To Cut Expenses, Hospitals Should Look at Indirect Spend

Hospitals are looking to cut expenses in the midst of financial pressure from inflation, workforce costs and other challenges to already thin margins. LogicSource CEO and founder David Pennino and Healthcare Managing Partner Brian White, who work with health system executives, say they often see hospitals spending more on non-medical items than other businesses do.

“The spend difference is astronomical,” said White. The difference, 7-12% on indirect spend, could save millions of dollars a year for hospitals.”

Hear more in their conversation with Healthcare Finance News Executive Editor Susan Morse.

Talking points:

• Indirect spend is the stuff you buy to just be in business, and includes services such as marketing, technology, facility, corporate services and HR.
• The very same products bought by corporations often cost hospitals more.
• Health systems are overly reliant on group purchasing.
• Supply chain teams are often underfunded. During the height of the pandemic, executives were out in the hallway making phone calls to find masks and other supplies, because they didn’t have a team to do it.
• Hospitals need an ecosystem of suppliers willing to work with them.
• In corporate America, indirect spend represents about 20% of revenue, but for a $10B hospital system, it is 20-25% of revenue.