Most hospitals in the U.S. have set cost reduction targets and acknowledged their importance. But fewer than one in four have achieved “most” or “all” of their cost transformation goals especially in non-traditional, high-opportunity cost reduction areas like lowering unwarranted clinical variation.

These findings were revealed in a new survey from Kaufman Hall. It is a third annual in-depth look at the priorities set by healthcare executives, and progress they're making towards improving organizational performance.

The results of the study indicate that hospitals need to embrace opportunities for more meaningful gains, such as sourcing more valuable data insights, demanding more accountability for performance improvement goals among leadership and delivering better information to support physician engagement.

Revenue and expense challenges are faced by hospitals underscoring the need for cost transformation. According to the survey, the chief revenue challenges are flat or declining inpatients volumes- 30% of respondents listed it as their top concern. This is followed by downward pressure on commercial insurance rates (27%) and an increasing percentage of Medicare and Medicaid patients (19%).

Almost one-half of respondents agreed that rising salary and wage inflation, the result of a tight labor market, makes it more difficult to hold the line on expenses. Labor costs account for up to 60% of hospital’s expenses. This is a direct threat to cost transformation efforts.

23% of respondents said that demands for capital to fund strategic initiatives are putting pressure on their bottom line.

Since patients are becoming more responsible for copays and reimbursement lot of organizations are not comfortable asking for payments upfront and this is a major challenge.

As the need for cost transformation continues to grow, so does the focus on technology that will enable it. Nearly three out of four respondents plan to invest in cost transformation technology within the next two years. But when asked if their organizations have access to reliable, trusted costing data many answered "no", "yes" equally-- 47% each, with the remaining 6% saying they didn't know.

Kaufman Hall Managing Director Lance Robinson said that as disruptors enter the market, having the right technology in place is important. Investing in data and analytics is key. Companies like Walmart are opening clinics and it is believed that they are going to provide care at 50% less cost and be more consumer-focused.

One other major area of opportunity is reducing unwarranted clinical variation. It was recognized as a high-potential opportunity and also identified as one of the areas where respondents faced the most difficulty in achieving their cost transformation goals.

Robinson said that getting physicians engaged is the key, and establishing that accountability structure. Many organizations talk about it but most haven’t done a great job at it.