How to Stop Revenue Leakage In Healthcare

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Identify and Evaluate Opportunities

Your organization can prevent revenue leakage by implementing a few best practices that ensure accuracy and efficiency and promote optimization. Addressing points of leakage will enable your organization to increase revenue while maintaining quality patient-provider relationships.

Consider your organization’s practices and determine what processes could be optimized to promote more efficiency. A few areas to evaluate include:

  • Patient scheduling and registration: How do patients schedule appointments? Do they need to fill out paperwork or an electronic form when registering? Where do data entry inaccuracies occur?
  • Recording of medical supplies, procedures and equipment used: Who records information during a patient’s visit? How are procedures documented? Are responsibilities established among staff members?
  • Insurance verification: When does verification take place? Who handles insurance? Where do errors happen in the process?
  • Claims management: Who is responsible for follow-up when claims are denied? Who is responsible for issuing claim submissions? What is the current timeline for claim processes?

Some solutions may be as simple as cleaning up common clerical errors, while others may be more complex, such as implementing digital transformation and integration. Reviewing your processes will reveal opportunities for improvement, expose inaccuracy or inefficiency and enable your team to resolve problems and create a smoother revenue cycle.

Ensure Accuracy

Revenue leakage often occurs from issues at the beginning of the revenue cycle when patients first register or schedule an appointment. Ensuring accuracy in the information collection process will drastically improve how practices capture revenue, enabling them to create claims with correct patient information.

One way to ensure accuracy is to utilize electronic capabilities. Requiring patients to register or schedule appointments online will decrease data entry errors from paperwork. Electronic referrals will help your practice keep track of potential patients and encourage them to schedule.

Verify Insurance

Checking insurance eligibility and approval is another way to prevent revenue leakage by ensuring your services will be covered. Maintaining accurate insurance information will enable your practice to submit claims with precise data.

Establish correct insurance information by reviewing it with patients at the beginning of their appointment. Update any changes to insurance carriers, coverage or contact information. Adjusting any changes will be easier to complete before the visit rather than tracking down patients after they leave.

Set Financial Responsibility Expectations

Keeping patients informed of their responsibilities will improve your revenue cycle and increase patient satisfaction. Providing estimated costs to patients before their appointment will keep patients informed and prepared to complete their payments.

Collect copays and coinsurance during check-in or after an appointment to ensure accurate and timely payments and decreased revenue leakage.

Organize Claim Management

Commitment to timely claim submission and appeals will enable your practice to improve your revenue cycle. Accurate patient data will decrease the number of claims denials you receive, and a dedicated management team will be able to appeal denied claims quickly and efficiently. Taking the time to evaluate, revise and resubmit denied claims will greatly decrease revenue leakage.

Simplify Payment Processes

Creating an easy payment process for your patients will improve revenue and boost patient satisfaction. Make bill pay convenient by offering an online payment option or a payment plan to give patients the flexibility to meet their bills.

Prevent Revenue Leakage With Help From Pathstone Partners

Revenue management and leakage prevention can be complex, but you can find understanding and empowerment when you work with Pathstone Partners. Our consultants will help you tackle financial and operational processes to identify opportunities, implement solutions and sustain beneficial practices for the success of your healthcare practice.

Our variety of services will enable your organization to manage revenue cycles easily, provide quality patient care, exceed business goals and ensure success. Contact us today to learn how Pathstone Partners can drive value for your healthcare practice.

Insourcing vs. Outsourcing in the Hospital Supply Chain

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What is Make vs. Buy in Healthcare?

Make vs. buy in healthcare can be defined as the extent to which hospitals choose to use in-sourced or out-sourced resources.  Many clients often do not pursue this lever because each evaluation is unique; it requires robust data analysis, deep operational knowledge, change management and a longer timeline to successfully implement. However, the benefits that come with the make vs. buy lever can be enormous to any healthcare organization.

Key Opportunity Indicators:

Significant Change in Volumes

A significant change in volumes, regardless if products or services are outsourced or provided in-house, can be a good signal it is time to evaluate the make vs. buy value lever. As demand changes, hospitals need to determine if either a make or buy model is best suited to maintain costs and quality levels over the long-term. Often, an increase in volume can serve as a strong leverage point for negotiations with suppliers. Conversely, with a significant decrease in volumes, organizations need to evaluate if its service delivery model has a flexible cost structure that can match current demand or if it is heavily burdened by fixed costs.

  • Client Example: Pathstone recently worked with a large health system that was experiencing continuous growth in annual bed rental spend. Although renting beds provided benefits such as procurement flexibility and third-party maintenances services, our analysis showed the increase in volumes was large enough that an investment in purchasing hospital beds was more favorable to the organization. As a result of our recommendations, the health system was able to reduce rental costs by 20%.

Increasing Program Costs & Decreasing Quality

If annual costs related to a service are increasing while quality is decreasing, it may be worth evaluating make vs. buy opportunities. From a cost perspective, organizations need to understand the key drivers of increased costs. Is it price, volume or productivity? Furthermore, hospitals can partner with third parties (GPO, consultants, benchmarking service, etc.) to determine how costs compare to the market and begin to measure key performance indicators for their  health system. From a quality perspective, performance on key service level agreements (SLA) and end-user feedback can be gathered to understand key drivers of decreasing quality levels. Is it bandwidth, staff capabilities or limited resources?  By understanding the current state, hospitals can then effectively evaluate the benefits of transitioning to a make or buy model.

Fragmented Service Delivery Models

If your organization has a different mix of service delivery models, it may indicate opportunities to generate value. Fragmented service delivery models lead to differing levels of productivity, cost and quality, potentially impacting patient care and operations. By selecting a standard make or buy model for a given product or service, an organization is essentially applying another form of the third value lever we’ve covered, standardization.

