Why Pediatric Hospitals Require a Different Playbook: Navigating Financial Pressures with Mission in Mind

Key Takeaways:

Pediatric hospitals face unique financial and operational pressures. Reliance on public reimbursement, specialized services, and complex family-centered care creates volatility and constraints that adult-focused strategies may fail to address.
Traditional cost-saving models aren’t enough. Pediatric systems require customized benchmarks and sourcing strategies tailored to increasingly high complexity portfolios, and approaches that reflect their mission-driven care philosophy.
A tailored strategy can protect mission and margin. By aligning cost and operational initiatives with patient experience, philanthropy, and peer-driven innovation, Pathstone Partners helps children’s hospitals achieve sustainable financial results without compromising quality of care.

It is often said in healthcare that children are not just small adults. While pediatric and adult hospitals share many foundational structures and challenges, the context in which pediatric hospitals operate introduces distinct strategic considerations that require a more tailored approach.

Projected shifts in Medicare and Medicaid reimbursement models, combined with growing uncertainty around federal research funding, are creating new financial pressures across the healthcare industry. But these pressures are felt most acutely in pediatric systems, where Medicaid covers roughly half of all patients treated at children’s hospitals. This disproportionate reliance on public reimbursement introduces significant financial volatility. At the same time, many children’s hospitals also serve as academic and research hubs, meaning reductions in grant or foundation funding can directly threaten their ability to advance groundbreaking therapies for rare and complex childhood diseases.

These realities demand a different playbook — one that balances mission-driven care for children and families with the operational discipline needed to thrive in an evolving reimbursement environment.

At Pathstone Partners, we have had the privilege of working closely with both adult and pediatric healthcare organizations. Through this breadth of work, we’ve learned how to adapt our strategies and methodologies to address the unique operational, clinical, and financial dynamics of pediatric hospitals — helping them navigate financial pressures without compromising their mission to provide compassionate, specialized care to children and families.

Understanding the Nuances: Pediatric vs Adult Hospital Operations

While pediatric and adult hospitals share many structural and operational similarities, the context, complexity, and strategic considerations behind their operations are often very different. Recognizing these distinctions is essential to designing cost-reduction strategies, vendor partnerships, and operational solutions that truly work, not just in theory, but in practice.

Peer Collaboration Drives Adoption in Pediatrics: Pediatric hospitals operate in a highly collaborative ecosystem. Peer organizations often share operational learnings and best practices, creating a strong sense of trust and alignment. While collaboration exists across all healthcare systems, pediatric networks tend to be smaller and more tightly connected, amplifying peer influence. If a solution works at one children’s hospital, other children’s hospitals are considerably more likely to adopt that solution.
- Strategic Implication: Leveraging peer networks is often the fastest path to implementation success in pediatric environments.

Benchmarking Requires Customization: Benchmarking is central to evaluating performance across both adult and pediatric systems. However, pediatric hospitals cannot simply import adult benchmarks without adjustment. Many pediatric hospitals rely on specialized suppliers with limited market alternatives, meaning they manage a broader range of SKUs and unique cost structures. Similarly, operational processes such as digital patient statements involve higher complexity due to guardian and family account linkages.
- Strategic Implication: Pediatric systems require purpose-built operational and financial benchmarks. Applying adult system benchmarks without adjustment can lead to unrealistic targets and missed opportunities.

Operational Complexity Impacts Scale and Strategy: Like adult hospitals, pediatric systems are under pressure to improve efficiency and control costs. Unlike many adult systems, pediatric hospitals often face constrained or declining volumes alongside increasing clinical complexity. This dynamic reduces scale leverage and limits standardization. Niche suppliers, highly specialized therapies, and regulatory requirements further constrain pricing flexibility. At the same time, digital and operational processes must support family-centered care models, introducing additional layers of complexity.
- Strategic Implication: Cost-reduction and operational improvement strategies must be designed specifically for pediatric environments rather than assumed to translate directly from adult health systems.

Philosophy and Expectations Differ in Pediatrics: Pediatric hospitals operate with a philosophy that places family involvement, emotional sensitivity, and mission-driven care at the center of every interaction. Operational areas, such as language services, are more complex, often involving sensitive conversations that extend beyond the patient to parents and caregivers. Similarly, decisions around employee care models may also introduce unique considerations, such as whether and how to support adult family members within pediatric-focused systems.
- Strategic Implication: Pediatric strategies must reflect the values and expectations of patients, families, and staff, not solely financial or operational metrics.

