Six Hospital Performance Improvement Strategies for Hospitals Under Financial Pressure

When hospitals fall under financial pressure, knee-jerk responses may exacerbate the situation.  For example, one common first response focuses on reducing costs via blunt tools like hiring freezes, deferred maintenance, and service line cuts. These actions may buy time, but they do not solve the underlying problems. In fact, they frequently create new ones—decreased physician morale, patient satisfaction, and in turn, volume.

To reduce financial pressure, organizations should thoughtfully evaluate both revenue generation and operational efficiency. Cost restructuring matters, but it works best when informed by a clear picture of where value is being left on the table.

Key Takeaways

• Hospital cost reduction strategies work best when rooted in comprehensive understanding of performance and financial vulnerabilities.
• Revenue cycle management (RCM) ranks amongst the highest-ROI levers for recovery. RCM opportunities require careful management of various factors, such as coding accuracy gaps, denial rates, and above-benchmark accounts receivable (AR) percentages.
• Vendor and contract renegotiation are frequently overlooked. A structured review can reduce annual purchased services without affecting care delivery.
• Workforce right-sizing is not about reducing headcount; it’s about deploying the right person, in the right role at the right cost.
• The six levers apply in both urban and rural settings, but the weightings may differ.

1. Revenue Cycle Management

Revenue cycle management is one of the highest-ROI levers. Denial reduction, charge capture improvements, coding accuracy, and A/R acceleration almost always surface significant opportunities. At one academic medical center, we identified $12 million in revenue improvements that achieved rapid performance improvement.  As noted above, multiple performance failures can drive deteriorating collections.  However, effective corrective action requires detailed understanding of causes, some of which may not jump out from the dashboards that leadership used or involved complex overlaps.

2. Vendor and Contract Optimization

Hospitals accumulate contracts over the years, and few conduct systematic reviews. Duplicative services, auto-renewed agreements at above-market rates, and vendor consolidation opportunities frequently result.  Through a structured renegotiation process, EisnerAmper helped a community hospital reduce its annual purchased services spend by $2.8 million.

3. Payer Contract Renegotiation

Payor contracts, including Medicaid managed care, often provide automatic renewal, and safety net hospitals often lack the infrastructure to renegotiate.  Failure to approach payors about rates often results from lack of data supporting a rate increase — cost-to-charge ratios, acuity adjustments, or market comparisons. Organizations should evaluate current contracts and discuss contracts timely.

4. Length of Stay and Observation Management

Excess days cost money, both directly through (uncompensated) resource utilization and indirectly through denied days and lower bonus payments. Case management optimization, care coordination improvements, and observation status management represent high-impact interventions that show results.

5. Emergency Department Throughput and Volume Recovery

Emergency departments are the front door for most hospitals. Wait times, boarding hours, and left-without-being-seen rates directly affect both patient experience and revenue. Improving ED throughput often improves referral volumes; recovering patients admitted or referred internally but went elsewhere due to access barriers.

6. Workforce Right-Sizing

While challenging for hospitals to undertake, effective rightsizing delivers sustainable savings. The key is benchmarking against national data: FTEs per adjusted occupied bed, premium labor as a percentage of total labor cost, and productivity metrics by department. The goal is not fewer people; it is the right person in the right role at the right cost.

In a public hospital system, benchmarking revealed staffing levels of 18% above comparable institutions in three departments. A phased right-sizing plan, implemented through attrition and redeployment rather than layoffs, saved $4.5 million annually while maintaining the quality metrics of care.

How These Levers Apply in Rural Healthcare Settings

The same six levers apply in rural settings, with different weightings. Revenue cycle automation remains the highest-ROI lever, but workforce constraints around implementation can impede action.  Right-sizing the workforce is harder when the labor pool is geographic rather than competitive, and benchmarking against national data requires adjustments for rural staffing patterns. Telehealth infrastructure and remote patient monitoring have become essential in rural settings.  They warrant investment because they extend specialty reach, identify actionable care needs and improve outcomes.

Finding the Right Levers

Hospital’s situations differ. The levers that matter most depend on a clear-eyed assessment of where value exists and where risk is concentrated. Our Rapid Action Turnaround surfaces those answers quickly enough to inform decisions before the financial situation deteriorates further.

If your hospital is facing financial pressure and you want to know which levers will move the needle, contact our team below.