  • Client Example: Pathstone has encountered several clients that have fragmented models for courier services which led to differing levels of staffing, service quality and cost, all of which can also make daily operations challenging to manage. In several of those situations, a decision was made to outsource courier services by working closely with key stakeholders across the health system, leading to more consistent service delivery and lower costs.
Key Success Factors

Develop Business Cases

Organizations that utilize a comprehensive business case to evaluate the pros and cons of an in-sourced or outsourced model will increase their chance of success. The business case is a fact-based tool that allows teams to have an open and objective dialogue when selecting the best strategy.  For complex categories, engaging third parties to develop business cases can provide market information and objective analysis necessary to make the best decision.

Evaluate Program on an Ongoing Basis

Since costs, quality and performance of programs can change over time, organizations that continuously evaluate make vs. buy opportunities position themselves to generate more value over the long-term. Continuous self-assessment can uncover opportunities resulting from minor improvements in supplier relationships to complete transformations for an organization’s service delivery model. For example, one important question for an organization to ask about an insourced operation is: “What else can we do with these resources?” The opportunity cost of those resources can help identify alternatives that drive more value for the organization. Furthermore, alignment of the service with the organization’s overall mission should be evaluated.

Access to Market Intelligence and Best Practices

Hospitals that have conducted extensive market research are well positioned to evaluate existing outsourced or internal programs.  Market intelligence on leading practice cost metrics and performance indicators can be an effective barometer to measure financial, quality and operational performance. Partnering with third party providers that can provide insight on market benchmarks can help an organization set the right targets to measure the competitiveness of existing programs.

What do firms look for when hiring a healthcare consultant?

Health Care Financial Consultant Jobs

Our Team Shares a Handful of Qualities

While there is no exact template for success in consulting, our team shares a handful of qualities that help make us successful in what we do. The following list contains a few qualities that can help new hires be successful in their new role:

Problem-Solving Skills

Helping clients solve complex problems and develop solutions requires strong intellectual abilities, as well as a practical sense of what works and what does not. If you have the experience, make sure you can talk about instances where you took initiative and the impact of your contribution to solve complex problems.

Teamwork

Consulting is a team-based career, so your ability to work well in teams is incredibly important. We are looking for someone who can work both independently, under their own guidance, as well as someone who engages well with the rest of the team.

Experience

Although new hires are not expected to have vast work experience, it is important to have shown an effort to be involved in applicable life experiences. This may include involvement in internships, extracurricular organizations, and volunteering. It is especially important to communicate the transferable skills gained from these experiences, such as data analysis, presentation skills, or teamwork.

Communication

Communication is essential to a consultant’s success and all consulting firms look for evidence of both written and verbal communication skills. Candidates must be clear and concise, both in client-facing scenarios and when communicating with your team. Your first opportunities to display this skill will be through your resume and initial interview discussions with the firm.

Business Acumen

Consultants work to solve a wide variety of complex business problems. It is critical to understand business fundamentals across different domains such as finance, operations management, and information technology, as we apply this knowledge to help businesses solve complex problems and ultimately achieve their goals.

Personality

Consultants spend a lot of time with their coworkers and clients. The ability to develop strong relationships with each of these groups is maybe the most important skill in this list. Almost all aspects of our job are social: collaborating effectively, appropriately, and professionally with peers, superiors, and clients.

How to Improve Hospital Efficiency

Health Care Financial Consultant Efficiency

Create Your Strategy

Efficiency often goes hand in hand with other goals, like profitability and patient safety. Consider the following strategies if you’re looking to improve hospital efficiency.

Improve Cross-Department Coordination

Many patients, especially those with comorbid or chronic conditions, work with multiple providers. Even within one hospital, patients rely on the coordination of various departments. A visit to the emergency room might involve services from internal medicine, radiology, the lab and the pharmacy. Ensuring these departments are on the same page and collaborating with each other can help reduce the risk of errors and facilitate more efficient information sharing.

Departmental coordination can also support a positive, collaborative workplace culture and minimize the risk of data silos, miscommunications or redundancy. Some ways you might improve coordination include implementing cohesive technology solutions and creating cultural shifts.

Provide Proper Staff Training

A well-trained staff can work more efficiently, with less need to find answers to questions, fix errors or learn new concepts on the fly. Invest in your team and provide appropriate training. Stay on top of industry trends, new technologies and policy changes as they occur in the organization.

Make Patient Safety Your Top Priority

Putting patient safety first is a worthwhile goal on its own, but it can also increase hospital efficiency. Consider the time and costs associated with errors and delays. If you can avoid a misdiagnosis, you might also avoid the additional work it takes to address complications, legal issues or reputational damage. The additional diagnostic and treatment costs of poor patient safety can greatly impact efficiency and slow down your operations, further reducing profitability.

Look for initiatives that help you be proactive about safety. For example, using decision support systems or cracking down on administrative fraud can help you avoid problems altogether and eliminate the additional resources required to address them.

Contact Pathstone Partners for Healthcare Consulting

It’s no revelation that healthcare organizations are complex. With advanced technology demands, strict regulations, evolving patient needs, vendor complexity and labor challenges, there’s a lot to cover. Pathstone Partners puts experienced consultants on your side. With a focus on non-labor cost reduction, we’re dedicated to improving hospital profitability and efficiency across the board.

We start by identifying areas for opportunity in all non-labor spend categories. Then, we work as an extension of your team to implement and sustain savings initiatives, complete with training and talent development. As an industry leader, we know the value of a long-term partner you can trust for successful implementation and ongoing support.

Reach out to us today to see why over 175 hospitals across the United States have turned to Pathstone Partners for organizational transformation.

The Value of Strategic Alliances in the Hospital Supply Chain

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What is a Strategic Alliance in Healthcare?

