CHICAGO – With state Medicaid program cutbacks and reduced Medicare reimbursement rates looming, hospitals are looking to control costs in labor management.

While managing labor costs is always an issue whenever margins go down, hospitals are focusing on targeted strategies, said Paul Osborne, managing director of Huron Consulting Group.

Hospitals are controlling the hiring process by targeting hiring freezes and labor productivity analysis, Osborne said. While there's still a nursing shortage, hospitals want to make sure their staffing is in line with their peers.

Many hospitals are scrutinizing management - not just the rank-and-file staff – throughout their system, including departments that don't have direct contact with patients, for potential cutbacks, said Osborne.

Administrators of health systems that have acquired new hospitals are reassessing their operating model versus their holding model. If the corporate structure has grown more than a system's patient volume, expect downsizing, Osborne said.

"You have to better integrate your corporate functions - human resources, materials management, marketing," he said.

Hospitals are also taking a look at services that they outsource, such as food and environment, and bringing them in-house to manage, said Osborne. Services are also being examined more closely. If a service, such as dialysis, isn't profitable, administrators may decide to close the program.

This practice of cherry-picking services will be a "tough call" for systems that are not-for-profit or faith-based, Osborne said.

A large number of hospitals have shut down their capital expenditures, said Christopher Drummond, managing director for Huron Consulting Group's Health and Education segment. If they are implementing new technologies, the return on investment must be realized much sooner than in the past.

Hospitals that executed well on their healthcare information technology implementations are reaping the benefits of automation over manual processes, Osborne said. Healthcare IT systems that capture coding and clinical documentation correctly will enable hospitals to pay employees correctly.

Hospital staff is being trained to be more diligent about collecting co-pays and deductibles during patient registration. Osborne said such training needs to be in place in order to collect revenue upfront.

Increasingly, hospitals are asking for help - from consulting firms, vendor partners and even the community, said Drummond.

While the details of the HITECH Act are still being clarified, Osborne noted that industry discussions are emerging over how hospitals can receive some of the stimulus funding. WellSpring Partners, a Huron Consulting Group practice, is seeing such discussions commence, and reaching out to its current clients for assistance.

Even hospitals with healthy bottom lines are focusing on efficiency because of the "fear of the unknown," said Osborne.

"We've always seen hospitals shutting down," he said. "Whether there's going to be an increase, we don't know."

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