It’s an evidence-based approach that is complementary with Studer Group principles.

In both years, Sacred Heart formed diverse teams of leaders from different departments who worked together to meet an established financial goal. “We might have leaders from pharmacy and plant services working with a nursing director,” she explains. “If the group’s combined expense equals 12% of the hospital budget, their goal would be to cut 12% of the overall expense reduction goal ($1.4 million annualized in 2009) without reducing quality.”

Getting Results

The seven task forces also take into account small and large departments, a good mix of introverts and extroverts, and leaders who may not typically have an opportunity to work together. They meet two to three times per week and an appointed leader reports out on their findings to Administration each Friday.

This year, Sacred Heart added a revenue cycle improvement task force that has already identified charges that were not accurately captured for both IV and blood administration. The task force will also be working with a third party to assist physicians in more accurately documenting the clinical complexity of patients for more appropriate reimbursement.

The leadership team also made it a goal to not lay anyone off in 2007. By holding vacancies as they came available, they had sufficient openings for when 17 positions were eliminated. As a result, displaced employees were all offered positions in other departments. Sacred Heart was also starting an open heart surgery program at the same time, adding 14 FTEs. Their net savings: 44 FTEs.

What savings have the task forces come up with so far in 2009? “One group saved $33,000 through changes in a contrast protocol while another changed our food vendor for $31,000 in annual savings,” says Deich. “A third recommended a change to pre-mixed pharmaceuticals in certain categories for $39,000 in annual savings. Some of the savings were under $1,000 but they all add up.” A monitoring process is also in place to make sure actual savings are real as opposed to merely budgeted.

Not Compromising Quality

Even as Sacred Heart has pared supply costs, the organization has maintained results across the board. Back in 2006, Sacred Heart won the Press Ganey Summit Award for patient satisfaction in the 99th percentile nationwide. Today, after two years of reducing substantial costs, patient satisfaction hovers between the 93rd and 97th percentile.

Employee turnover experienced a small spike but is once again stable at 15 percent. And last year Sacred Heart won the Mastery level for the Wisconsin Forward Award (state Baldrige equivalent). In all but one area, the organization is hitting its core measures targets above the 90th percentile. And on the growth front, the hospital debuted a “smart” OR in its state-of-the-art surgery department for its cornerstone neurosciences service line, including an intraoperative MRI and integrated navigational system for 3D imaging.

“I feel confident we will meet our expense reduction target and other organizational goals,” notes Deich. “I think this process is good to go through on an annual basis, and particularly when the external environment is so challenging.”