A strategic alliance can be defined as a form of mutually beneficial relationship or partnership between two parties focused on collaboration that achieves results for both organizations they wouldn’t be able to realize on their own. Strategic alliances are an increasing trend in the healthcare industry as a mechanism to achieve cost reduction and increase profitability. There is a broad spectrum of strategic alliances ranging from formal arrangements, such as joint ventures to more loosely affiliated collaborations.

Strategic alliances can offer the following benefits to an organization:
  • Incremental cost savings or revenue
  • Increased sustainability of long-term cost savings
  • Increased access to additional resources (knowledge, capital, etc.)
  • Expanded reach in the community through new partnerships
Key Opportunity Indicators

Minimal Investment in Outpatient Services

The healthcare industry is rapidly changing on a local level with competing hospitals establishing strategic relationships around the community, which can significantly increase competition for patients. With an on-going shift towards outpatient care in the market, hospitals continue to evaluate opportunities to increase outpatient offerings. Hospitals are often turning to suppliers for partnership opportunities to increase patient reach

  • Client Example: Dialysis services is an example where we see hospitals partner with the external service providers in joint venture arrangements with a goal of expanding offerings in the local market. Becker’s Hospital Review released an article, Joint ventures and collaborations across healthcare services (August 2017), which reported hospitals are increasingly turning to dialysis services as an area with clear benefits to hospital and supplier strategic partnerships. Since managing costs and the complexity of care for dialysis patients is difficult on both an inpatient and outpatient basis, it’s not a surprise that we see the industry leaders like DaVita and Fresenius partnering with hospitals across the country in joint ventures to deliver care. Negotiating such arrangements with competitive rates for dialysis inpatient services while also delivering competitive revenue share for the hospital through the joint venture is very challenging.

Strong Existing Supplier Relationship

Many hospitals have been successful capitalizing on a history of strong relationships with their suppliers by taking the relationship to the next level through creative new partnerships that deliver greater value for both organizations.

  • Client Example: Pathstone has encountered hospitals that have formed joint ventures with air ambulance providers that have been long-time service providers for those hospitals. In a service category such as this, hospitals have limited supplier choices in the market due to significant supplier consolidation over the years. When the two parties embark on a joint venture, one common goal may be the expansion of medical services to under-served areas that either the hospital or air ambulance company is challenged to serve on their own. By partnering, both organizations benefit from expanded market reach.

Merger and Acquisition (M&A) is Not an Option

Although M&A activity in the healthcare industry is occurring at an increasing rate, some hospitals are seeking alternatives that can still deliver the financial and operational efficiencies necessary to survive in the current market. M&A transactions are often very long, complex ordeals that come with heavy scrutiny of potential competitive implications, which we believe is one reason there is an increase in strategic alliances.

  • Client Example: Regional or local Purchasing alliances are becoming more popular across the country as an enhancement to hospital centric or national GPO purchasing. This is one example of hospital collaborations that can be achieved without formal mergers or acquisitions.
Key Success Factors

Align Goals

Ensuring a “win-win” mindset for all parties involved in an alliance is no easy feat. At the outset, the alliance must agree on their mutual purpose to keep everyone committed on a common goal and consistently seeking out the synergies for both parties, while still pursuing their individual organization’s goals. Many alliances will develop a charter and detailed workplans to keep on track. Sharing institutional knowledge and best practices can be invaluable to help each party achieve their mutual and individual goals.

Manage Conflict of Interest

Although collaboration in the healthcare industry is commonplace today, limitations do exist regarding those that can collaborate and the degree to which they collaborate. This is especially true for physician-hospital relationships because of Stark Law, where potential conflicts of interests can carry the threat of litigation and hefty fines. What makes matters more complicated is that Stark Law does lack clarity which is why you should pay careful attention to any relationships that may involve physicians. For example, we sometimes encounter hospital employed nephrologists that enter into partnerships to open dialysis outpatient clinics in the same town. On top of this, the hospital that employs the nephrologist sometimes engages in a joint venture with the nephrologist partnership for the dialysis outpatient clinic. This is especially complex and needs to be managed appropriately because the situation runs the risk of having business interests interfere with patient recommendations for outpatient dialysis services.

Maintain Effective Leadership

The right leadership is a key success factor for strategic alliances. Without this the best designed and well-intentioned alliance will often fail. Collaborative leadership teams that effectively utilize Steering Committees to manage key decisions should be required to help work out any issues and review progress towards the mutual goals.

The Importance of Measuring Productivity

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Measuring Productivity

Measuring productivity is vital to optimizing economic outputs in the healthcare industry with low productivity impacting a healthcare facility’s ability to function and support the economy in meaningful ways. Keep reading to learn more about how to improve productivity in your facility.

Healthcare is a main pillar of the U.S. economy, accounting for 19.7% of the national gross domestic product (GDP) in 2020. Nonetheless, healthcare does not always have a significant contribution to national economic growth with many factors playing a role in this discrepancy. Some of these factors include market irregularities, U.S. healthcare infrastructure peculiarities and regulatory requirements. Despite this, one factor a healthcare practice can control is its productivity measures.

The Importance of Measuring Productivity

Measuring productivity allows you to find the areas of your facility that are operating smoothly and efficiently and those that could use improvement. Doing so helps you:

  • Focus on long-term growth rather than short-term productivity gains that may undermine operations.
  • Identify specific opportunities to control healthcare spending growth in ways that support the economy and patient outcomes.
  • Deliver higher quality services while spending less on non-essential expenses.

In short, measuring productivity enables you to increase productivity to achieve positive outcomes. In healthcare settings, positive outcomes may involve continued medical advances, staying on top of service demands and improving affordability for patients.

However, measuring productivity is not as straightforward as it may seem, as the methods you use to measure productivity also matter.

