My passion has always been clinically geared which initially started when I was an emergency nurse. Now, fast forward many years later. While I don’t practice in a clinical setting directly, I stay abreast of the latest clinical studies and spend my spare time helping friends and family navigate healthcare with clinically sound information. One of my other passions is mentoring people in their relationships and career paths and sharing learned experiences that might be helpful. 

I get psyched when I can chat about topics that link clinical, operational, and financial perspectives, since that is still missing today in nursing education programs overall. Almost 40 years ago, when I was a new nurse, I was ignorant of healthcare costs, such as hospital profit and loss, and any impact of my actions that contributed to that as a floor nurse. You may have read my previous interview about my career path, but I want to emphasize that the opportunities are endless, even when you think that you want nothing else but direct patient care, as I did! At one point in my career, I became a clinical cost consultant where I learned a lot! That experience allowed me to expand my knowledge and provide even more opportunities, such as teaching entry-level nursing students about cost containment with simple examples and information, consulting at hospitals on cost savings initiatives, and serving on several clinical advisory boards, company committees, and professional organizations which facilitated executive level roles in health tech and hospital management companies. 

 So, let’s talk about what can add to the frustration today for nurses who are caring for patients and do not have the right tools, whether it's equipment, devices, or drugs, and certainly labor resources to care for those patients. The reality is that a gap in clinical education still exists, whether in undergraduate or graduate level programs regarding the linkage between clinical practice and the impact on the financial health of an organization. This gap can become a vicious cycle of frustration and job dissatisfaction and can even impact patient care.

Here are five things that might be helpful in understanding organizational costs:

Hospitals Have to Make Money

Hospitals have to turn a profit even if they are considered a non-profit organization. Why? Just like you need to make money to pay for your bills, food, cost of living, improvements to your home, transportation, replacing items, and fun, hospitals have similar expenses but on a larger scale. Buildings and infrastructure, equipment, and new services are significant expenses for hospitals, and the day-to-day costs of labor and supplies are the greatest expenses required to provide the services they offer. Unfortunately, hospital profit margins have been much less than any other company in healthcare, such as device and drug companies or even tech companies. In today’s environment, that margin is incredibly low, which will impact the hospital’s ability to invest in the future, whether in their people, the services, or the building and systems. 

Hospitals Have to Continually Seek Cost-Saving Measures  

More now than ever, hospitals have to look at ways to save money. They must also be more efficient, since hospital operating expenses of labor and supplies have increased significantly, and reimbursement and revenue aren’t keeping up with the expense overages. Hospitals also need to continuously look at ways to save money to offset the negative hits to profit. Who doesn’t want a good deal and to save money when they can? 

Understanding clinical practice and the need to save money continues to be a challenge. Also, labor savings are typically a myth, and I might even go as far as saying a joke since labor savings are only real if labor is cut, which none of us want to see. Unfortunately, we see labor cuts in the daily news about health systems cutting jobs, laying off, and hiring freezes. While most of these cuts are administrative and not clinical, those roles served a purpose, such as in finding savings, billing, or reimbursement follow-up. This extreme measure of cost-cutting is only a band-aid solution for the overall financial health of an organization. 

To help, bring cost savings ideas to your manager and seek to understand cost savings initiatives in your clinical area including the analysis, clinical evidence, the impact on patient care, and the impact on you as a nurse.

Costs, Charges, and Actual Revenue Are Related

Most clinicians have no exposure to this information, and even those exposed find it confusing. I have experienced that when a nurse has accessed information, it may be labeled as costs when it’s actual charges, and the disconnect begins. 

Let’s take for example an IV catheter.

• Its cost (what the hospital pays) is $5.00.
• Its charge (what the hospital places on a bill) is $20.00.
• The hospital reimbursement (what the hospital receives from the insurance company) is $2.00.  

