When it comes to non-labor spend, consider calling a friend

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When it comes to non-labor spend, consider calling a friend

April 06, 2021
Business Affairs
From the April 2021 issue of HealthCare Business News magazine

By Eric Slimp

Financial health is a top priority for every healthcare organization, even in the best of times.
But hospital operating margins have plummeted due to COVID-19-related revenue losses and sky-high expenses. According to Kaufman Hall, hospital operating margins for the first 11 months of 2020 were 56% lower, compared to the same period in 2019. Compounding the problem, staff reductions have left fewer contracting and supply chain staff available, and they must scramble to meet demands for supplies and outsourced services while working remotely.

To survive this financial crisis, healthcare organizations need to control their non-labor costs. Supply-chain spending accounts for one third of the typical hospital’s overall operating expenses. An analysis by Navigant revealed that the average hospital spends $12.1M more than it needs to on med/surg and pharmaceutical supplies, medical and implantable devices, and maintenance supplies.

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One approach that has yielded meaningful results is to ensure that your health system is focusing on the right categories that will yield significant savings rather than merely reacting. This requires visibility and digestible data related to your current spend, as well as data-driven approaches to create a roadmap of categories that lets you strike when the time is right. To achieve savings goals and displace lost revenues, hospital supply chains must transition from only tactical activities, such as negotiating contract renewal quotes, into proactively attacking categories and sourcing strategically.

One way understaffed hospital personnel can address this urgent problem is by enlisting the services of an outside organization to act as a consultant and unbiased advisor to the provider as they negotiate with their suppliers. That’s what happened in the case of a large children’s hospital in the Southeastern U.S. that was spending vast sums on a lifesaving therapy for newborns and children with cardiorespiratory problems.

Pediatric healthcare is a dynamic industry that changes quickly and requires specialized — often expensive — equipment and supplies to diagnose and treat children with a large variety of needs. One such item in this client’s budget was iNO therapy, which is used extensively in children’s hospitals for the management of neonates and children with cardiorespiratory failure. This important therapy was expensive because of an orphan drug designation that impeded competition.

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