Traditional Measurement Methods

Traditional productivity measuring methods focus on hard metrics like time and financials. These hard metrics emphasize human capital and labor production rather than the services delivered. When seen through these measures, solid productivity in a healthcare setting is a matter of lower costs and quicker services.

Time metrics evaluate such factors as the following
  • The time needed to care for patients and complete each case
  • The number of patients doctors treat per day
  • The time healthcare employees spend with each patient
The financial healthcare productivity metrics look at
  • Employee labor costs: Financial metrics assess positions essential to patient care and those that provide supplemental benefits. Maximizing productivity in this area may involve redistributing wages, culling staff or exploring casual and temporary hires.
  • Amount of overtime pay given: Sometimes overtime hours are necessary, such as when treating a patient in an emergency takes providers past closing hours. Other times, overtime hours are less critical, such as staying after hours to complete paperwork or spending too much time with each patient.
  • Supply and equipment costs: Financial metrics weigh the benefit and expense of each medical device the clinic or hospital uses. State-of-the-art devices may be expensive, but their benefit may provide a worthwhile return on the investment. Conversely, a clinic or hospital may opt for the bare essentials to cut expenses. Other considerations include keeping enough medications on hand to meet patient demand.
  • Other expenses: Electrical, heating, water and other utility bills are necessary to provide adequate patient care. Still, finding ways to cut back on these expenses increases financial productivity.

The traditional methods of measuring healthcare productivity are quantitative rather than qualitative. A clinic may reduce open hours or hire only essential staff to maximize productivity. Doctors may also prioritize brevity when seeing patients, making quick decisions and only pushing for more details when significant concerns arise.

By focusing on time and financials, traditional methods focus on patient volume rather than the patients themselves, their needs and satisfaction with their care. Likewise, by disregarding patient satisfaction, these methods answer only half of the question of productivity. Decreased patient satisfaction can undermine such productivity methods.

Take Action

Measuring productivity is vital to your organization on a high level, get in touch with Pathstone today to start monitoring your overall productivity and explore how we can increase your bottom line.

The Value of Utilization in the Hospital Supply Chain

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What is Utilization in Healthcare?

Utilization can be defined as the extent to which hospitals are making use of products or services. Many hospitals have historically focused on savings related to pricing and standardization. However, with seemingly relentless financial pressures and complexities of the healthcare supply chain, utilization opportunities are the next wave to spark interest of savvy hospital executives.

Opportunity for improvement in utilization can exist due to over, under, or improper use of a hospital’s goods, equipment or services. Being able to conduct an accurate assessment of current operations to determine if utilization opportunities exist is a challenge for most hospital leaders due to several factors such as unreliable documentation data and constantly evolving market options for products and services.

Successful implementation of utilization opportunities delivers the following benefits to an organization:
  • Financial benefits ranging 7-15% depending on the category
  • More efficient use of time and resources
  • Discovery of other deep issues within a category, often quality related
Key Opportunity Indicators

Poor Asset Management

In today’s environment, hospitals have a broad mix of assets across the organization. Understanding the true total cost of those assets is a challenge. Total cost of ownership for each asset includes not only the acquisition cost but also ongoing expenses related to maintenance, service and consumables. Furthermore, with hospital service lines experiencing continuous evolution, it’s difficult to maintain current lists of assets, let alone track service and maintenance records. As a result, an organization may find many inefficiencies or low returns on investments when true total cost of ownership is revealed.

  • Client Example: In our experience, clinical engineering often comes up in client discussions as an area to review due to its costly asset acquisitions, large asset inventory, and significant recurring spend on service and maintenance. Optimizing service levels on under-utilized or low-risk devices can drive utilization improvement. As an example, in outsourced maintenance agreements for ultrasounds, there may be significant savings to move from a platinum to silver or bronze support levels when in-house maintenance capabilities exist or sufficient inventory is available to swap out devices as equipment downtime occurs.

High Volume of Add-on Charges

For outsourced services, expenses can mount quickly due to “add on” charges for line items such as over-time, out of scope requests, volume commitment penalties, etc. These situations can result when service requirements were not anticipated when the agreement was created or if an organization experiences operational changes that impact how the services are now used. For these reasons continuous utilization reviews are important.

  • Client Example: Within our client’s clinical purchased services spend, such as dialysis, we discovered a high volume of “delay” charges that increased over several years. This led us to identify an operational bottleneck that was occurring with the patient transport process for treatments performed in the dialysis suite. Once the problem was understood, the transport process was redesigned, resulting in improved patient flow and a significant reduction in delay charges.

Misalignment with Key Performance Indicators (KPIs)

Although the process for determining utilization opportunities does not rely on data alone, using Key Performance Indicators (KPIs) to monitor high level utilization trends is helpful.  KPIs are multi-dimensional, data-driven measurements of key operational data that highlight performance relative to targets and help measure productivity in healthcare organizations. KPIs are a good first place to look for unfavorable utilization trends that may be a symptom of a larger underlying operational issue. We find implementing a KPI reporting tool that ties operational performance to cost can bring more awareness to potential utilization improvement opportunities and ultimately help drive and sustain change.

  • Client Example: Appropriate linen utilization is a common issue for many hospitals, and an opportunity that our clients typically believe exists based on operational practices they witness.  However, determining just how much utilization opportunity there is can be difficult to pinpoint. In our experience, a KPI that effectively measures linen utilization levels, including linen loss, reported in a metric of pounds per adjusted patient day helps our clients identify utilization improvement opportunities.
Key Success Factors

Establish Multi-Disciplinary Teams

Discovering utilization opportunity requires a long-term, multi-faceted approach more complicated than identifying opportunities in pricing or standardization, which are common focuses for traditional value analysis teams. Therefore, it helps to have a dedicated team that understands the nuances of the specific utilization elements. Multi-disciplinary teams including nursing, finance, support services and supply chain are most effective. For many organizations, engaging a third party to determine team composition, establish charters, facilitate initial meetings and help cultivate working relationships on the team, has been very beneficial to expediting efficient and effective utilization projects.

