This article was originally published in Chief Healthcare Executive.
The recent Costs of Caring Report published by the American Hospital Association is an urgent wake-up call for health system CEOs and CFOs.
The report, America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities, paints a dire picture of the financial health of our nation’s healthcare system.
Consider the following six points cited in the report:
These metrics underscore the pressing need for immediate and decisive action. Pursuing the same performance improvement efforts isn’t sufficient to change the tide. Cost-cutting initiatives in 2024 must be bold to be effective.
Never before have new ideas to improve health systems’ financial position been so necessary and welcomed by executive teams. This article presents an urgent strategy to improve health systems’ financial health: introduce discipline to back-of-the-house, non-clinical spending.
Non-clinical expenditures typically consume 20% or more of a health system’s revenue. Examples include grounds maintenance, window cleaning, parking lot management, food, beverage, trash services, and even health IT.
Yet, health systems often fail to apply the same discipline in sourcing and contracting these types of services as their counterparts in other business sectors such as consumer goods, hospitality, and education.
For example, a health system may pay substantially more for ground maintenance than a neighboring shopping center or community college campus. Furthermore, decentralized contracts for these services result in disorganized, deregulated, and ill-informed spending.
Indirect procurement encompasses a broad spectrum of areas, including employee benefits, IT services, facilities management, and professional services. These represent a significant portion of healthcare spending yet often remain unseen and under-optimized.
Here are five steps healthcare systems can take to improve their non-clinical procurement processes to unlock new cost savings in the supply chain.
Self-assessment tools are now available to help health systems gauge their processes, workflows, and performance in managing indirect spending.
These tools identify areas for improvement across various procurement steps, departments, and care delivery locations. By understanding where organization-wide procurement processes currently stand and measuring their current maturity level, health systems can close gaps in procurement practices and begin finding valuable efficiency and cost-saving opportunities.
Data analytics are crucial for gaining insights into spending patterns and cost-saving opportunities. Real-time visibility into non-clinical procurement activities is essential to improve resource allocation, leading to increased operational efficiency and agility. Enhanced data analytics also support better decision-making and more effective negotiation with suppliers.
Many non-clinical suppliers, such as those mentioned above, have transactional relationships built at the departmental level. Shifting from department-by-department relationships to strategic relationships with enterprise-wide key suppliers leads to better pricing, improved service levels, and more reliable supply chains. Best-practice relationships include regular communication and collaborative planning with suppliers with innovation and quality improvements continually introduced.
Consistent processes reduce complexity and errors. Implementing standardized workflows across the organization ensures compliance with procurement policies and achieves cost savings. Automation coupled with consistency reduces manual workload and minimizes the risk of human error in such steps as requisitions, approvals, and order management.
Healthcare is a specialized industry that requires nuanced knowledge and a commitment to continuous improvement. Health systems should invest in training and development programs for their procurement staff to ensure they are experienced with the latest tools, techniques, and best practices. Access to benchmarking data and insights from other industries is also extremely valuable to innovate non-clinical procurement processes.
While clinical excellence remains paramount, a new focus on non-clinical expenditures has emerged as a powerful, often overlooked, lever for improving financial health.
However, there remains a lack of discipline in the procurement of these goods and services.
Traditional purchasing processes for non-clinical items no longer suffice. This is especially true during a year when margins are thin, and services are restricted.
Now is the time to use self-assessment tools, best practices, automation technology, and benchmarks from other industries to improve the procurement process for back of the house spending. It’s a worthwhile journey—one step at a time.
About the Author
Mark Van Sumeren
Strategic Advisor, Healthcare
Mark Van Sumeren is the strategic advisor of the healthcare practice at LogicSource. He is a supply chain expert with 35 years of experience in business strategy and healthcare consulting. Mark has spent his career supporting health systems across the industry including large, academic medical centers, integrated delivery networks and for-profit health companies.
