Mindful Cost Cutting

Consider this scenario: You have exercised your duties as a manager over the past several years by cutting costs where possible, but now, you have been ordered to make further administrative cost reductions of 10%, 20%, or even 30%, and you cannot fathom how it will be done. Does this sound familiar?

Dealing with a new wave of reimbursement cuts, imaging executives now face the daunting challenge of finding further ways to reduce overhead without impairing quality. An article¹ published in a recent issue of Harvard Business Review distills 30 years of consulting, across multiple industries, into three distinct patterns of administrative cost-reduction opportunities at the 10%, 20%, and 30% mandated-cut levels.

Principals in an executive consulting company, the authors forewarn that there is no silver bullet; no single idea can solve your problem. Rather, expect to reach your goal through a minimum of 10 actions.

Opportunities to cut costs 10% are referred to as incremental ideas, and they include consolidating incidentals, taking overdue personnel actions, reducing spending on department management, getting control of expenses categorized as miscellaneous, holding down pay raises, and resurrecting rejected cost-cutting proposals.

To get to a 20% reduction, it is necessary to remove a significant portion of the work content from the department. The authors call these redesign ideas, and the best way to begin uncovering such opportunities is to talk to counterparts in other departments about ways to eliminate or modify your service to them.

Possibilities include eliminating liaisons and coordinators; reducing excessive service levels; changing processes through adopting automation, altering timing, and eliminating exceptions; and moving away from excessive contingency planning (which the authors call the belt-and-suspenders mindset). While redundancies and contingency planning may be essential to the clinical side of health care, opportunities may exist in radiology to reduce, for instance, the amount of data kept online, as opposed to in storage.

The 30% Solutions

Managers charged with eliminating 30% of their departments’ overhead are unlikely to succeed if they think entirely within departmental walls. Noting that organizations can be inefficient even when each department operates efficiently, the authors urge readers to think more broadly.

One opportunity that may resonate with health-care administrators is the coordination of parallel activities or purchases with other departments. Many departments in an organization frequently purchase from the same suppliers, and health care is no different. The authors cite office supplies as an example, but similar opportunities exist for medical equipment and supplies.

A recent article² in Medical Imaging Review described an initiative underway at Fairview Health Services, Minneapolis, Minnesota, to funnel imaging capital-equipment purchases from all departments through one person or department to leverage purchasing opportunities.

The authors identify six other categories of opportunity.

First, shift responsibilities to the most efficient location. If there are multiple people,  across multiple departments, who have the same responsibility (for example, checking data accuracy or handling quality assurance), perhaps the best solution is consolidating that responsibility in the location that is most efficient, or in the location with the highest investment in success. Outsourcing is another potential opportunity across departments; candidate activities include payroll, billing, benefits management, recruiting, and media planning.

Second, eliminate duplicative analysis. If multiple departments are looking at the same thing (the impact of health-care reform on the department, for instance), perhaps it is time to consolidate the review into a single coordinated effort, which is what the most efficient companies do. Otherwise, you risk wasting resources.

Third, eliminate low-value meetings. Freeing top executives from unproductive meetings can increase the time that they spend on productive activities.

Fourth, restructure or cut cross-departmental activities. Be ready to take on even the sacred cows here: One company that prided itself on hiring the best talent revised its hiring practices to eliminate all but three interviews for each candidate.

Fifth, eliminate low-value programs. If you can’t reach your goal with well-considered cuts, you may have to eliminate entire programs, but be sure to consider unintended consequences. Recall that many health-care providers reduced or eliminated mammography services in the early part of the decade only to reinstate them later, recognizing both the importance of the patient group (women) and the potential downstream revenue.

Sixth, reduce your burden footprint. Since you are thinking globally, pursue opportunities to tell other departments how they might be overserving you.

In conclusion, the authors propose this question: What is the right level of overhead? Their belief is that overhead should be incurred for just three reasons: to make your direct activities possible, to increase their effectiveness, and to lay the groundwork for growth.
—Staff

1. Coyne KP, Coyne ST, Coyne EJ. When you’ve got to cut costs—now. Harv Bus Rev. 2010;88(5):74-82.
2. Proval C. Leading an HCO in an era of scarce resources. Medical Imaging Review. http://www.imagingbiz.com/articles/
view/leading-an-hco-in-an-era-of-scarce-resources-implications-for-radiolog. Published April 16, 2010. Accessed June 17, 2010.