Margin improvement transformation: An additional 1% increase in margin improvement and still growing

By Michael Braly, Director, Performance Improvement – Advisory Services / August 1, 2023

At a glance:

  • Nordic and Lawrence General Hospital (LGH) have partnered on a second phase of their initiative to continue to increase revenue and improve margins.
  • This partnership has resulted in $10.4M in annualized revenue gains for LGH, representing a 4.2% increase in their total net revenue.
  • Phase II improvements are projected to contribute $2.5M to LGH’s overall revenue gain.

Stronger margins achieved during Phase II of Nordic engagement

Lawrence General Hospital (LGH) began its partnership with Nordic Consulting in 2021 to help improve their revenue cycle operations. A Merrimack Valley-based community hospital, LGH completed the first phase of its partnership with Nordic in May 2022. 

This first phase helped LGH see significant improvements in their overall operations from a decrease in the number of write-offs and improved AR days to increased point-of-service (POS) collections and earlier detection and management of potential clinical denials - all of which resulted in $8.5M in annualized net revenue gains.

“In my career, I have worked with a lot of different consultants. Nordic’s consultants were probably the best consultants I’ve ever worked with. We had a strong team that was able to identify a lot of opportunities within our facility for improvement. They were able to pivot very easily based on our needs, providing expertise and resources to help us optimize our processes,” said Michelle White, Director of Revenue Cycle at LGH.

In 2023, LGH and Nordic began working on the next phase of their partnership, continuing to focus on revenue gains and margin growth, this time through a reduction in non-labor costs and expenses. 

Widening the net to find margin improvement opportunities

After working closely on initiatives that would result in significant revenue growth for the hospital, LGH began looking for ways to go beyond the revenue cycle to find opportunities to improve margins overall.

This meant leaning more fully into Phase I initiatives, while also casting a wider net around cost reduction measures like improving inventory and supply processes, reducing vendor costs, optimizing contracts, and reducing pharmacy costs.

A transformative engagement continues…

At the start of the second phase of their engagement, Nordic assessed various cost reduction and revenue growth opportunities that would have the greatest impact on margins for LGH.

The collaborative team implemented improvements across multiple high-impact areas, including:

1. Reducing warehouse costs. The team addressed pandemic-related expenditures to reduce warehousing costs around excess PPE and other supplies. As a result, LGH:
  • Decreased costs by spending down, selling, or donating excess inventory that no longer needed to be warehoused
  • Reduced duplicative supply ordering

2. Capturing missing supply charges. Building on Phase I initiatives that focused on optimizing service capture, the team identified areas where charge mapping can be improved. As a result, LGH:
  • Captured additional revenue around supply charges that were previously missing specifically surrounding high-dollar cardiology procedures and emergency department supplies
  • Set up billable charges for materials and supplies within the chargemaster to facilitate more consistent supply charging

3. Reworking existing contracts and vendor agreements. In both Phase I and Phase II, Nordic experts were able to find ways to optimize or consolidate vendor contracts to help reduce costs. As a result, LGH:
  • Moved IME claims for Medicare in-house, saving $200,000 in contract fees
  • Narrowed down their freight vendors to ensure more competitive rates 

4. Optimizing pharmacy codes and drug costs. The team identified areas within the pharmacy to ensure all CPT codes were correct. They also found ways to optimize drug costs by prioritizing lower-cost IV push drugs over more expensive IV piggyback drugs. As a result, LGH:
  • Increased revenue and decreased underpayments through correct use of codes
  • Decreased their spend on drugs, including high-dollar IV and insulin drugs

Ongoing improvements in revenue gains 

LGH has seen revenue and margin improvements thanks to both the continued positive effects of Phase I initiatives and the newly implemented initiatives of Phase II.

As of June 2023, LGH has validated $10.4M in annualized revenue gains, representing a 4.2% increase in their total net revenue. Phase II improvements are projected to contribute an additional $2.5M in revenue gains.  

The right partner for the long-haul

LGH sought a partner that provides expertise in process improvement, technology, staffing, change management, and strategy.

Throughout both Phase I and Phase II, Nordic provided this expertise to help LGH reach their financial goals, while also connecting staff and departments for easier communication and increased collaboration.

“Nordic has created a solid foundation for us to be able to move forward and focus on growing the organization with the foundation that has been put in place,” said Bill Sullivan, CFO at LGH.

To learn more about how your organization can realize revenue gains and margin improvements through a transformative engagement, contact our team.

Topics: revenue cycle, Performance Improvement Success, Performance Improvement

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