Leverage Multiple Tools and Processes

Identifying utilization opportunities is a comprehensive evaluation process. There is no one tool, process or metric that leads to successful utilization-based initiatives. It is often a combination of many tools that effects sustainable change over the long-term.

Find the Right Change Agent(s)

One of the most difficult aspects to pursuing utilization opportunities is effecting lasting operational changes. Once opportunities are identified and an implementation strategy is defined, an important next step is gaining support of those involved in the operation that change is necessary. An influential leader that can gain organizational support for change – whether it is a change in practices, processes or technologies – is crucial for transformation. Individuals need to feel well supported in the direction the organization is taking, especially when that direction requires change. Success will be elusive without stakeholder buy-in and support.

Improve Continuously

Continuously re-evaluating operations by looking to leading practices inside or outside your organization is important to maintain proper utilization. Take advantage of healthcare industry associations, roundtables and whitepapers that are regularly published to stay aware of key trends. Utilization opportunities, unlike pricing, are not proprietary and can typically be shared through collaborative discussions with peers.

Breaking Down the Common Types of Expenses in Hospitals

Expenses in Hospitals

Importance of Cost Management in Hospitals

Technology, new discoveries, demographics, regulatory factors, and new models of care keep the healthcare industry in a constant state of fluidity. The United States spends $4.3 trillion a year on healthcare expenses and the U.S. hospital facilities market size is expected to reach $2,540.4 billion by 2030 and to expand at a compound annual growth rate (CAGR) of 7.62% over the forecast period.

Hospitals need to manage expenses and revenues to remain operationally efficient. The pandemic has put high pressure on costs whilst driving revenues down. With elective procedures cancelled or postponed and hospital visits restricted to only necessary ones, hospitals hemorrhaged revenue making cost control vital.

Breaking Down the Different Hospital Expenses & Costs

Hospital costs breakdown can be broadly categorized into labor, capital, administrative, operating costs, nursing services, and professional services.

Wages, Benefits, and Labor Costs

While percentages vary from hospital to hospital, across the board the biggest expense for hospitals are wages and benefits which on average account for 56% of the total expense of a hospital. It is nearly 5 times more than any other category, with the second largest expenditure being professional fees at 11.9%.

Wages and benefits costs are further expected to rise largely stemming from the effects of the COVID-19 pandemic. Doctors and nurses have left the healthcare system due burnout or illness and as a result, labor costs have risen and forced hospitals to sustain services through expensive contract labor. Compared to pre-pandemic levels, hospitals saw their expenses for travel nurses increase tenfold. An article by Healthcare Dive stated that one third of nurses are expected to quit their jobs by the end of 2022 due to burnout caused by the pandemic and the stress being put on them with increased demand for their services. In the next decade, the United States will be short of nearly 122,000 physicians by 2032 according to 2019 data published by the AAMC (Association of American Medical Colleges).

The next decade will bring additional challenges as demographics indicate that by 2029, more than 71 million Americans will be 65 or older while roughly one million registered nurses are already more than 50 years old. Thus, in the next 10 to 15 years, one-third of today’s nursing workforce will reach retirement age. Nearly 700,000 nurses are projected to retire or leave the labor force by 2024 at a time when the need will be higher.

By 2025, estimates indicate that more than three million nurses may be needed to care for the population, however, the national supply of nurses is projected to only reach 2.8 million by 2025 leaving a gap of 250,000 nurses. This shortfall between supply and demand is expected to drive additional wage increases in future years.

Overall, these factors will therefore continue to keep the wage and benefits category the highest cost and largest challenge for hospitals.

Areas such as information technology (IT), non-clinical and clinical purchased services and supplies, laboratory, and pharmacy costs represent up to 60% of hospital operation expenses.

Supply Costs

One major cost head is supply including medical devices. Supply costs include products such as medical equipment, laboratory supplies, machinery, operating tables, linens, food, wound dressings, and intravenous solutions. On average, these expenses make up 15% of total expenses but can go as high as 30-40% in surgery-intensive hospitals. While these products are necessary to hospitals, research has shown that hospitals spend on average an excess of $12.1M on supply-chain costs.  The pandemic added additional items to the supply list. According to an article by Fierce Healthcare, hospitals have spent more than $3 billion on PPE kits from the beginning of the pandemic.

Hospitals in the US rely on global supply chains especially in the medical supplies category. Everything from masks to devices come from across the globe. Previously established relationships and contracts with distributors are disrupted with supply chain issues with factories and vendors shutting down operations. Consequently, hospitals have had to readjust systems leading to price escalations. Between fall 2020 and early 2022 costs for energy, resins, cotton, and most metals surged more than 30%; these all are critical elements in the manufacturing of medical supplies and devices used every day in hospitals. Global events such as the war in Ukraine, lockdowns in China and rising transportation costs continue to have fuel these cost increases and delays in deliveries. According to the Health Industry Distributors Association, transportation times for medical supplies are 440% longer than pre-pandemic times.

Specialist Fees

The next large cost center impacted is professional fees which are linked with specialists that usually run private practices but are attached to hospitals to provide expert opinions on specific medical cases, teach residents, and work at clinics. These fees are also often associated with doctors within the hospital that are specialized in fields such as anesthesiology, radiology, or pathology.

Technology Costs

An emerging cost area is technology with hospitals needing to constantly invest in newer digital health technology to ensure their patients get the most adequate care, especially with the new norm being virtual checkups and an increased demand for telehealth. Beyond that, while technology investments could be expensive, long-term efficiencies could help control costs. Emergent technologies such as robotic automation could help innovate and manage costs.

