Exploring Untapped Savings in Non-clinical Spending: Two New Strategies for Healthcare Leaders
Healthcare supply chain teams nationwide faced an unprecedented crisis during the COVID-19 pandemic. Teams raced to secure personal protective equipment (PPE). Surges in demand for equipment and transportation disruptions strained our fragile procurement infrastructure. And national lockdowns further delayed shipments, exacerbating these unmatched supply chain challenges.
Three years later the healthcare supply chain is taking a moment to look back and reflect. What did we learn? What silver linings were discovered? And what’s next for cost savings during continued financial pressure and unstable margins? A recent focus group was held with decision-makers from integrated delivery networks (IDNs) across the country to answer these questions.
The group of 20 healthcare leaders met during the IDN Summit and Reverse Expo in Orlando, Florida. This article summarizes their conversations and provides valuable insights to illuminate the road ahead for healthcare supply chain leaders.
Focus Group Lessons Learned and Silver Linings
The pandemic highlighted the importance of data and analytics in supply chain management in three specific areas.
- Real-time data is now commonplace to monitor inventory levels and anticipate future demand for clinical, medical/surgical supplies and equipment.
- The prevalence of data and technology standardization makes it easier to coordinate efforts between suppliers and healthcare providers.
- Ongoing collaboration between providers and suppliers, as well as investments in technology and infrastructure, will continue to improve procurement transparency and supply chain resilience.
These same silver linings from the pandemic also apply to non-clinical, purchased services in healthcare. This is where a few healthcare supply chain myths were debunked.
Non-clinical Expenditures Emerge as Untapped Cost Savings Opportunity
Most focus group attendees hadn’t historically focused on non-clinical procurement. However, this category of spend is ripe for cost-saving opportunities.
Non-clinical spending represents upwards of 20% of an IDN’s annual revenue. These include complex categories that health systems need to operate day in and day out, such as corporate services, facilities management, IT, marketing, couriers, employee benefit programs and more.
Health systems have traditionally relied on benchmarks within healthcare to establish pricing for these services. But this approach results in paying significantly more than retail, consumer goods, and financial services organizations pay for the exact same product or service. Instead, the use of real-time data and tapping on strategic sourcing experts was explored as a new opportunity to realize significant savings for IDNs.
1. Analyze Your Non-clinical Procurement Process
Focus group members concurred that many non-clinical goods and services are purchased by department heads instead of supply chain teams. However, department heads purchasing their own items makes it difficult to track and manage. Furthermore, department heads typically renegotiate contracts for similar services every two to three years, may not be familiar with complex procurement agreements, and could hesitate to demand lower pricing or better contract terms. And rightfully so.
Department heads work closely with the vendors they select. As such, they avoid being too pushy or receiving the label of “bad guy” during the negotiation process. Due to this mindset, department heads often leave money and benefits on the table.
The use of dedicated procurement agents armed with up-to-the-minute data benchmarks for non-clinical goods and services was presented as an effective way to recognize new savings potential.
2. Tap Into Strategic Sourcing Expertise
Other industries employ category experts to negotiate rates all day and every day across a wide variety of sectors. It is a niche but important job role for every business, including healthcare.
For example, the rates for waste management, IT services and facilities management are negotiated the same way for health systems as they are for hospitality and big-box retailers. By tapping into this type of category expertise for non-clinical spending, IDNs can achieve the same cost savings as other industry leaders.
Here are four other best practice suggestions discussed during the IDN focus group.
- Prioritize getting educated on the true opportunity available. Shake off the stigma that all data intelligence on savings outside of healthcare is irrelevant.
- Price benchmarks and market intelligence outside of healthcare are relevant for non-clinical spend. This data provides valuable insights into cost savings strategies to drive decisions and achieve more favorable contract pricing and terms.
- Consider investing in data analytics tools that can provide insights into cost savings opportunities and help identify areas of potential waste. This may require working with an outside partner and investing in the resources and bandwidth necessary to conduct frequent sourcing events and contract negotiations.
- Recognize that your organization may not have sufficient resources or bandwidth to negotiate non-clinical contracts more frequently. Outside resources can often serve as the “bad guys” during negotiations, thereby protecting the provider-vendor relationship.
It’s Time to Recoup Cash in Non-clinical Spending
Generating long-term value from reengineering your current non-clinical process requires investment and a strategic approach. Health systems must recognize that ownership of departmental procurement contracts creates challenges to centralized procurement decisions. But centralization is necessary to identify cost savings opportunities across the organization.
There may be challenges to overcome along the way. But unlocking the cost savings currently trapped in non-clinical spending recoups cash that can be used to protect operating margins, reinvest in care, and make care more affordable for the community you serve.
About LogicSource
The innovative leader in procurement services and technology, LogicSource is purpose-built to drive profit improvement, mitigate risk, and ensure supply chain continuity through better buying. LogicSource focuses exclusively on the sourcing and procurement of indirect goods and services, which typically represent 20% of an organization’s revenue and the area of greatest spending inefficiency. These include complex categories like marketing, packaging, corporate services, facilities, information technology, distribution and logistics and more, for which organizations often lack the capacity, focus and scale to achieve best-in-class buying. Unlike traditional advice-based consultants, LogicSource is a purpose-built buying utility with assets that are configurable to their clients’ needs and ready to deploy. By combining decades of sourcing and procurement expertise, superior market intelligence, cross-portfolio spending leverage, and their OneMarket® Source-to-Pay technology, LogicSource executes customized solutions that deliver immediate savings and sustainable value. For more information visit www.logicsource.com.