The ‘Kjeld Nuis’ effect for hospitals
Despite his huge potential, Kjeld Nuis didn’t manage to qualify for the 2014 Winter Olympics. But he didn’t give up. He fought his way back to the top and everyone knows what he achieved in 2018: two Olympic gold medals. As sports enthusiasts, we see a parallel with his story and the financial situation of many hospitals. There are hospitals that fell behind in solvency, but within four years, they fought their way back and have become leaders in their field. In our report, “the ‘Kjeld Nuis’ effect for hospitals”, we reveal their path to success.
Since the beginning of this century, hospital solvency ratios have significantly improved: from an average of 7% in 2002 to an average of 25% in 2016. However, in 2016 there were still seventeen hospitals with solvency ratios of less than 20%. What lessons can they learn from other hospitals that have greatly increased their solvency over the past 15 years?
Low solvency ratio? You can always improve!
This study shows that a low solvency ratio isn’t insurmountable: in the past, twenty hospitals have risen from a relatively weak solvency position to a relatively healthy one. Except for one, all of these ‘catch-up’ hospitals reached a solvency ratio of more than 20% in 2016.
After four years at the bottom, a hospital rises back to the top
On average, the lagging hospitals achieved their relatively healthy position in less than four years. During this period of time, their solvency increased more than twice as fast as the other hospitals.
Balance sheet tricks aren’t good advice; solvency improves with better results
The solvency of the ‘catch-up’ hospitals improved primarily due to growth in equity. On average, 75% of the equity increase consisted of profits. Almost all of those that caught up increased their profits more than similar hospitals, which is the healthiest path to sustainable improvement.
Increase revenue or decrease costs? Both will work, but the cost route is more popular.
Profits can be improved by increasing revenue and/or by reducing costs. Of the twenty ‘catch-up’ hospitals, eight achieved greater revenue growth than comparable hospitals, ten focused on cutting costs, and two made improvements in both areas. The recovery period for hospitals that increased their revenue was on average a year shorter than for hospitals that cut costs. Notably, improvements in turnover didn’t relate to the initial benchmarks for revenue potential. In contrast, cost reduction did align with the cost-saving potential of hospitals.
Cost-focused hospitals save most on labor
In absolute terms, the ten hospitals that improved their level of spending generated the most savings from labor costs. However, relative to the total costs by expense type, they saved the most on capital costs. The various types of cost savings were fairly in line with the initial potential based on benchmarks.Download the full report 'het 'Kjeld Nuis'-effect voor ziekenhuizen' (in Dutch) here »