Is your industry cutting corners to cut costs?

The bottom line is a reality for all business. Even those in industries that are ostensibly "Mission Driven" still must keep an eye on that thin line at the bottom of their balance sheets. It's not because business owners and managers are greedy, or corrupt, its because a capitalist system is driven by a single fundamental reality. You need money to operate.  Employees like getting paid to work, vendors like being paid to supply you with goods and services, landlords like getting paid for the use of there building and Government, Well they really like getting that sweet Tax revenue. This means that regardless of your higher mission, and no matter how altruistic your companies goals at the end of the day your ability to do what you do is still depended on that bottom number being green rather than red.  

   It is that singular reality that has driven Health care costs up while service has gone down. Its why we pay more for air travel while being squeezed into ever smaller seats, and it is why Our tuition costs keep rising along with class sizes and the student to instructor ratios. Inflation and rising costs of just about everything from a carton of eggs to the rents paid by business has been going up and this has led a lot of companies to be forced to make some very difficult decisions in order to keep operating.  after all, you can only raise prices so high before you price yourself out of the market. To make up the difference many companies are cutting costs where they can to try and stay competitive, this generally means cutting staff, cutting services, in short, cutting corners.

   The Truth is that this is often not necessary. The issue is not with the cost structure but with the companies processes.  If work intensive, repetitive processes can be improved upon or eliminated altogether the cost savings generated by the improved accuracy, reduced error rate, and lowered labor costs can then be reinvested to improve your companies services. This then leads to a competitive advantage and ultimately to higher incomes to counter the increasing costs. This, of course, is a simplified explanation of a rather complex topic but the point I am trying to make is that investments in proper processes and improvements in how a company operates represent a much more beneficial alternative to cost-cutting, labor reductions, and elimination of value-added services.

   Let me use an example to illustrate my meaning. The healthcare sector happens to be an industry I am intimately familiar with so I will use that. Healthcare is also a big topic right now since the rising costs of healthcare are largely responsible for causing something of an epidemic in this country.  So Imagine you are a Healthcare facility or even a single provider. If you know anything about the healthcare business you know that there are several metrics your accountant is looking out for. These are the Total Cost Per Patient (TCPP) and the Total Revenue Per Patient(TRPP). Now any first-year economics student can point out that the way to turn a profit and continue to service and help your patients is to ensure the former (TCPP) is lower than the later (TRPP). As the cost or labor, rent, medications, lab equipment, bandages and so on go up your TCPP slowly starts to go up. Since there is only so much money you as a provider are going to convince insurance companies, or better yet the government (in form of Medicaid) to fork out for a patient you are limited in how much you can reasonably charge. That means you are left with reducing cost. This often takes the form of downsizing nurses and doctors, cutting extra services such as outreach programs, and uninsured patient services, and possibly reducing the quality of equipment by buying cheaper (perhaps sub-par) alternatives. This, of course, has the downside of increasing wait times lowering quality of care, stressing out the employees who remain, increasing turnover, and burnouts and that is to say nothing of all the people who can't afford insurance who now cannot be seen due to cuts in the programs that would have previously given them access to health care.

   This scenario sounds a little bleak but it is playing out at doctors offices and hospitals nationwide. The key to reducing costs without all this corner-cutting is to look at what processes are actually involved in operating a medical practice (big or small). Aside from the healthcare professional's salaries, of course, Healthcare is a business like any other. And like any other business, there is HR, Accounting, Billing, Facility management, Sales, Marketing and so on, all of the departments we would label as "Back office". It is on these parts of the business I want to focus. In my last blog post, I spoke of an example where we (Lysi Data Labs) automated the billing audit process of a healthcare provider (you can read more about that here).  The cost saving in terms of labor cost and the increased revenue due to more accurate billing resulting in more accurate invoicing and Medicare reimbursements allowed the company to invest in a new service offering for mobility challenged patients. There are many similar processes that can be found in most business. From intake to record keeping to Billing and invoices, many of these functions require labor-intensive repetitive work. These functional parts of a business are also often overlooked as "necessary cost centers".  By properly investing in up to date methods, education, and technology these back-office departments can be streamlined. Taking a look at some of the let's call them "time-honored" process and implementing New technologies such as automation and machine learning can help improve the accuracy not just of billing and accounting but most other back-office departments.

   Using system integration and a little data intelligence, for example, we can reduce the amount of time and labor in the invoice and accounting cycles. If we automate the intake process with a simple webpage that patients could be allowed to access via a tablet while sitting in the waiting room and input their own information which would then be automatically sent to the facilities EMR (electronic medical record system). (It is at this point that I could go into a whole digression about also letting patients access media and games via those tablets and how that would reduce the annoyance at long wait times, but I'll save that for another post). Anyway, the system would look at the EMR to make the decision if the patient is new or an existing patient and either update only the new data or generate a new record in the EMR. Then once the patient has received service the system can quickly pull up a patients payer information at the time a service is rendered and pass that information to the billing system to automatically generating invoices to the insurance company and if there is a co-pay an invoice for the patient. that invoice could then be sent to the accounts payable system where it can pull the patient's email (or physical) address and generate an invoice. Meanwhile, the accounting software is updated with the new outstanding invoice and a corresponding amount due.  This entire process can be record and reports generated for it. It also requires minimal input from employees and since the software has access to so many different sources of data it can run audits and sanity checks automatically to ensure all the information is correct.

   This is just one simple example of how a limited investment in updating an old process with a little modern technology a dab of automation, and a sprinkel of integration, could help considerable lower the TCPP by reducing labor while improving accuracy and therefore improve income, all without compromising patient care or cutting corners. I know because I have had the pleasure of working with people to do exactly this sort of thing over the course of my carrier. The challenges companies face these days are real. And  I for one do not blame managers, executives, and business owners for making hard choices to keep their companies doors open and serving their clients, customers, and patients. But I believe there is a better way. Instead of laying off employees, and skimping on the little niceties in an effort to reduce overhead a company can invest in the right technologies and the right processes. Reducing costs does not have to mean reducing service quality, you can, in fact, improve the quality of your products and services while reducing your costs and increasing your revenue. You just need to have an open mind and take a critical look at those parts of your business that may not have gotten the "update" treatment in the past few decades.