The Future of Hospital Costs

In conclusion, expenses will continue to exert pressure on hospital margins. Hospital administrations have a challenging decade ahead of them and they will need to consider strategies to optimize labor costs, reduce fixed costs and invest in new technologies to gain efficiencies.

Pricing in the Hospital Supply Chain

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What is Pricing in Healthcare?

Pricing opportunity can be defined as optimizing the price paid for a good or service, which can be achieved through incumbent supplier negotiations or competitive sourcing activities. Accurately identifying pricing opportunities can be challenging due to several variables such as unique product/service specifications, quality, volume, technology advancements, and local market factors. As a result, most benchmarking exercises can leave hospital leaders with misleading perceptions of price competitiveness. Although pricing may be viewed as a straightforward value lever that is routinely reviewed by hospital supply chain, Pathstone finds many hospitals have yet to maximize pricing opportunities in more complex categories such as various clinical and non-clinical purchased services.

Successful implementation of pricing opportunities delivers the following benefits to health systems:
  • Financial benefits ranging 5-25% depending on the category
  • One of the quickest and least disruptive paths to financial improvement
  • More visibility into cost drivers of goods or services
Key Opportunity Indicators

Supplier Relationship Not Reviewed

If your supplier contract has not been evaluated for price competitiveness in the last 3-5 years, this can indicate there may be opportunity. Supplier relationships with hospitals can change over time. Expansions of supplier scope in an organization can be an advantageous leverage point to bring into the pricing negotiations. Furthermore, supplier markets evolve and change the dynamics of how they do business with their hospital clients. Many clinical areas, for example, are impacted by demographic changes (e.g. aging baby boomers), population health challenges (e.g. new diseases) or development of new technology (e.g. telehealth), all of which may affect the demand for certain supplies or services. As a result, continuous vigilance is important.

  • Client Example: In our experience, perfusion services is an example of a complex area that is challenging to identify pricing opportunity for many of our clients. The demand for perfusion services has been growing driven by the increase of open-heart surgeries for an aging population. As a result, many hospitals have seen their perfusion service volumes jump by 30-50% over the last several years. In such situations, Pathstone can help clients evaluate pricing opportunities with current market intelligence across our widespread client base.

Not in-line with Price Benchmarks

One common indicator of opportunity is identifying higher pricing when benchmarked against peers. Utilizing available resources such as group purchasing organizations (GPOs) or databases to perform the benchmarking can provide a good directional perspective on potential pricing value. However, hospitals should proceed with price benchmarking cautiously. Our experience has shown that when hospitals have the ability (often through third-party partnerships) to contextualize and customize benchmarks – this creates the best data and ultimately drives the most value.

  • Client Example: Benchmarking services are anything but straightforward. Pathstone often helps our clients benchmark their services both internally and externally. Pathstone provides external price benchmarks that are contextualized based on the health system’s volume, geography, specific service requirements, and unique operational considerations to determine an accurate and tailored cost savings opportunity.

Hospital Growth and Expansion

Within the healthcare industry, hospital consolidation and integration activity has been increasing. If integration has already occurred or may be imminent for your organization, then it presents a ripe opportunity to re-evaluate pricing for goods and services. Through integration, your volume may change (likely increase) which creates leverage to help drive more competitive pricing.

  • Client Example: Pathstone has worked with hospital systems that have merged, acquired new sites, or expanded service lines. A benefit of any consolidation activity is the ability to combine purchasing activities of two different organizations to create leverage with suppliers. For example, a newly merged health system was using two different dialysis service providers, and in turn, had varying pricing for the same dialysis services. In some cases, hospital sites were even using the same service provider through separate contracts but with very different pricing. Consolidated purchased volumes in the newly merged health system created leverage to negotiate better pricing with the chosen provider.

Prices are Higher than Reimbursement Rates

For certain goods or services where the hospital is receiving reimbursement, it can be a beneficial exercise to compare pricing against reimbursement. If the pricing is significantly higher, this data point can potentially be leveraged in supplier pricing negotiations.

Key Success Factors

Maximize Resources

Hospitals have a variety of resources at their fingertips but determining how best to maximize those resources is challenging. The use of Group Purchasing Organizations (GPOs), market databases, and/or consultants seem to be some of the best options for a hospital to obtain benchmarking information. Appropriate use of this information can create valuable metrics for internal KPI tools to identify opportunities.

“Test” the Market

There are various approaches your organization can take to “test” the market. A competitive process like a Request for Proposal (RFP) or Request for Information (RFI) are common approaches. At times, just the initiation of a competitive process can motivate your suppliers to provide a significant reduction in current pricing in hopes you avoid looking at competitors. However, when going to the market an organization needs to have conducted its initial due diligence on the market and have an appetite for potential supplier conversion

Find the Right Fit

Hospitals often struggle with finding a quality product/service at the right price but also one that fits that organization’s needs. When pursuing price opportunities, it is important to maintain focus on quality. Establishing cross-functional work teams that can evaluate both pricing and quality is key. Additionally, developing service level metrics can help reinforce quality expectations with suppliers. Lower prices don’t always mean it will yield lower quality. Quality can remain the same or improve while pricing decreases as long as the work team maintains focus on this balance.

Benefit your Supplier

Obtaining the most competitive price is usually the result of a mutually beneficial partnership with your supplier. It is important to understand your supplier’s goals and look for ways to benefit your supplier through your relationship while still achieving your financial objectives. Challenge yourself as the customer to provide feedback to your supplier not only on the areas that require improvement but also on the areas in which they have met or exceeded expectations.

Best Practices for Healthcare Inventory Management

Inventory Management Healthcare 2

What are Inventory Management Systems

Healthcare inventory management is incredibly important in medical facility processes. Inventory management systems can help hospitals and other medical organizations streamline their processes to save time and money while providing quality care to patients.

