by Joe Wasserman

In recent months, our industry has experienced unforeseen financial pressures as a result of the economic downturn impacting our patient volumes, operating income and investment income.

The proper response is to lower our operating expenses. This is not likely a transitory situation, and ultimately we need to learn how to operate profitably under our Medicare reimbursement.

The lack of a well planned and executed expense reduction plan may well result in catastrophic financial and operational difficulties.

What to do? Consider these perspectives:

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1) Transparency: Share your financial data routinely with your management, staff, physicians and the community, and not just your board. Include state and national comparative data. Most of your constituents are likely not aware of industry trends.

2) Lead by Example: Executive management should reduce their expenses first before asking others to do so, and need to publicize your reductions.

3) Phased and Flexible Approach: Since we do not know, and can not anticipate, what the future may hold, a multi-phased approach communicated in advance will prove to be much more effective. It also will allow the organization to know what may occur next as they understand the ongoing financial performance.

4) Incentives: Consider an incentive plan for associates and management if your cost reduction plan goals are reached. Front load your incentive plan for associates rather than management to boost staff morale. Use a sliding scale incentive based on reaching the stated goals for expense reduction. Build in the incentive plan cost as part of your expense reduction plan.

5) Communicate, Communicate, Communicate: Develop a comprehensive ongoing plan for your Board, physicians, staff, and community. Clearly state the why, what, where and how you plan to reduce your expenses.

6) Minimize the impact on your staff: To the extent possible, avoid layoffs and wage reductions. Utilize wage delays or freezes, minimize overtime, evaluate open positions, rethink your benefits and variable staff departments presently not obligated to do so.

7) Explore creative ways to reduce expenses: Review and reduce the expenses in all of your contracts. Demand price reductions, especially with physician preference items. Reconsider departments that have outsourced to third parties. Cut the hours for your medical directors. Consider physician extenders in your hospitalist program. Evaluate your community benefit expenses if your operating income is below your budget. Reduce operating hours for outpatient services. Look at and consider everything.

8) Revenue enhancement: It is easy and more fun to raise revenue than to cut costs. Look at raising prices if feasible. Check on your physician loyalty for additional referrals. Market the high margin services. Consider and evaluate initiating new services and closing non-profitable services.

Joe Wasserman is the President and CEO of Lakeland Healthcare, a three-hospital system that includes two long-term facilities, an assisted living center, 3,500 associates, and 325 physicians located in Southwest Michigan. He has been in this role since 1985. Joe received his Masters of Health Services Administration from the University of Michigan at Ann Arbor. He is also a Fellow of the ACHE.