This article was originally published in Health IT Answers.
When we think of driving cost savings while empowering clinical care, the non-clinical supply chain isn’t always the first category that comes to mind for many healthcare leaders. But it should be.
Gather top, innovative healthcare organizations and supply chain leaders in the same place for two days and one thing becomes clear. Age-old procurement strategies are no longer working for the growing demands and pressures faced by health systems every day.
Clinical expense reduction, tighter budgets, and staffing cuts have historically stood as healthcare’s go-to approaches for meeting financial and operational challenges. After decades of grappling with these challenges, it’s clear healthcare and procurement experts are ready for a change.
Recently, I had the opportunity to speak at the IDN Summit in sunny Phoenix, Arizona. Over the course of the conference, it became clear that healthcare’s procurement problems permeate from an already stressed system. Despite thin budgets, healthcare providers must deliver high-quality care while resolving mounting overhead costs.
Through a series of focus groups with supply chain and provider executives during my session, “Breaking the Savings Barrier,” it was evident that healthcare leaders are facing the same challenges—from decreased reimbursements to budget cuts to labor shortages. Many do not have the right resources to critically assess and manage highly impactful, specialized spending categories overlooked in most Group Purchasing Order (GPO) contracts. Even with their strongest cost-saving efforts in place, the financial burden hits health systems from all angles.
Executives across the industry echo the same message of frustration with continued financial challenges despite the use of a GPO. The reality is, GPO contracts only cover 12-25% of total non-clinical expenses, leaving the other 75-88% of these routine costs unaccounted and overpaid for by thousands of health systems. It’s an industry-wide struggle that calls for innovative interventions. Healthcare teams must shift spending to concentrated, targeted categories that drive real cost savings in the right areas. Generalists and GPOs lack the history and deep experience needed to keep up.
One critical yet often bypassed avenue with the power to deliver insightful savings lies outside the healthcare world. Benchmarking across industries reveals a window into what non-healthcare organizations pay for the same or similar goods and services as health systems. Healthcare needs data from other industries to understand realistic, true opportunities they can count on when it comes to non-clinical expenses. And the possible savings may surprise you.
Consider the costs for landscaping, cleaning services, utilities, and office supplies. These expenses are common for any business, yet equipped with cross-industry data, leaders can approach non-clinical spend in healthcare with greater confidence and education.
Even though GPOs broadly address clinical spend with confidence, they continue to underdeliver and miss the mark in non-clinical categories. An intelligent procurement approach doesn’t have to stop there. Tapping into existing resources with highly specialized experts helps healthcare leaders overcome overspending.
10 years ago, non-clinical procurement was just beginning to gain attention as a key area for cost optimization. Flash forward to today, and it’s clear that despite growing emphasis on its importance, most health systems have not prioritized development of a comprehensive plan for managing non-clinical spend effectively. Unlike other industries which have taken significant steps to reduce indirect procurement costs, healthcare continues to lag.
But this year at the IDN Summit, the energy and collective mentality began to shift. Healthcare supply chain leaders are starting to realize the benefits of effective non-clinical spend management, yet they are unsure how best to approach it. Fortunately, lessons learned from other industries translate loud and clear to the procurement struggles faced in healthcare. We can look to outside industries as guides to non-clinical spend, pointing us toward best practices used by highly successful businesses, models on the path to optimization.
In my experience as a non-clinical procurement expert, I help healthcare supply chain teams sift through thousands of expenditures and target cost-savings in heavy-hitting, yet often unaccounted areas. Equipped with cross-industry knowledge, we’re able to benchmark costs at more efficient levels. Understanding non-clinical spend opens health systems to greater financial savings, freeing them to invest critical dollars in innovative, more impactful areas.
A hurdle for many supply chain professionals lies in lack of relationships. Often, procurement staff don’t have a seat at the table within separate business units of an organization, such as HR, IT, and facilities. Yet, it’s important to understand the why behind this.
Without a breadth of domain-specific experience, many procurement professionals find it difficult to connect and gain trust from departments across the healthcare ecosystem. However, demonstrating a strong understanding of each stakeholder’s space and asking the right questions allows supply chain teams to build trust and confidence within each unit of their organization. With trust comes greater collaboration, mutually supporting the goals of each department while driving total savings. When procurement staff work across business units to identify and prioritize needs, the process becomes more impactful and cohesive for everyone involved.
After years of shrinking budgets, diminished reimbursements, limited cash on hand, and labor challenges, the leaders at the IDN Summit agree they have finally had enough. As drivers of the future of healthcare, we can no longer hide behind inefficient supply chain strategies that are not working. Supply chain teams feel the weight of these decisions as leaders question existing approaches and seek better options for their facilities and bottom line.
With continued turmoil in the face of these realities, there is hope for a financially viable tomorrow for healthcare organizations of all types. Deeper insights allow organizations to critically and transparently evaluate their non-clinical spending and provide a roadmap to investing the right resources in the right areas.
It was clear during the IDN Summit that the industry is fed up with solutions that don’t yield needed results. As healthcare continues to evolve, the problems of today will not fade without strategic, concerted efforts to rise to persistent challenges faced by nearly all healthcare organizations, including world-class facilities.
As health systems and supply chain professionals reckon with stagnant approaches, the promise of adaptability, expertise, and innovation opens the way to better healthcare supply chain strategies. This year’s IDN Summit was full of enthusiasm as some of the brightest minds in healthcare and procurement work together to forge a stronger path ahead.
About the Author
James Bouchard
Associate Partner
James is a seasoned supply chain executive with 17 years of expertise in strategic sourcing and procurement across healthcare, retail, financial services, and manufacturing. He has successfully built strategic sourcing departments, developed procurement tools for leading healthcare institutions, and partnered with numerous Fortune 500 companies to enhance sourcing programs. Currently, he leads LogicSource’s Center of Excellence, managing indirect spend portfolios for major organizations while focusing on cost reduction and process improvement initiatives.