How Pathstone Partners Drives Impact in Pediatric Healthcare

Traditional consulting approaches often fall short in pediatric settings — not because adult-system strategies are ineffective, but because they require intentional adaptation. Children’s hospitals operate with distinct scale, clinical complexity, and mission-driven priorities that demand more than surface-level customization.

Pathstone Partners has intentionally partnered with pediatric organizations to apply a methodology that aligns cost and operational improvements with patient experience, philanthropic strategy, and peer-driven innovation.

Our approach delivers measurable financial and operational results while preserving the clinical sensitivity and family-centered care that define pediatric healthcare:

Redefining performance metrics to balance financial discipline with patient and family experience goals to ensure cost reduction does not come at the expense of mission.
Designing sourcing and operational strategies to address low-volume, high-complexity product portfolios, optimize supplier relationships, and streamline high-variability workflows.
Building pediatric-specific frameworks grounded in real market intelligence, supplier pricing insights, and operational best practices to set realistic, actionable targets.
Leveraging peer networks to accelerate decision-making and adoption of best practices and positioning hospitals as innovation leaders across the pediatric landscape.
Incorporating philanthropy and alternative funding streams into financial sustainability strategies to support access and impact.
Partnering directly with clinical and operational leaders to ensure solutions reflect on-the-ground realities, operational constraints, and patient needs.

Initiative	Annual Spend	Benefit Realized	Impact	Value Levers	Strategy	Pediatric-Tailored Approach
Interpretive Services	$6.0M	$1.2M	20% Cost Reduction	Pricing	Competitive sourcing and contract negotiation	Prioritized in-person and video interpretation for sensitive pediatric interactions, ensuring clear communication with young patients and families while improving service reliability and cost efficiency
Inhaled Nitric Oxide	$2.0M	$1.0M	50% Cost Reduction	Pricing	Competitive sourcing	Addressed high pediatric utilization by negotiating volume-based discounts and ensuring full ventilator and transport compatibility across neonatal and pediatric intensive care units
Bad Debt Collections	$950K	$2.2M	230% Revenue Increase	Revenue, Pricing	Competitive sourcing	Introduced patient-sensitive collection protocols that preserve hospital reputation and patient trust while improving yield and reducing uncompensated care

Partnering for the Future

As financial pressures intensify across the healthcare landscape, pediatric hospitals will need partners who understand both what they share with adult systems and what truly sets them apart. At Pathstone Partners, we bring experience across the full healthcare continuum and a proven ability to translate that experience into pediatric-specific strategies that drive results.

Reach out to Pathstone Partners today to request a no-cost opportunity assessment and understand how we can help drive financial efficiency for your organization.

Staffing for Tomorrow: Sustaining and Enhancing the Rural Healthcare Workforce Through Data-Driven Strategies

Key Takeaways:

Rural hospitals face mounting financial and operational pressures amid declining volumes and limited labor supply
The complexity of workforce management often leads to FTE creep over time, creating hidden inefficiencies
By leveraging data-driven insights, rural hospitals can reduce overstaffing, improve flexibility, and sustain care quality
Pathstone helps hospitals use real-time data to align staffing with demand and drive efficiency while continuing to prioritize quality care

Managing Staffing at Rural Hospitals: Challenges, Trends, and Data-Driven Solutions

Rural hospitals serve as lifelines for nearly one in five Americans, often functioning as the sole source of essential healthcare services within their region. Yet these facilities face mounting challenges: declining inpatient volumes, rising costs, shrinking reimbursement, and chronic staffing shortages.

For many rural health systems, managing staffing has become a critical aspect to managing finances. With limited workforce pipelines, older patient populations, and increased demand for outpatient care, the question is no longer how to staff for today, but how to dynamically plan for tomorrow.

Data-driven workforce management practices can help hospitals meet that challenge, enabling them to operate more sustainably amid an increasingly complex and rapidly evolving healthcare landscape. Pathstone Partners collaborates with health systems to design and implement these data-driven staffing strategies, helping leaders optimize labor resources, reduce burnout, and build a more resilient workforce for the future.

