Overhead Cost Reduction & Corporate Office Reviews

…..unlocking “hidden” savings opportunities

Channon & Associates has successfully implemented cost reduction in areas that are often overlooked but have proven to generate major savings in major medical centers and hospital systems.

Corporate Office Reviews

Many hospital systems have developed corporate office functions to provide centralized services to its hospitals. The thinking is that these services can be provided more efficiently and effectively at economies of scale not available to the hospitals. Our role is to assist your organization in evaluating whether these economies have in fact been realized and point out functions, departments, and positions that may present opportunities for cost reduction. We have developed a unique approach to help corporate offices identify and implement savings in the range of $3,000,000 to $10,000,000.

Overhead & Administrative Functions

Many hospitals benchmark departments and establish staffing targets. Typically in larger organizations there are scores of departments that either do not benchmark well or are unique to the hospital. Examples of these areas include clinics, outreach community services, administrative and marketing departments, off-campus programs, owned physician practices, etc. While these departments may be small, the number of FTEs associated with these non-benchmarked departments can quickly add up.

One hospital we worked with had 700 non-core FTEs populating nearly 100 cost centers!

Our consulting role in Overhead Reduction is straightforward and hard-hitting: We lay out a methodology for evaluating these services, programs and FTEs, develop reduction targets, and provide implementation plans and ongoing assistance. We play a major role in helping executive groups confront the tough issues head-on and challenge organizational thinking. A motivated leadership group can complete this process in three months or less with a savings ranging from $1,000,000 to $10,000,000.

Overhead & Administrative Cost Reduction
Case Study

Challenge

A five-hospital system had seen its operating margins erode with operating losses of 5%. The system had targeted a 5% operating margin, requiring a significant cost reduction. The hospital group had seen a significant acceleration of costs both in corporate services and outreach programs. One of the hospitals had 700 non-core FTEs populating nearly 100 cost centers!

The Channon & Associates Solution

  • Developed a methodology for inventorying overhead and administrative functions as well as outreach programs and services
  • Established a minimum financial threshold that all outreach services needed to achieve
  • Developed a zero-based methodology to evaluate all of the administrative, overhead and outreach services
  • Developed an innovative benchmarking of corporate services to evaluate the extent of economies of scale that had been generated by the shared services located in the corporate office
  • Instituted an oversight process to challenge managers and executives to challenge the necessity of these functions and scrutinize the costs associated with them
  • Established a targeted cost reduction for the administrative, overhead, and outreach functions

Results

The plan implemented by Channon & Associates in cooperation with senior management produced the following results:

  • A projected $8 million to $10 million in yearly cost savings
  • A new culture that expects overhead and administrative areas to be as efficient as direct patient care areas
  • Bottom line, the organization is now positioned to reach the top 25% of its peer group in terms of productivity in the overhead and corporate functions.
Overhead Cost Reduction

“The consultants assisted us in achieving the enterprise cost reductions we were unable to produce on our own… Key to this success was their candid approach to strategic cost management, the disciplined tools and processes they introduced… With their assistance our organization has enhanced its cost management capabilities, strengthened our ability to execute on our cost reduction initiatives and improved our cost position for long-term success.” CEO

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