Uncovering Hidden Costs in Practice Operations: A Strategic Approach to Financial Efficiency

Gain practical strategies to uncover and eliminate hidden costs in healthcare operations, helping your organization improve financial efficiency and long-term sustainability.

 

In healthcare organizations, leaders do more than manage budgets. They act as detectives, uncovering hidden costs that quietly eat away at profitability. These inefficiencies aren’t just small leaks; left unchecked, they can drain revenue and weaken the organization’s financial foundation.

The key to long-term success isn’t just cutting expenses. It’s about identifying waste and reducing costs in a way that keeps patient care strong and operations running smoothly.

In this article, the BHS team is uncovering the most common hidden costs in healthcare organizations and sharing actionable solutions to eliminate waste, optimize resources, and strengthen financial health.

The Hidden Costs Draining Revenue

Healthcare finance is complicated, and hidden inefficiencies can quietly drain profitability. Identifying and addressing these costs is crucial, not just to protect the bottom line, but also to ensure financial stability without sacrificing patient care. The most successful organizations don’t just react to these inefficiencies. They anticipate them and take action before they become major problems.

1. Billing Errors and Revenue Cycle Inefficiencies

Small mistakes in billing and documentation can lead to claim denials, delayed reimbursements, and lost revenue. The numbers tell the story—60% of denied claims are never resubmitted, according to the Journal of AHIMA. That’s money left on the table. Whether it’s incorrect coding, missed deadlines, or inefficient follow-ups, streamlining the revenue cycle can save thousands each year.

2. Outdated Technology and IT Overspending

Some organizations cling to legacy systems that are costly to maintain and slow to operate. Others overspend on technology without fully using its capabilities. Worse, cybersecurity gaps leave organizations vulnerable to data breaches, which now cost an average of $4.88 million, according to IBM’s Cost of a Data Breach Report 2024. Investing in the right IT solutions can cut unnecessary costs while strengthening security.

3. Staffing Challenges and Overtime Costs

Employee turnover, excessive overtime, and inefficient scheduling create avoidable financial strain. Physician burnout alone costs facilities an average of $500,000 per provider, factoring in recruitment, training, and lost productivity, according to the American Medical Association. Smarter workforce management and a focus on employee engagement can help reduce these costs while maintaining high-quality care.

Identifying these hidden expenses is the first step. The next is taking strategic action to eliminate waste, optimize resources, and improve financial health.

Proven Strategies to Reduce Hidden Costs

Hidden costs may be embedded in daily operations, but financial leaders have the tools to identify and eliminate them. By applying targeted strategies, organizations can reduce waste, optimize resources, and improve financial performance without sacrificing patient care.

1. Optimize Revenue Cycle Performance

A well-managed revenue cycle is the backbone of financial stability. Even minor inefficiencies in coding, billing, or reimbursement can add up to significant losses over time. The solution isn’t just about fixing errors—it’s about building a system that prevents them from happening in the first place. Some key preventative measures are: 

• Conduct quarterly audits to identify revenue leaks: Regular internal audits help pinpoint recurring coding mistakes, billing inefficiencies, and claims denials. Consider leveraging predictive analytics to flag patterns that contribute to revenue loss before they become costly.
• Invest in automation to reduce errors and speed up cash flow: AI-driven billing tools can detect coding inaccuracies, auto-correct claim errors, and expedite reimbursements. These technologies reduce the administrative burden on staff while increasing the percentage of clean claims submitted.
• Train staff on documentation and claim submission best practices: A single billing error can lead to denied claims, delays, and unnecessary rework. Continuous education on compliance updates, payer requirements, and documentation standards ensures that billing staff stay ahead of potential issues.

By streamlining the revenue cycle, organizations not only recover lost revenue but also free up resources that can be reinvested into patient care and operational improvements.

2. Improve Technology and IT Cost Management

Technology should be a financial asset, not a liability. Yet some healthcare organizations overspend on IT infrastructure while underutilizing the tools they already have. Smart IT investments can significantly reduce long-term costs and enhance operational efficiency. Leading healthcare organizations prioritize investments such as: 

• Perform a comprehensive technology audit: Identify redundant, outdated, or underused software that drains resources. Consolidate platforms where possible to eliminate inefficiencies and reduce licensing fees.
• Transition to cloud-based solutions: Cloud technology minimizes the need for expensive on-site servers, lowers maintenance costs, and improves scalability. It also ensures better data accessibility, reducing downtime and improving productivity.
• Strengthen cybersecurity to prevent financial losses: A single data breach can cost millions, not just in fines and legal fees but in lost patient trust and recovery efforts. Investing in proactive security measures—such as multi-factor authentication, endpoint protection, and regular penetration testing—can prevent these costly incidents.

Technology should serve as a strategic advantage. When managed effectively, IT investments drive efficiency, security, and cost savings across the organization.

3. Streamline Staffing and Productivity

Labor costs account for a significant portion of healthcare expenses. Without proper workforce management, unnecessary overtime, high turnover, and inefficient scheduling can quickly erode financial margins. A data-driven approach ensures that staffing costs remain aligned with operational needs. Successful organizations protect their financial margin by taking these effective measures:

• Leverage data analytics for smarter scheduling: Advanced workforce management software can analyze patient demand trends to optimize shift coverage. This prevents overstaffing during slow periods and reduces overtime expenses during peak hours.
• Cross-train employees to enhance operational flexibility: When staff members are trained across multiple roles, it reduces dependence on temporary hires and minimizes disruptions caused by employee absences. This not only cuts costs but also improves team resilience.
• Implement employee retention strategies to lower turnover costs: High turnover rates lead to increased recruitment, training, and lost productivity expenses. Competitive compensation packages, professional development opportunities, and a focus on employee well-being can improve retention and reduce long-term costs.

