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Goldsmith on Cost Control in Harvard Business Review

On November 15, Harvard Business Review posted an online article by Jeff Goldsmith on what hospitals and health systems need to do to control their costs: Despite claims that they have made inroads here, most health systems have barely scratched the surface in reducing their operating expenses, the key to restoring operating margins. Pursuit of growth at any price has savaged industry margins at the top of the economic cycle. Health system executives need to make fundamental cultural changes and assume responsibility for the delivered cost of care if they are to avoid serious harm in the event of an economic downturn. This is Jeff’s fifth online article in HBR in fourteen months.

Health System Financial Analysis

On September 12, Navigant Healthcare released a report on hospital operating performance from 2015-2017: Industry operating margins fell 39% on average in the two full years after the Affordable Care Act coverage expansion, mainly because hospital efficiency eroded in the face of declining revenue growth. The report also found no relationship between the size of the care system and its profitability, contradicting a key premise of the merger movement that larger scale enables greater efficiencies and profitability. The Navigant study proposed strategies for improving health system performance, including more effective and results based contracts with health plans, increased clinical discipline and alignment with physicians and allocating growth capital more sensibly.

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