How Can You Improve Fiscal Efficiency in Healthcare?

Executive Summary

Healthcare systems around the globe are becoming financially unsustainable. According to the Canadian Institute for Health Information in 2013, health spending in Canada reached $211 billion and 11.2% of GDP goes to health expenditure.2 Furthermore, “health care spending growth in North America is projected to rise by an average of 4.6% annually during 2015-2019” with an even greater 4.8% growth in Canada.3 Increasing financial pressures combined with an aging population living longer with co-morbidity will undoubtedly force healthcare organizations to examine their practices and processes of care to find ways to be more efficient and effective. In short, healthcare systems must find a way to do more with less. Strategies include:

  • Utilize quality improvement strategies, including lean methodology to understand process related issues, identify and remove waste;
  • Develop strategic partnerships to better serve and manage patient populations;
  • Make better use of available technology;
  • Identify & implement better procurement strategies & examine the supply chain;
  • Develop a culture of fiscal efficiency throughout the organization by incenting and rewarding efforts to reduce costs while maintaining/improving quality. 


Common efforts to improve the financial health of hospitals may include reducing staff numbers and renegotiating contracts with suppliers, which may compromise the quality of care and only be a temporary fix in the changing economy.4 At a policy level, reviewing the sustainability of a health care system can be a complex process targeting legislative issues, exploring different expenditure rules and their effectiveness in getting more value for money. Understanding what is meant by 'efficiency' and 'value for money' in healthcare is key to achieving gains in these areas. Implementation guidelines that emphasize quality improvement (QI) and productive general practice in primary care, for example, can lead healthcare organizations to proper recognition of problem areas and successfully implement viable solutions. There is evidence that some strategies work better than others in terms of improving both costs and quality simultaneously. To effectively maintain the current quality of patient care, healthcare providers including hospitals must consider and implement new productive methods to achieve fiscal efficiency. 

Utilize Quality Improvement (QI) Methodology

Quality improvement methodologies including the Model for Improvement, and various lean techniques can be utilzed to assess problems, identify new processes and eliminate waste within healthcare systems. Lean manufacturing tools aim to eliminate waste, simplify systems, and create flow. Manufacturing companies like Toyota first adapted the technique but hospitals have been saving money by applying it to healthcare systems for a number of years. Lean process defines the 7 wastes of inefficient systems as: 1) producing products too early or too much, 2) value not being added to inventory, 3) people/parts waiting for the work cycle to be completed, 4) unnecessary movement of people, parts or machines, 5) unnecessary transportation, 6) repetition or correction process not done right the first time, and 7) over-processing beyond the standard required by the customer.12

The first step to solving a problem is diagnosing it. Root Cause Analysis (RCA) is one potential lean tool for use in tackling the problem of fiscal efficiency in healthcare. The RCA template includes a 5-step process to determine: what problem occurred; why it happened; and what to do to reduce the likelihood of it happening again. Using this tool, hospitals can: 1) Define the Problem, 2) Collect Data, 3) Identify Possible Causal Factors, 4) Identify the Root Causes and 5) Recommend and Implement Solutions.5

Heijunka5SStandardized workKanbanJidokaPoka YokePICK chartFMEA and Kaizen events are some of many lean process tools that can eliminate waste in healthcare systems and yield financial gains. After only two years of using lean process, Virginia Mason Medical Centre saved $12-15 million dollars of their budgeted capital, halved their inventory, reduced staff walking distances and time by 38%, and moreFlorida Hospital Orlando increased patient admission rates, decreased patient length of stay, saved $5.3 million dollars and increased patient satisfaction by 10%. Lean process aids in delivering just the required amount of supplies and service through fully understanding what the needs are and eliminating obscurity within the system. Lean process allows healthcare organizations to better care for patient needs while simultaneously reducing unnecessary expenditures. Other example case studies where organizations have successfully achieved fiscal efficiency using QI methods include Partners HealthCareBellin Health and Christiana Health Care.

Develop Strategic Partnerships

Fostering relationships with other organizations, including care providers, suppliers, vendors, academia and private corporations may be worth exploring in order to develop innovative ways to control rising health care costs. A useful example of a partnership strategy from Mount Sinai hospital demonstrates the need for organizations to look beyond their walls to identify partners who may further a shared vision. The public/private partnership (P3) model might also be worth considering in bringing additional stakeholders to the discussion.

Make Better Use of Available Technology

Health Information Exchange is the act of near real-time electronic exchange of health information between healthcare systems.8 Tele-ICUs are an enabling technology that monitors ICU patients and permits specialists in critical care medicine like doctors and nurses to manage the care of patients from multiple distant units.11 Tele-ICU is an example delivery tool, utilizing telecommunications technology such as two-way video, email, smart phones, wireless tools.9  Studies have found that implementing Tele-ICU leads to a significant decrease in patient mortality, shorter patients’ stays in the ICU, and can have substantial financial benefit to payers. Moreover, hospitals that invest in Tele-ICU have been found to make that invested money back within a year as a result of utilizing the technology.  When Tele-ICU was implemented in Massachusetts, it saved 350 additional lives and the potential annual savings for payers was estimated to exceed $122 million every year.10 Dignity Health Woodland Memorial Hospital in California is one organization profiled as a successful example of Tele-ICU implementation.

Energy-Efficient Hospital Systems

According to a white paper published by Scheider Electric in October 2010, electricity costs have increased by 20% since 1955 and electricity usage in the healthcare industry has increased by 36%. Furthermore, an estimated 25% increase in electricity costs in the next few years threatens to seize 1/6th of current hospital’s profitability. However, many hospital systems do not reflect this spike in hospital funding lost to energy and are turning to insufficient short-term fixes. Monitoring domains such as energy source, analysis, infrastructure or building management with a centralized monitoring system prevent having to react to costly incidents. Energy efficiency in hospital systems is a multifaceted approach that can generate revenue savings in terms of usage costs as well as minimizing future potential carbon taxes, notwithstanding the environmental benefits. 

Identify & Implement Better Procurement Strategies & Examine the Supply Chain

Moving towards adopting better procurement practices is another way to lower rising healthcare costs. It can also foster enhanced collaboration across departments on other operational improvements. The healthcare supply chain is also a key area of focus given that it is second only to labour in terms of hospital costs. It involves the end-to-end process whereby all products, devices and supplies used in healthcare flow through the system.

Develop a Culture of Fiscal Efficiency

Organizational change is cultural change. Leadership supports must be in place to drive any improvement efforts. Prior to embarking on widespread initiatives, senior administrators in any healthcare organization should conduct an organizational self-assesement to determine readiness for change efforts. Other useful tools include leadership walk-arounds to assess departmental areas with an eye for quality and potential sources of fiscal efficiency (e.g., supplies and utilities that are wasted or out of date). Incenting & rewarding efforts to improve quality and save valuable resources can also help support the development of fiscally nimble organizations. Creating a performance culture takes time, energy and dedicated focus.