Everyone is searching for ways to take costs out of the health care system, but executives can't lose sight of the impact those efforts have on staff morale and the patient experience. Ignoring those important factors could discourage employees from buying into the changes and spur patients to shop for a new provider.

"You're probably not going to be in business for very long," says Robert Kelly, M.D., president and chief operating officer of New York-Presbyterian Hospital, which is in the middle of a massive cost-cutting initiative. "Those cuts are offering you a false sense of security because you may preserve your budget, but you'll lose your patients. And ultimately, you're not going to have people wanting to work in that organization. People need to feel pride; they need to feel like they're working in a place with a mission. And I don't think there are many people who want to work in a place whose mission is to save money, particularly in health care."

Leaders must approach budget cuts with a "degree of humanity," says Curt Bailey, partner and leader of consulting firm Booz & Co.'s hospital and health systems practice. They should do so in a way that avoids "command and control," leadership, and instead include staff in figuring out ways to trim expenses.

Booz & Co. estimates that hospitals must slice 10 to 15 percent of expenses to survive decreasing revenues in the reform era, even as they must continue to invest in improving information technology facilities and service lines. Providers should make those reductions now, in a thoughtful manner that gathers input from staff, rather than waiting until it's too late and they have to "slash and burn" in a hurry, Bailey says.

Moreover, empathy will become extremely important to the bottom line as reimbursements are tied to patient satisfaction. Experts say health care looks more and more like the restaurant industry, with patients hitting the Internet to share their experiences and make choices based on word of mouth.

"Patients are going to start to make decisions, even more than they have before, on the nature of the experience," Bailey says. "An experience is defined by, not necessarily the metrics we see in the industry now to measure satisfaction, it's defined by moments of truth. And this is something folks recognize broadly in our industry. Did somebody go the extra mile to solve a problem, even before the patient surfaced it?"

There's a big push toward patient empathy at the Cleveland Clinic, according to Robert Wyllie, M.D., chief medical operations officer. Leaders there have looked to decrease costs while improving the patient experience by reducing lengths of stay, eliminating unnecessary lab tests (which saves $10,000 a month) and eliminating variability.

At New York-Presbyterian, which is in the second year of a three-year effort to cut $60 million in expenses annually, Kelly emphasizes the benefits of "over communicating" with staff. Leaders there have convened patient advisory councils and repeatedly tapped staff as a "fountain of ideas," then polled both groups afterward to gauge their satisfaction.

"It's a Pyrrhic victory if you pull costs out and your patients are unhappy and your staff are unhappy. That's not a sustainable thing," Kelly says.