Many general supplies like this aren’t reimbursed at all since these are considered general supplies and part of the room rate or procedure charge. A hospital marks up its supplies and services to make a profit to keep its doors open. Nurses and physicians have told me their ‘hospital should be making lots of money.’ This perception is reality based on their access to information. If we could only be transparent and explain the differences between costs, charges, and reimbursement, we could stand a chance of having a greater clinical and financial alignment or at least a path to get there. 

Seeking and understanding of financial information, even if it’s labeled costs or charges; asking for clarity of what is included, and the details of the financial information, (i.e. is the actual cost of the item/service the hospital pays for the item/services, or is it what the hospital charges for the item/service and does that include associated equipment and people) can help. Also, ask if the item/service is reimbursable and at what percentage.

Hospitals Have Lots of Contracts

Clinicians typically have no exposure to contracts either, which causes additional frustration. First, let’s talk about insurance contracts that determine reimbursement. Hospitals sign agreements with many insurance companies, and each reimburses (pays) differently for the services, procedures, and supplies used. Some contracts are better than others. Hospitals also must also abide by government contracts such as Medicare, which includes Medicare Advantage options, and Medicaid contracts, which are different in each state.  

Next, let’s talk about the other types of contracts. These include:

• Service: A large category including outsourced services such as dialysis, equipment maintenance, billing, and many more.
• Labor 
• Supplies: This includes drugs, devices, and equipment.

Most hospitals use a Group Purchasing Organization (GPO) to source most of these contracts. These contracts are typically one to three year contracts that are binding for a majority of any given category. Additionally, there are extra incentives, such as dividends paid back for the number of purchases on all contracts with a GPO.  

Even if you have access to all of the cost, charge, and reimbursement information, the payback dividends are considered and analyzed ‘behind the scenes.’ If we go back to our IV Catheter example, even if you have access to all of the cost, charge, and reimbursement information, the payback dividends aren’t factored in and typically analyzed ‘behind the scenes.’   The example of labor costs has been a major hit to hospital budgets with the significant fees from agency contracts for nurses and other roles that weren’t planned and caused hospitals to dig into their investments, likely intended for major building, renovation, and new services projects. 

Clinical Evidence and Clinical Negotiating Power 

These two things are related and relevant to a hospital’s financial stability. Unfortunately, the relationship is only obvious to the companies that sell services and supplies to hospitals. These companies are quite savvy and know how to sell to clinicians. Unfortunately, their information is often misinterpreted even by the smartest clinicians unless one spends their time on clinical evidence, research trials, and understanding how a study is created and the purpose. As a general rule, the clinical evidence provided in a sales situation is biased and not a highly rated study. This is not to say company sales reps are bad people; they often do not understand what makes a solid research study either. They are just trying to do their job and sell! I have educated many salespeople over the years about the strength of clinical study.

Years ago, I had a general surgeon ‘teach me a lesson’ when I was trying to win him over on a device that would help patients, save nurses time, and be safer for all. I showed him a research study which had been given to me by a company. What I learned thereafter is that all research studies aren’t equal. There is a grading system for the validity of clinical research which considers the study size (more than 500 at the bare minimum), if it is a randomized controlled trial (RCT), if it is sponsored by a company (possibly biased), and what is the author’s expertise in the study among other things. The research study given to me was really a lower-grade abstract and not that significant. I've never forgotten that lesson. 

Before you decide to support a recommended study, seek to understand the type of study by just asking if it’s a single study provided by a supplier, if it’s a RCT, and what is the magnitude of the sample size of the study, (i.e. were there over 500 people in the study?) Remember the cost analysis and any mention of savings, whether it's labor or other types of savings; external people and sometimes even internal people or physicians don’t know your contracts, dividends, or even your processes, equipment, and people's impact. 

Don’t say yes to whatever is being sold to you without asking about the clinical evidence and also teaming up with your internal experts, like analysts in finance, supply chain, and clinical value analysis, who might have this information or can help dig into the many layers. You have clinical practice knowledge, which is very important, but it’s only part of the clinical picture. Suppose you say ‘yes’ without all of the information. In that case, you have taken all negotiating power away (your impact on the financial part) before the analysis is completed clinically and financially.