A streamlined inventory management system makes it easier to track equipment and supplies, which improves communication between departments, reduces theft, increases productivity, maintains compliance, and reduces the time it takes for medical personnel to sign equipment in and out for use. When you improve your medical supply inventory management, you improve several processes within your organization.

Why Is Inventory Management Important?

Healthcare organizations must keep track of various inventory, including:

  • Medical supplies
  • Medical equipment
  • Patient prescriptions
  • Health and wellness products

While a simple Excel spreadsheet may seem enough to manage inventory successfully, it’s actually more effective to implement a streamlined inventory management strategy. An efficient management workflow can help medical facilities save time, money, and effort. Medical facilities are pressured to reduce costs, and streamlining inventory management is one way to cut spending.

With proper medical inventory tracking and planning, hospitals can save time and money. Planning out the supplies needed can save $1,800 per surgery and precious minutes of time, for example.

Healthcare inventory management is a workflow that tracks a health system’s orders, purchases, inventory, payments, health product sales, and prescriptions. An effective workflow will help an organization avoid supply and monetary losses with an accurate and updated product and supply log. Inventory management also provides the following benefits:

  • Contract compliance: Effective healthcare inventory management helps organizations order and use the correct amount of products so they don’t obtain too few or too many supplies. This prevents them from breaking bulk purchasing contracts.
  • Digitized data: Virtual inventory management streamlines your processes to eliminate errors and the need for paper workflows. Paperless data also allows you to organize your information and inventory efficiently.
  • Improved communication: With an efficient healthcare inventory management system, administrative teams can effectively communicate with other healthcare teams to keep track of supplies and equipment.
  • Equipment and instrument protection: Inventory management prevents theft because it allows you to track where equipment is at all times.

Types of Healthcare Inventory Management

Many hospitals lack a standardized inventory management process, but a standard process can significantly decrease spending. There are two different types of healthcare inventory management, so it’s important to understand the benefits and disadvantages of both. Healthcare facilities can manage inventory using one of the following methods:

Periodic Inventory

Periodic inventory requires employees to update inventory data manually. For this method, employees take inventory periodically. For example, they may take inventory once a week or at the end of a similar period of time. While this method may be sufficient for small healthcare facilities, it is not ideal for hospitals and larger healthcare organizations.

This inventory management method leaves significant room for error and takes time away from other important tasks. Larger healthcare facilities benefit more from the perpetual inventory method.

Perpetual Inventory

The perpetual inventory management method continually and automatically updates inventory data. The advanced software needed to operate a perpetual inventory system can cost more than practicing manual periodic inventory, but its benefits surpass its cost. Perpetual inventory systems account for important details such as purchases, deliveries, additions, and subtractions. They allow medical staff to track equipment use at all times so all supplies are accounted for.

Hospital Inventory Management Best Practices

Inventory management is important in hospital and medical organization settings. With proper inventory management, you can increase productivity and know where your medical equipment and supplies are at all times. To improve your hospital inventory management, implement the following best practices:

1. Organize Your Inventory to Avoid Redundancies

Healthcare providers can often misplace supplies or equipment they already have. This can occur when someone mixes up inventory or delivers supplies to the wrong person or place. As a result, employees may end up ordering redundant supplies and equipment to replace misplaced items.

Inventory management can ensure all supplies and equipment pieces are easily located at all times. It can help hospital staff deliver supplies to the correct individuals and return equipment to the correct location when they are finished using it.

Implementing a hospital tracking system allows you to label and tag your equipment and supplies in your database. You can add locations to track where items are and where they should be at all times.

2. Create Tags for Equipment and Supplies

When equipment has tags with labels, barcodes, and identification numbers, staff can easily check pieces of equipment out for use or sign them off to other staff members.

Using a radio-frequency identification (RFID) system makes it easier to locate who last used a piece of equipment if it goes missing. This tagging system can also increase productivity and efficiency and help protect equipment and supplies from theft. Tagging equipment also streamlines its maintenance process and helps you monitor its life cycle.

3. Collect Department Data and Examine Existing Patterns

Collecting data can provide significant insight into existing usage patterns. It’s important to track how much equipment and supplies employees use so you can adjust accordingly. By collecting and analyzing data, you can avoid ordering only the supplies that you need, and you can openly share how your department is progressively saving money.

When you implement a data-driven approach in your supply management method, you can make informed decisions and collaborate effectively with clinical leadership.

4. Implement a Medical Inventory Management System

Manually managing inventory can lead to errors, missing supplies, overspending, and inefficiency. Implementing a clinical inventory management system can eliminate errors and create a more consistent process that makes it easier to document usage, prepare reports and maintain compliance. A supply management system can help your hospital or medical facility save time and money by protecting your equipment and allowing you to find its location at all times.

Let Pathstone Partners Help You With Your Inventory Management

An effective inventory management system can significantly improve your hospital or medical facility’s processes. Implementing an inventory management system can help you save money on supplies, locate equipment at all times, prevent theft, increase productivity and maintain compliance.

Perpetual inventory management is much more effective than periodic or manual inventory management, so having advanced software to track your supplies can significantly benefit your healthcare facility. When you implement best practices for inventory management, you help medical staff focus on important tasks by making equipment and supplies readily available.

Pathstone Partners can help you streamline your processes and make informed decisions with medical inventory management solutions. Our consultants will collaborate with your medical leadership team to drive value and results. We will help you bridge communication gaps and achieve consistent cost savings so you can provide quality patient care as efficiently as possible. Consult with Pathstone to learn more about our healthcare consulting solutions and how we can help you manage your inventory effectively.

The Value of Revenue in the Hospital Supply Chain

Health Care Financial Consultant Revenue

What is Revenue?

