unit 5

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Part 1: Topic Research and Selection

The healthcare system has become more complex and competitive. As a result, healthcare organizations have adopted different ways to increase profitability and remain relevant in the highly dynamic industry. One of the highly used approaches to increase profitability in the industry is reducing costs of operation. There are various ways in which healthcare facilities reduce costs. Labor is one of the largest expenses in the healthcare system, as a result hospitals ensure they are not over staffed or understaffed. Some healthcare organizations reduce costs by managing vendors in a better way. This involves working with vendors to improve contracts and reduce supply cost. Healthcare organizations also involve physicians in cost reduction efforts.

Part 2: Literature Review

Catena, Dopson & Holweg, (135) suggested that healthcare providers are increasingly adopting standardized policies to reduce operational costs. One way to achieve this has been to develop a policy to reduce the patient’s length of stay in hospitals. According to Catena, Dopson & Holweg, (136) reducing the lengths of stay in hospital is associated with reduced cost per procedure and improving patient outcomes. The study also found that readmission in the hospital increase the costs associated with treatment. This is because physicians have to repeat costly procedure to ensure positive outcomes for the patients. The study recommends healthcare providers to develop policies for reducing patients stay in hospital to increase profitability (Catena, Dopson & Holweg, 136).

Another study found that reducing the length of stay in healthcare can significantly reduce operational costs increasing the profitability of the organization (Batt, Bavafa & Soltani, 4). The study suggested that the healthcare policy often does not target Hospital Readmissions Reduction Program HRRP. The findings of the study show that the program led to the improvement of about 4%in readmission within 30 days. This significantly reduces the costs associated with readmission of patients in hospitals. The findings of this study show the areas within the healthcare that are not targeted by policies (Batt, Bavafa & Soltani, 5).

Ramori et al., (4) found that cost reduction is one of the most effective ways that has been used widely by healthcare organizations to increase profitability. In addition, the study suggested that lean models in the industry help in improving overall outcome of the patients at the same time reducing waste and costs. The study concluded that models of care, managerial process improvement, lean thinking models, improvement cost models can be used by healthcare organizations to reduce waste and cost while increasing profitability (Ramori et al., 10). The study also found that these models can help healthcare organizations maintain their competitive edge in the market (Ramori et al., 14).

Another study aimed to the importance of innovation in healthcare organizations to reduce cost and increase profitability (Wirtz, 99). The study indicated that cost pressures have increasingly become a barrier for healthcare organizations to improve their profitability. Wirtz, (101) noted that operational waste in the healthcare systems results in significant loss of financial resources. The study suggests that innovations can help in reducing this waste and reduce the costs associated with operation. In addition, the study indicated that healthcare organizations can optimize costs while at the same time providing quality services by reducing waste. To optimize costs all staff members must be fully involved (Wirtz, 101).

According to Wirtz (102), there are three approaches to cost-effective service excellence in healthcare including service factory strategy, dual culture approach and operational management strategy. In the dual culture approach, the staffs are involved to understand the importance of reducing wastage in the organizations (Wirtz, 102). The operational management strategy involves reducing variability induced by customers thus reducing conflict between quality of services and cost effectiveness. The factory service approach involves redesign service variability that could induce significant operational costs. All this strategies aim to reduce costs associated with healthcare services and increasing profitability of an organization (Wirtz, 103).

Berry Jaeker & Tucker, (3) suggested that process friction plays a significant role in reducing medical costs. The study found that process friction increases efficiency in provision of services. In addition, the study indicated that forcing staff members to explain the rational for requesting for an optional service induces the friction required to increase efficiency in the healthcare setting. Berry Jaeker & Tucker (3) noted that reducing unnecessary testing and reducing the length of stay in hospitals significantly reduces the costs of treatment therefore increasing the profitability of the organization. The study concludes that justification provides a platform for reducing costs while maintaining quality of healthcare services (Berry Jaeker & Tucker, 5).

In another study, the researchers associated readmission in hospitals to increased costs of healthcare (Adida & Bravo, 1322). These findings were supported by Catena, Dopson & Holweg, (1323) who suggested that that readmission in the hospital increase the costs associated with treatment. Adida & Bravo, (1323) noted that services requesters may incur extra costs in follow up when there is a treatment failure in a referral. To avoid such extra costs, the study suggests that healthcare providers should use coordinating contracts when referring patients to service providers. This yields desired outcomes for everyone involved in the healthcare system (Adida & Bravo, 1324).

