Healthcare Providers Say High Costs and Low Revenues Plague Industry, According to Mellon Survey RIDGEFIELD PARK, N.J., Nov. 29 /PRNewswire/ -- A new survey released today by Mellon's Human Resources & Investor Solutions (HR&IS) business reveals that controlling costs and growing revenues are key strategic problems for the healthcare industry. The good news: healthcare systems are making substantial progress with technology and patient care challenges. These are among the major findings of Mellon's "2004 Total Compensation in Integrated Healthcare Systems Survey." The annual study, completed in the third quarter, surveyed 60 healthcare institutions across the U.S., 70% of which are multi-hospital systems. Strategic Challenges. Controlling costs remains the number one operational problem. Sixty percent of respondents cite it as a strategic challenge. There is also a clear consensus that the problem has remained serious or become worse. In fact, only 11% of respondents feel the situation has improved over the past three years. "Cost containment is healthcare's 'rock of Sisyphus,'" commented Thomas P. Flannery, Ph.D., HR&IS' healthcare compensation leader. "The industry expends tremendous effort to solve the problem. But each year, whether we are in recession or recovery, the task is daunting. Cutting costs is at odds with the healthcare industry's mission of providing the best possible care. Cost reduction often loses out to today's expensive treatment options." Cost and revenue issues are seen as problems where little improvement is being made. Twenty-eight percent of respondents cite decreasing revenue as a strategic challenge. By a margin of nearly four to one, they believe the problem has remained as serious or become worse, rather than improved, over the past three years. Twenty-seven percent feel the cost of drugs and services is a challenge; by a two-to-one margin, more people believe this problem has stayed as serious or worsened than feel it has improved. The healthcare industry is improving in certain areas, such as patient care and the application of technology. Nearly 40% of the respondents say that service to patients has improved and not a single survey participant feels it is worse now than it was three years ago. Similarly, a range of technology issues -- updating information, medical and internet technology, as well as securing patient information -- is seen as improving. Again, not a single survey participant believes any of these issues has become worse over the last three years. Initiatives to Address Problems. In an apparent paradox, the survey shows that major investments to improve operations have tapered off, despite the continuing cost and revenue problems. The percentage of institutions using business process reengineering (BPR) to contain costs fell from 77% in 2003 to 53% this year. Similar declines were reported in using integrated computer systems and outsourcing to contain expenses. The percentage of healthcare organizations improving their coding, billing and collection processes fell from 64% last year to 45% this year. According to Flannery, this is not the paradox it seems to be. "Many healthcare institutions spent all the resources they could on big ticket items such as BPR and systems integration," he noted. "These organizations are now weighing the high cost of these initiatives against the potential gains. What's more, past experiences are making many of them skeptical success can be achieved." Business Conditions. The survey participants' view of business conditions for the healthcare industry is pessimistic. Only twenty-four percent report they exceeded their business goals in 2004, compared to 50% a year ago. Twenty-two percent say they failed to achieve their goals, up from 18% in 2003. Just 13% regard their current financial results as better than usual, down from 36% last year. Forty percent say that results are softer than usual, compared to last year's corresponding result of 14%. "These results highlight the importance of a continued focus on solving the healthcare industry's cost and revenue challenges," Flannery noted. "Many in this industry are frustrated with these continuing problems and tempted to scale back their attempted solutions, but doing so will likely result in even more disappointing business results." Human Resources & Investor Solutions is the worldwide human resources and shareholder services business of Mellon Financial Corporation, a global financial services company. Headquartered in Pittsburgh, Mellon is one of the world's leading providers of financial services for institutions, corporations and high net worth individuals, providing institutional asset management, mutual funds, private wealth management, asset servicing, human resources and investor solutions, and treasury services. Mellon has more than $3.7 trillion in assets under management, administration or custody, including $670 billion under management. Its asset management companies include The Dreyfus Corporation and U.K.-based Newton Investment Management Limited. News and other information about Mellon is available at http://www.mellon.com/ . An executive summary of Mellon's "2004 Total Compensation in Integrated Healthcare Systems Survey" is available to the media by contacting Ed Gadowski at (201) 373-7336. It is available to other interested parties from Shawn Garcia at (203) 352-1630. DATASOURCE: Mellon Financial Corporation CONTACT: Ed Gadowski, Corporate Affairs of Mellon Financial Corporation, +1-201-373-7336, Web site: http://www.mellon.com/

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