A Shifting Landscape: How Rural Hospitals are Evolving

Across the country, hundreds of rural hospitals are struggling to stay afloat. Many are operating under financial distress, with more than 140 closures since 2010 and many others running at a loss. These closures force nearby facilities to absorb displaced patients, stretching already limited staff and resources, and adding instability to the local healthcare landscape.

Over the past decade, declining inpatient volumes have driven a shift in rural care delivery toward preventative and outpatient services; outpatient visits alone accounted for nearly two-thirds of total hospital revenue as early as 2016, according to the American Hospital Association. This shift, reinforced by payer incentives favoring community-based care, has prompted hospitals to rebalance staffing models to support outpatient growth while maintaining essential inpatient and emergency services.

At the same time, rising operating costs and declining reimbursements continue to erode financial stability. Facilities built for inpatient care must now adapt to outpatient demand and flex staffing across wider ranges of patient needs. Serving older populations with complex conditions and limited specialist access further compounds the challenge.

As rural hospitals navigate these systemic changes, they must also evolve their staffing strategies as the structure and demand for labor also evolves. Staffing models now require a delicate balance for both roles that fluctuate with patient volumes and those that maintain consistent operational demand. Understanding how these roles contribute to the overall function of rural hospitals enables the development of data-driven staffing strategies that support both efficiency and high-quality care.

Aligning the Team: Clinical and Non-Clinical Roles in Rural Hospitals

Rural hospital staffing requires a balance between two types of roles: those tied directly to patient volume (typically clinical and ancillary roles) and those that support hospital function regardless of census (typically non-clinical support services roles).

Clinical Roles such as physicians, nurse practitioners, nurses, and allied health staff are deeply dependent on patient volumes and acuity. These professionals often operate as generalists in the rural hospital setting, managing a variety of cases due to the absence of specialists. Nurses in particular are the front line of care, often juggling direct patient treatment, chronic disease management, and complex transfers to tertiary centers. Rural hospitals need the ability to flex clinical roles as patient volumes shift, ensuring appropriate patient care ratios are maintained.

Non-Clinical Roles include, for example, Environmental Services (EVS), Finance, and Human Resources, which are less volume-sensitive but equally critical. EVS ensures a clean and safe healthcare environment. Finance manages complex payer reimbursement processes, especially at rural hospitals where Medicaid and Medicare cover approximately 70% of inpatient discharges. HR leads recruitment and retention in markets where talent is scarce. Rural hospitals need to maintain adequate staffing levels across the non-clinical roles as volume fluctuates; this presents a unique challenge.

Together, these groups form the operational backbone of rural hospitals, but their staffing models, needs, and metrics vary significantly.

The Workforce Crisis: Access, Retention, and Recruitment in Rural Health

Patient Access and Shortages

Rural hospitals are confronted with an increasingly complex staffing crisis, influenced by a limited labor supply, escalating patient needs, and growing concerns regarding workforce wellbeing. Many rural areas struggle to attract and retain qualified healthcare professionals due to smaller labor pools, lower pay scales, and fewer professional development opportunities compared to urban centers.

The challenge is amplified by a widening gap between patient needs and provider availability. The U.S. currently faces a shortage of 22,000 primary care physicians and the deficit is projected to reach 34,000 by 2035. For nurses, the National Center for Health Workforce Analysis (NCHWA) projected a nationwide shortage of approximately 208,000 registered nurses (RNs) and 302,000 licensed practical nurses (LPNs).

U.S. Nurse-to-State Population Ratio

Number of nurses to state population across the U.S. based on information collected by U.S. Census Bureau of Labor Statistics (BLS).

Although 1 in 5 of Americans live in rural areas, only about 1 in 10 physicians practice there, resulting in a 39% higher patient load per primary care provider than in urban regions. Additionally, an estimated 190,000 RN openings are projected annually through 2034, resulting from the upcoming nursing retirement boom, nurses transferring to different occupations, and additional job growth. Without proactive strategies to close these workforce gaps, many rural hospitals risk reaching critical staffing shortages that directly threaten care quality and service continuity.

A major factor contributing to this imbalance is the challenges faced in medical education. For physicians, this includes the concentration of training programs in urban environments. According to the Government Accountability Office (GAO), 99% of medical residents complete their training in urban or suburban hospitals. As a result, fewer physicians gain firsthand experience with the unique challenges of rural care, such as limited resources and broader scopes of practice. Yet evidence shows that healthcare professionals with rural backgrounds are up to ten times more likely to return to rural practice, underscoring the importance of cultivating local talent through targeted education and training programs.

