Three financial strategies

The purpose of this article is to identify financial strategies that are truly effective. The principal research questions include whether specific dialysis cost reductions can be implemented without adversely affecting other operating costs or clinical outcomes. The regression analysis involves 120 months of data, 1990 to 1999, from each of six dialysis centers. Financial data include both operating and capital costs. Severity-adjusted hospitalizations are used as the measure of clinical outcomes. The results indicate that three financial strategies are effective in reducing long-term sustainable costs while preserving patient care quality. First, some adjustments in cost mix can achieve sustainable savings over time. However, the relative lack of substitutability among resources and their cost stickiness limit this strategy. Second, institutional experience results in operating efficiencies and cost reductions. In a stable and mature environment, however, managers may not be able to preserve these savings through improved operational efficiencies. Third, clinic managers can reduce their costs when they avoid episodic clinical complications. This strategy may not be sustainable, of course, as hospitals find their revenues constrained when providing acute care services. Contrary to our expectations, we did not find that reducing labor costs was an effective financial strategy. Moreover, we did not find that reducing indirect costs was an effective financial strategy, although the specific 10-year period of this study could be unique in producing this result, and additional research could produce evidence that a strategy of reducing occupancy or other indirect costs is one with significant potential.