Hidden costs may not be obvious at first glance, but their impact on financial performance is undeniable. By proactively optimizing revenue cycle management, leveraging technology effectively, and refining workforce strategies, healthcare organizations can turn inefficiencies into opportunities for growth.

For financial leaders, the challenge isn’t just about cost-cutting. It’s about making strategic decisions that drive long-term stability and success.

Making Cost Reduction a Continuous Process

Finding hidden costs isn’t a one-and-done task. It takes continuous monitoring and smart adjustments. Finance professionals should conduct annual cost audits, track key performance indicators (KPIs), and use benchmarking data to see how their organization stacks up against industry standards.

But numbers alone won’t solve the problem. A culture of cost-conscious decision-making helps ensure every department is working toward financial efficiency. When staff are encouraged to spot inefficiencies and suggest improvements, cost management becomes a proactive effort rather than a reactive fix.

Cleveland Clinic and Kaiser Permanente adopted the principles of the Hoshin Policy Deployment (HPD) to streamline their operations according to Forbes’ Driving Operational Excellence in Healthcare. 

Hoshin Policy Deployment (HPD), also known as Hoshin Kanri, is a strategic planning method that aligns every level of an organization toward shared goals. It creates a culture of continuous improvement, ensuring that cost-conscious decision-making isn’t just a one-time effort but an ongoing part of daily operations.

Applying Hoshin Policy Deployment (HPD) to Cost-Conscious Decision-Making

HPD can help healthcare finance leaders create a structured, long-term approach to cost reduction is Hoshin Policy Deployment (HPD). HPD ensures that financial efficiency goals don’t just remain high-level ideas but are translated into daily operations, allowing every department to contribute to cost-conscious decision-making.

1. Align Financial Goals Across All Levels
   In many healthcare organizations, financial goals tend to stay locked within executive teams, disconnected from daily operations. HPD changes that by making financial priorities—like cutting IT overspending, optimizing labor costs, and improving revenue cycle efficiency—part of everyone’s workflow. By involving department leaders, administrative staff, and clinicians, cost-saving strategies become a lasting part of the organization’s operations instead of short-lived initiatives that lose momentum over time.

• Actionable Step: Establish clear cost-reduction objectives that are not just measured at the top but broken down into department-level targets. For example, instead of setting a vague goal of “reducing operational waste,” leaders can set a department-specific objective, such as reducing supply overstocking in surgical units by 15% within six months.

2. Create a Structured Process for Identifying Hidden Costs
   HPD uses the Plan-Do-Check-Act (PDCA) cycle to keep cost-reduction efforts dynamic and effective. Instead of waiting for annual reports to reveal inefficiencies, finance leaders can catch issues like revenue cycle delays, overtime overruns, or IT redundancies as they happen. This real-time approach ensures problems are addressed early—before they spiral into bigger financial setbacks.

• Actionable Step: Schedule monthly cost-performance reviews rather than waiting for annual audits. This allows for quick corrections, such as adjusting staffing ratios during peak hours or identifying recurring denied claims that need immediate resolution.

3. Engage Employees in Cost-Saving Initiatives
   HPD encourages a bottom-up approach, ensuring that cost-awareness isn’t just driven by finance teams but also by department heads, administrators, and frontline staff. Employees who regularly interact with financial processes—billing specialists, IT managers, purchasing teams—are often the first to spot inefficiencies. By actively involving them in cost-reduction initiatives, healthcare organizations unlock valuable insights and practical solutions.

• Actionable Step: Establish a “Cost Efficiency Task Force” where finance teams collaborate with department leaders to identify unnecessary expenses and propose solutions. For instance, if nursing staff frequently order excess supplies, the task force can implement real-time inventory tracking tools to reduce waste.

4. Use Data-Driven Decision-Making for Financial Efficiency
   HPD is built on fact-based decision-making, ensuring cost-reduction efforts are driven by real-time data rather than assumptions. Finance leaders can strengthen this approach by using predictive analytics and automated cost-tracking tools to monitor spending trends, catch inefficiencies early, and compare performance against industry benchmarks. With the right data in hand, organizations can make smarter financial decisions that drive long-term savings.

• Actionable Step: Implement real-time financial dashboards that integrate with EHR and ERP systems, allowing finance teams to track billing trends, supply chain inefficiencies, and labor costs instantly. Instead of reviewing financial data retrospectively, healthcare leaders can make proactive cost adjustments before issues escalate.

By applying Hoshin Policy Deployment (HPD) principles, healthcare finance leaders can shift cost-conscious decision-making from a reactive approach to a structured, continuous effort. Rather than relying on short-term cost-cutting, HPD embeds financial efficiency into daily operations. This ensures organizations consistently reduce waste, make the most of their resources, and build a foundation for long-term financial stability.

Final Thoughts

Reducing hidden costs isn’t about cutting corners—it’s about creating a financially efficient organization that can thrive in any economic environment. By improving revenue cycle management, making smarter technology investments, and streamlining day-to-day operations, healthcare finance leaders can uncover meaningful savings without compromising patient care.

At BHS Connect, we’ve learned a great deal about financial efficiency and operational best practices through our work with leading healthcare organizations. While our focus is on Release of Information services, we understand how every part of a healthcare organization’s operations impacts financial health.

If you or your team would like to learn more about how BHS Connect helps healthcare organizations manage Release of Information securely and efficiently, we would love to connect.