4 Hospital Cost Reduction Ideas & Strategies

If you’re looking for ways your hospital or medical organization can save money and reduce expenses, start here.

Co-Founder & Alabama Native


In the past, hospitals were reimbursed at a line-item level—so there was a charge associated with each item used or service provided that was billed to either the patient or the insurer. This incentivized performing procedures and tests, as each of them were billable.

If you’re ready to create a Balanced Scorecard that supports your healthcare strategy, we’re here to help.

Fast forward to today’s healthcare climate, and you’ll find that hospitals are now paid a certain amount (by the insurer, insured, or government) for each defined diagnosis-related group (DRG). It is then up to the hospital to determine how to spend that fee, keeping in mind that the desired outcome is improving the patient’s health status. This payment method began with government programs such as Medicare but has now expanded into the private insurance market.

With this in mind, there are a number of ways hospitals can save money today, ranging from proper resource utilization to strategic organization. We’ll address four of those hospital cost reduction ideas below.

4 Hospital Cost Reduction Ideas & Strategies

1. Examine appropriate labor use in different scenarios.

This is not a reduction in labor but a close examination of how labor is used in different situations. For example, use nurse practitioners or physician assistants (physician extenders) instead of physicians in urgent care clinics. Extenders can perform services at a much lower cost in situations where an MD is not warranted—for example, tending to patients who have minor healthcare issues like a cold. In medical research, laboratory assistants can be used to prepare specimen and manage quality control functions, allowing the more expensive technologists to focus on evaluating the data and ensuring quality results.

2. Re-evaluate supply costs for hidden savings.

  • Blood is an expensive, limited resource that can cause complications, and the American Association of Blood Banks (AABB) published recommendations in 2016 to lowerthe thresholds for which blood is given. Adoption of these new standards can have significant cost reductions and patient outcome effects.
  • Create an antibiotic stewardship program. Using the correct antibiotic at the correct time can reduce the length of time the patient is in the hospital, which decreases labor, supply, and drug costs. Another hospital cost reduction idea is to consider evaluating high-cost pharmaceuticals against generic (or less expensive) drugs.
  • Negotiate with the supplier to lower the price of surgical implants. A single hip joint can be in the tens of thousands of dollars—so savings in this area can be significant.

3. Assess procedures performed for possible cost reductions.

Doing repetitive, duplicate, or daily laboratory or radiology testing can be very costly. To cut back on these costs, consider ordering multiple-day orders at a single session.

Furthermore, examine your hospital’s use of “convenience testing”—i.e., performing a test or procedure during a hospital stay rather than in an outpatient setting simply because the patient is there. This can increase costs related to inpatient care (supplies, room, support staff, and scheduling delays).

To find opportunities for savings here, you need an effective tracking system. Be sure that all tests given can be seen by the physicians or extenders responsible for treatment, and be sure you can track why a test is given (as sometimes an inexpensive or effective convenience test is warranted).

4. Track quality measures and take steps to improve deficiencies.

Improving the quality of processes that lead to issues like catheter-associated urinary tract infections (CAUTI) and central-line-associated bloodstream infections (CLABSI) is not only critical for patient health and safety—it’s also a hospital cost reduction strategy. Additionally, improving the identification and rapid treatment of sepsis and reducing readmissions for such issues are critical for cost saving. These initiatives are tied to government reimbursements from federal programs. Better quality measures in this area will result in higher reimbursements.

Don’t forget about your healthcare strategy!

To successfully achieve these objectives and others, you need a unified strategy in place. Creating a Balanced Scorecard strategy map is one of the best ways to achieve that. It allows you to communicate your organizational goals and engage your team in a clear way.

To save you time and effort, we’ve created sample scorecards with examples to illustrate how medical and healthcare groups have put the Balanced Scorecard to work for them. In this free ebook, you’ll see a number of sample healthcare strategy maps, learn how medical organizations worldwide are experiencing success with strategy mapping, and more. Download these sample medical and healthcare strategy maps and make one your own.

4 Hospital Cost Reduction Ideas & Strategies