Up to 30% of health systems' costs are tied up in departments that
have little to nothing to do with patient care. And that’s where
savings can be found.
This article was originally published in HealthLeaders.
Hospitals and health systems are fighting battle after battle as more factors come into play to disrupt finances. Inflation, high labor costs and regulatory concerns are weighing on CFOs to make the right financial decisions at the right time.
Recent studies show that a hospital’s nonclinical spending can climb as high as 30% of overall spending.
So how can CFOs think outside the box to reduce this cost?
John Dockins, executive director of sourcing and vendor management at Cleveland Clinic, shared how his organization tackles nonclinical expenses with a strong team. Cleveland Clinic (CCF) operates an indirect sourcing team to examine everything from IT to laundry, as well as utilities committees to decide on products and services and a vendor management office.
Matt Gattuso, managing partner at LogicSource, a procurement services and technology provider focused exclusively on indirect, or not-for-resale, expenditures, also gave some insight into what he is seeing throughout the industry in terms of spending, and offered some advice on what options health systems should examine to reduce costs where they can.
When looking at the big picture, he said, each business is simply trying to make use of the same products for the least cost. But healthcare isn’t doing a good job.
“It’s the same Microsoft product just being used in a different environment,” Gattuso said. “It shouldn’t be a significantly different cost in the healthcare environment, but we’re seeing that there are significant differences in those exact same type of products when they’re used in different environments.”
Dockins spoke about the importance of examining large spend first.
“If a health system is just starting the indirect journey, I would start in a category where there is large spend, multiple vendors, organizational expertise and buy-in,” he said. That could be waste management, uniforms, janitorial services, or a section within IT like telecom or PCs
Dockins continued: “This requires balancing the push to not treat indirect spend any differently than clinical supplies, while at the same time understanding the difference of maturity between the two.”
With added inflationary pressures, how far can the CFO zoom in on their budget? Gattuso’s advice is to “control the controllable,” and look at the expenses that often fly under the radar, like landscaping and signage.
Dockins also encouraged CFOs to dig deeper into operations to control expenses.
“Look inside the four walls of the organization and determine if you are leveraging the data and talent correctly,” he said.
The potential savings in nonclinical spend could help CFOs unlock a variety of wins, like funding for high-value clinical innovation, supporting talent retention, preventing burnout, and driving better patient care and outcomes.
“Draw on the experiences gained in clinical services and apply them to indirect spend,” said Dockins.
About the Interviewee
Matt Gattuso
Managing Partner, Healthcare and Life Sciences
Matt Gattuso is Managing Partner of Healthcare and Life Sciences at LogicSource, responsible for bringing innovative non-clinical procurement solutions to health systems. With nearly three decades of distinguished leadership experience, Matt provides a wealth of operational expertise and a proven track record of results-oriented success. Prior to LogicSource, Gattuso held significant leadership roles at Owens & Minor, PDI, Infection Prevention, and Covidien, a Medtronic organization.