Langell (2) reported that the use of lean operational principles significantly reduce medical costs and increase profitability in healthcare facilities. These findings were supported by Ramori et al., (5) who suggested that lean models can help healthcare organizations maintain their competitive edge in the market. According to Langell (3), use of incentive spirometry in the healthcare system can save the United States significant financial resources. The use of lean approaches can significantly help healthcare facilities to reduce waste and improve their efficiency ultimately improving their profitability (Langell, 4).

In another study aiming to determine the role of communication and planning instances in reducing waste in operational room, Dreyfus, Nair & Rosales, (95) found that planning instances are associated with unplanned costs. In particular, the study found that the more the changes in physician preference card, the higher the unplanned costs. In addition, the study found that open communication within the operational room significantly reduces unplanned costs (Dreyfus, Nair & Rosales, 97). The findings of this study were supported by Catena, Dopson& Holweg (136) who suggested that standardization within the healthcare setting can significantly reduce medical costs.

According to Zychlinski et al., (3), reducing operational costs in the healthcare facilities is one of the effective approaches of improving profitability in the highly dynamic and complex industry. The study suggests that bed blocking is very costs in the healthcare system which is normally caused by patients who have been discharged but have to wait for a bed in a geriatric institution (Zychlinski et al., 4). The study suggested a fluid model to help address this problem. According to the researchers, using this model for bed allocation reduces the length of hospital stay for patients who have been discharged and reduces costs (Zychlinski et al., 4).

When bed blocking occurs, other patients are unable to get a bed. As a result, they end up looking for other healthcare organizations (Zychlinski et al., (6). This amounts to significant loss of revenues for the healthcare facility. In addition, bed blocking increases the length of stay for patients and may have other effects such as getting hospital acquired infections. This means that the patients will have to stay further ion the hospital to get treated for the new infections. This has significant costs associated with it as physicians have to conduct other test to establish the news infection. Zychlinski et al., (7) suggested that the fluid model was accurate and useful in addressing the problem.

Liu et al., (5) suggested that reducing medical costs in the healthcare organizations can significantly increase profitability. This suggestion has been supported by numerous studies which report that reducing medical costs could significantly increase profitability of organizations in the healthcare industry (Adida & Bravo, 2327). According to Liu et al., (6), healthcare organizations that have been able to reduce medical costs report significantly higher profit margins as compared to those that do not focus on reducing operational costs. In addition, the study initiatives such as relying in drug sales are not effective if medical costs remain high (Liu et al., 6).

Grosso et al., (422) associated decreased length of stay in the hospital with increased profitability. The study found that patients are at a higher risk of developing hospital acquired infections when they stay for long. As a result it becomes costly to treat the hospital acquired infections. These findings have been supported by another study which suggested that the more the patients stay in the hospital the higher the chances of developing infections increasing cost of treatment (Batt, Bavafa & Soltani, 7). In addition, other studies have reported increased profitability in healthcare organizations that have a policy for reducing the length of patient stay (Batt, Bavafa & Soltani, 6).

In other studies, decreasing length of stay has also been found to significantly optimize healthcare costs (Johnson et al., 771). Two factors have been found to affect the profitability of a healthcare organization based on increased length of stay namely development of healthcare acquired infections that can significantly increase the length of stay in the facility and more testing. According to Grosso et al., (422), reducing the length of stay of a patient considerable optimize costs in a healthcare organization.

Holopainen, Niskanen & Rissanen (28) found that decreasing costs is one of the most effective strategies in increasing profitability of healthcare organizations. While there other approaches that can help organizations to enhance profitability, they may be ineffective if the administration does not focus on reducing the costs of operation. This is because treatment in healthcare accounts for a large percentage of the overall costs of healthcare organizations Holopainen, Niskanen & Rissanen (34). These findings were supported by (Wirtz, 102) who indicated that cost pressures have increasingly become a barrier for healthcare organizations to improve their profitability.

Works Cited