This value lever can be defined as any revenue, rebate or reimbursement generated from a purchased product or service. Revenue is often overlooked by healthcare supply chain due to the department’s traditional focus on reducing costs. However, many products and services provided by suppliers can play a significant role in generating revenue, rebates or reimbursements for the health system.

Key benefits of this value lever include:
  • Financial benefits ranging 5-25% depending on the category
  • Increased revenue and reimbursement when cost reduction opportunities are limited
  • Enhanced supplier or contract rebates
  • Creation of funding to upgrade or expand products and services
Key Opportunity Indicators

Limited Discussion on Any Supply Chain Driven Revenue Opportunities

If your organization is not recognizing revenue as a value lever within supply chain, this may be one of the first signs of opportunity. Once spend categories with potential revenue opportunities are identified, negotiations with suppliers in those categories should include conversations around incorporating revenue or rebates into new arrangements.

  • Client Example: Pathstone worked with a client that received a cost reduction proposal from its release of information (ROI) provider. Though the client was eager to accept the offer, Pathstone understood that the supplier was funding the client’s program with revenue associated with billable patient requests that were not visible to the client. By analyzing program revenues, Pathstone was able to help the client negotiate a revenue share agreement that generated 30% in additional financial benefit to the organization.

Lower Supplier Prices Charged Compared to Market Rates

If supplier prices charged for an outsourced service are lower than what the market typically commands, this is another indication of the potential for hidden revenue opportunities. If the organization’s prices are well below market averages, it may be a sign that the vendor is capturing significant revenue to offset costs of the program being delivered to the client. Further investigation may uncover opportunity for the client to at least share in that revenue. Auxiliary services such as parking and cafeteria are common candidates for these types of evaluations and opportunities.

Shrinking Revenue from Existing Programs

If volume for a revenue generating product or service is decreasing, this may signal the current program needs to be modified to align with the current environment. Decreasing volumes may be caused by unexpected factors such as changes in supplier pricing, evolving market forces impacting demand or new supplier/end-user resistance.

  • Client Example:  Pathstone evaluated a health system’s accounts payable commercial bank card program, which offers a quicker payment platform for the health system’s suppliers in exchange for a rebate paid by the supplier to the health system. Our analysis showed low levels of card adoption by suppliers, translating to lower rebates for the health system. A deeper dive into the data revealed most suppliers were already being paid quickly without the use of the card program. By reconfiguring standard payment terms to exceed the card program, the health system created an incentive for suppliers to adopt the card program and thereby increased card program participation and rebates by 10%.
Key Success Factors

Develop Business Cases

Organizations that utilize a comprehensive business case to evaluate the pros and cons of an in-sourced or outsourced model will increase their chance of success. The business case is a fact-based tool that allows teams to have an open and objective dialogue when selecting the best strategy. For complex categories, engaging third parties to develop business cases can provide market information and objective analysis necessary to make the best decision.

Evaluate Program on an Ongoing Basis

Since costs, quality and performance of programs can change over time, organizations that continuously evaluate make vs. buy opportunities position themselves to generate more value over the long-term. Continuous self-assessment can uncover opportunities resulting from minor improvements in supplier relationships to complete transformations for an organization’s service delivery model. For example, one important question for an organization to ask about an insourced operation is: “What else can we do with these resources?” The opportunity cost of those resources can help identify alternatives that drive more value for the organization. Furthermore, alignment of the service with the organization’s overall mission should be evaluated.

Access to Market Intelligence and Best Practices

Hospitals that have conducted extensive market research are well positioned to evaluate existing outsourced or internal programs. Market intelligence on leading practice cost metrics and performance indicators can be an effective barometer to measure financial, quality and operational performance. Partnering with third party providers that can provide insight on market benchmarks can help an organization set the right targets to measure the competitiveness of existing programs.

Ways to Optimize Healthcare Supply Chains in Healthcare

Health Care Financial Consultant healthcare supply chain

Optimizing the Healthcare Supply Chain

Optimizing the healthcare supply chain is crucial to ensuring patients receive high-quality care. While the healthcare supply chain has strict regulatory requirements, there are areas where it can improve. Enhance efficiency in the supply chain by following these hospital SCM tips:

Improve Visibility

You should be able to tell where products are within your supply chain at any given time and properly manage inventory. To do this, gather your data in a single location. This process includes data from manufacturing sites, distributors, suppliers, products, modes, customers and the like.

You will then need to improve your data analysis capabilities from end to end using software platforms, artificial intelligence (AI) or third- or fourth-party services.

Consolidate Your Supplier Base

Managing your suppliers is an easy way to optimize your healthcare supply chain. Consolidating suppliers can be simple if you:

Build partnerships with your suppliers that are a win-win for all parties.
Start retendering to improve your understanding of the market, improve supplier competitiveness and potentially build open contracts.
Conduct performance reviews on a monthly, quarterly and annual basis.

Center Performance

Define a hierarchy of meaningful outcome-based healthcare supply chain measures. These performance measurements should allow for analysis of the tradeoffs between key performance indicators (KPIs).

You can also create a KPI model focusing on the quality, service, costs and revenue of your entire supply chain. Target each part of the organization’s supply chain and capture real-time performance data.

Implement Standardization

Healthcare organizations often grow by acquiring other entities. This situation can result in all the separate systems and processes affecting one another.

Standardize processes for physical and financial elements using a framework like the Supply Chain Operations Reference (SCOR) model. Doing so allows you to implement and enforce standards across all areas of the medical supply chain.

Know Your Costs

Many organizations would benefit from a greater understanding of their costs, including how much these are and where they come from. Start by collecting data about your costs of goods and services. Using standard categories, you can benchmark and assess the data and look for patterns.

Analyzing the invoice will help you determine where your cost-saving opportunities are. You can identify non-standard patterns and implement new processes that eliminate waste.