Better Solutions for Healthcare

Modern Healthcare: Revenue growth overtakes cost-cutting as hospital executives’ top priority

Revenue growth overtakes cost-cutting as hospital executives’ top priority

Hospital and health system CEOs are prioritizing revenue growth in 2019, according to a new survey.

Revenue growth overtook cost control as executives’ top priority, Advisory Board Co.’s survey of 90 C-level executives found. While administrators still aim to develop nuanced strategies to cut costs, their focus is now on improving ambulatory access, minimizing clinical variation, boosting primary-care alignment and adapting to population health.

“They still haven’t taken their foot off cost-cutting, but they can’t cut their way out of this economic challenge,” said Rob Lazerow, a managing director at the Advisory Board. “They need a balanced margin-management strategy.”

Only one of the top-five areas of interest from 2018 remained in 2019: innovative approaches to expense reduction. Last year’s No. 1 topic, preparing for sustainable cost control, fell to No. 11 out of the 29 included.

Not-for-profit hospitals’ revenue growth beat expense inflation in 2018 for the first time since 2015, but their margins are still low, experts said.

When asked to narrow their priorities to one, revenue growth led at 21%, followed by population health and accountable care organization strategy at 20%. There was a three-way tie for third between cost containment, physician network alignment and “systemness” at 13%. Last year, 24.5% of executives chose cost containment.

As hospital admissions wane, executives are eyeing ambulatory and primary-care access points and the potential downstream revenue. They are also looking to build nontraditional revenue sources.

“Diversifying through new revenue streams is an important part of the equation for a lot of health systems,” Lazerow said. “But I have concerns with how health systems are pursuing them.”

Providers need to be cognizant of the risks and not be overly reliant on new revenue streams, Lazerow added. They need to reinforce an organization’s overall mission and deliver a clear strategic advantage, he said.

The potential is attractive—what starts as an alternative revenue source can become the new norm, said Rob Thames, a consultant and former CEO of Northern Arizona Healthcare. Health systems need to adapt their service offerings of yesterday to align with non-acute services and value-based payments of tomorrow, he said.

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