Many costs for healthcare organizations are highly
scrutinized and well-researched. New best practices can
also cut non-clinical costs.
This article was first published by Health Data Management.
The purchasing of non-clinical products and services – a large portion of healthcare spending – often isn’t effectively managed by hospitals and health systems. When non-clinical services such as laundry, landscaping and even IT services are purchased, the process usually lacks effective controls and processes.
The result is often a missed opportunity to reduce healthcare costs and improve patient experience.
It’s not easy, because there typically are multiple challenges with the sourcing, contracting and procurement of non-clinical products and services. It’s time to take a fresh look at some new best practices for supply chain and finance executives to consider.
Over the years, most health systems have made considerable progress in sourcing and procurement capabilities for clinical categories, such as physician-preference items. They’ve built influence and competency in this domain, and devoted significant resources with the right expertise to manage these categories. Group Purchasing Organization (GPO) partners have also demonstrated the ability to provide substantial savings in clinical spending.
However, non-clinical purchases represent a unique challenge. According to the American Hospital Association, non-clinical spending consumes 20 percent or more of net revenue. These purchases play an integral role in the day-to-day operations of a healthcare system.
Overlooked yet necessary categories are often ripe with opportunities for optimization, potentially freeing up funds to reinvest in patient care. Lack of deep category expertise, benchmarks and discipline for the sourcing, contracting, and procurement of non-clinical products and services costs healthcare provider organizations real money.
For example, according to research and analysis conducted by LogicSource, an average five- to eight-hospital health system could see 7 percent to 15 percent savings across their total non-clinical expense base through tighter management of non-clinical expenditures. The first step is to understand the existing non-clinical procurement process.
Adding rigor to non-clinical procurement processes begins with an assessment of purchasing decisions for categories including marketing, construction, facilities, human resources, IT and logistics.
In many cases, procurement for these non-clinical items is conducted within each department without the involvement of dedicated strategic sourcing experts, instead of using a centralized approach for the organization that relies on these experts.
Furthermore, clinical purchasing typically involves an intricate and specialized infrastructure for various products, services and treatments. By contrast, the approach to non-clinical procurement is often more generalized and lacks leading procurement practices, category expertise and relevant benchmarks, including from outside of healthcare. Non-healthcare organizations buy these same products and services, only more effectively than healthcare organizations.
A small team of generalists could never efficiently manage the varied range of complex categories. It’s like expecting a general practitioner to perform brain surgery and knee surgery on the same day — an unfeasible expectation in the clinical world and equally unacceptable in the non-clinical world.
Here are three important questions to begin assessing an organization’s non-clinical procurement processes.
After an organization defines the current procurement process, measurement against a non-clinical procurement maturity assessment model is the next practical step.
With the proper expertise, infrastructure and resources, health systems can elevate non-clinical procurement to the same standard as its clinical counterpart. Procurement maturity models are now available for non-clinical expenditures. When carefully selected and applied, these models improve procurement procedures and reduce overall costs of care.
One non-clinical procurement maturity model is organized as a five-stage matrix that categorizes non-clinical procurement capabilities into levels ranging from foundational learning to advanced world-class practices. That model emphasizes the importance of self-diagnosis and encourages organizations to adopt a growth mindset and actively pursue improvement. Using this model, health systems can set realistic goals, implement strategic planning, and engage in partnerships that elevate their non-clinical procurement operations.
For one large non-profit, multispecialty academic medical center, the decision to apply a procurement maturity model helped the organization segment its buying decisions. Using the model, the organization quickly identified effective purchasing decisions rather than abdicate decisions in areas where internal teams lacked specific expertise to contract with the most cost-effective and high-value vendor partners.
Benefits derived from using the procurement maturity model enlightened non-clinical purchasing, because it:
Armed with this intelligence, the organization is adjusting processes, procedures and supply chain staffing to make more informed, cost-effective decisions about non-clinical purchases.
The lack of process and control of non-clinical spending is more than a missed opportunity for cost savings. It is a pressing issue that warrants attention and action.
The American Hospital Association’s May 2024 report, America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities, reiterates the urgency for healthcare supply chain and finance executives to take control of non-clinical costs.
Maintaining the status quo in non-clinical purchasing won’t change the tide. Now is the time for new cost-saving measures, and non-clinical purchasing is a proven area to find these savings.
About the Author
Mark Van Sumeren
Strategic Advisor, Healthcare, LogicSource
Mark Van Sumeren is the strategic advisor of the healthcare practice at LogicSource. He previously served as chief strategist and business intelligence officer for Owens & Minor, Inc.