Challenges in nursing education have a similar impact. The American Association of Colleges of Nursing (AACN) reports that one of the primary drivers of the nursing shortage is a lack of faculty and infrastructure, such as clinical sites and classrooms, to support incoming students. Across the U.S., many nursing programs are forced to turn away thousands of qualified applicants each year due to faculty shortages, ultimately limiting the number of new nurses entering the workforce.

Even modest improvements of 10-15% in patient access can have a significant impact on care availability across rural communities, especially when pressures on overworked, burned-out staff contribute to increased medical errors and declining patient outcomes. This underscores the need for smarter, data-driven workforce planning and sustainable recruitment models. Leveraging data-driven tools to optimize staffing efficiency will be essential to closing the workforce gap, maintaining consistent patient care, and ensuring rural hospitals can continue to meet the evolving needs of their communities.

Retention and Burnout

Clinicians, nursing, and support staff alike report growing levels of exhaustion, anxiety, and disconnection from their work. Burnout has become one of them most significant threats to workforce stability, fueled by long hours, limited coverage, and high emotional demands. Over time, misalignment between job titles and actual responsibilities, whether through role creep or underutilization, can heighten frustration and turnover risk.

Employee engagement surveys across the healthcare sector show declining morale, particularly in high-stress, and resource-limited environments. The financial and operational constraints of the rural healthcare environment leave these clinicians particularly vulnerable to burnout. Left unaddressed, burnout leads to costly turnover, disrupted continuity of care, and declining patient experience. For rural hospitals, where every staff member plays a vital role, even a single resignation can have cascading effects. Regular workload assessments, clear career development paths, and structured feedback loops can help leadership detect early signs of disengagement and intervene before turnover occurs. Leveraging workforce analytics to monitor overtime, shift variability, and productivity trends can also highlight areas where teams may be stretched thin, creating opportunities for proactive support rather than reactive hiring.

Turning Data into Action: Smarter Staffing Through Analytics

Pathstone Case Study

Pathstone partnered with a rural health system to develop a customized workforce management tool that aligns labor resources with real-time demand. By integrating historical data, such as discharges, procedures, and visits, with payroll and productivity records the tool generates department-level insights refreshed on a bi-weekly basis. Leaders can track performance against productivity targets and distinguish between fixed and variable departments to assess whether staffing levels align with workload. These insights enable leadership to identify underproductive areas, refine budgets, and make proactive decisions about open positions and resource allocation.

For staff, this tool helps promote balance and fairness by limiting excessive overtime and aligning workloads with patient volume. Interactive dashboards visualize overtime trends, flag departments under strain, and enable leaders to address burnout risks before they escalate. Over time, these analytics have helped rural organizations reduce premium labor costs, stabilize scheduling, and improve both operational performance and staff well-being, demonstrating how data-driven workforce management can deliver sustainable value across the enterprise.

Staffing with Agility: Aligning Labor to Real-Time Demand

Traditional staffing models often rely on static schedules that fail to reflect real-time patient needs. For rural hospitals, where daily volumes can fluctuate dramatically, this creates inefficiency on both ends: overstaffing during low-censuses days and understaffing when demand surges.

Modern workforce management approaches rely on historical data, forecasting, and predictive analytics to anticipate fluctuations and align staffing levels accordingly. By monitoring census trends, seasonal illnesses and community events, hospitals can proactively plan for surges in patient volume rather than reacting once strain sets in. This approach helps prevent burnout, reduces premium pay and overtime costs, minimizes reliance on expensive contract labor and supports consistent, high-quality care. Rural hospitals that implement daily unit-level reports on patient census and acuity have achieved measurable reductions in labor expenses and scheduling conflicts while maintaining safe staffing levels.

Seeing the Full Picture: Building Visibility Through Workforce Analytics

Effective staffing in rural healthcare depends on visibility; it is crucial to understand where people are working, how efficiently resources are being used, and where pressure points are. Healthcare workforce management platforms or customized dashboards developed by partners like Pathstone, enable hospitals to visualize labor utilization, track premium labor spend, and identify trends in turnover and productivity.

Data also uncovers costly overstaffing buffers that many hospitals maintain to offset uncertainty. With accurate forecasting and sound data governance, those margins can be safely reduced without compromising patient care. Predictive models that incorporate historical trends, seasonal variation, and local demographics help determine optimal staffing levels and skill mixes. Over time, these insights inform hiring plans, cross-training strategies, and budget forecasting, allowing leadership to move from reactive scheduling to strategic workforce management.

Building a workforce analytics framework involves three key components:

When integrated effectively, these metrics provide leadership with foresight to balance workloads, improve retention, and align recruitment with actual needs, rather than assumptions

Empowering People Through Technology and Flexibility

Technology cannot replace staff, but it can make limited teams more effective. Workforce management (WFM) platforms automate timekeeping, scheduling, and payroll processes, reducing administrative burden and payroll errors by up to 6%, according to the Aberdeen Group. Automation also enhances transparency, giving leaders clearer insight into how staff time is allocated and helping identify opportunities for upskilling, redistribution, and more efficient staffing.

Beyond automation, flexibility has become a defining factor in workforce satisfaction. Even in rural healthcare, where many roles must be on-site, flexible scheduling, cross-training, and hybrid options for eligible non-clinical staff can improve engagement and retention. Studies show that flexible work arrangements can increase employee satisfaction by over 60% and decrease the likelihood of job stress by 20%. For smaller hospitals competing with larger systems, these accommodations can be a powerful differentiator helping to retain staff and sustain the quality of care their communities depend on.

The Path Forward: Building a Sustainable Workforce for Rural Healthcare

The staffing challenges facing rural hospitals are complex but not insurmountable. Declining inpatient volumes, financial pressures, and workforce shortages are reshaping rural healthcare, yet data-driven tools and flexible staffing models offer a clear path forward. By combining analytics, automation, and intentional workforce design, rural hospitals can make smarter staffing decisions, strengthen employee well-being, and improve patient access — all while operating more efficiently.

Ultimately, the future of rural healthcare depends on transforming constraints into innovation. Hospitals that invest in visibility, planning, and technology will be best equipped to build a sustainable workforce culture that supports both caregivers and the communities that rely on them.

Contact Pathstone Partners to understand how a targeted review of your labor data can unlock substantial margin improvements.

Direct your Indirect: Insights from the AHRMM 2025 Conference & Exhibition

Key Takeaways:

Partner Joseph Jang joined Lisa Farmer, VP of Supply Chain at Baptist Health Arkansas, at the AHRMM25 Selects Summit to present “Direct Your Indirect: Drive & Scale Sustainable Margin Improvement in Your Organization”.
Successful margin improvement initiatives require early visibility and quick wins, executive sponsorship, a defined initiative lifecycle, multi-value lever strategies, and ongoing organizational alignment to sustain results.
Pathstone Partners applies these best practices to help clients achieve and sustain measurable financial and operational benefit.

At the AHRMM25 Selects Summit in August 2025, Partner Joseph Jang joined Lisa Farmer, Vice President of Supply Chain at Baptist Health Arkansas, to share insights and best practices for driving and scaling margin improvement through health system and consulting partnerships. The long-standing relationship between Pathstone Partners and Baptist Health was used during the talk to illustrate how these strategies can effectively create and sustain value across an organization.

Hospital Financial Challenges

Hospitals are facing unprecedented financial challenges in the post-COVID era. Increasing labor and non-labor costs combined with current and future policy changes continue to strain hospital finances. In July 2025, hospital operating margins across the United States averaged 2.6%, partially driven by a 9% year-over-year (YoY) increase in non-labor expenses. Looking ahead, policy shifts such as the One Big Beautiful Bill Act (OBBA) may further impact financials by tightening Medicaid eligibility and likely increasing the uninsured population by up to 11 million. Amid these pressures, hospitals are turning to trusted advisors like Pathstone Partners to identify sustainable strategies for margin improvement.

Key Steps to Drive & Scale Your Impact in Indirect Categories:

Joseph and Lisa outlined the best practices detailed below to deliver sustainable margin improvement within purchased services categories through strategic partnerships with firms such as Pathstone.

Create Visibility & Deliver Early Wins:

At the start of a consulting engagement, delivering savings early helps develop trust within the organization. These early successes bring project visibility across the health system, creating a smoother path to drive additional value. Hospital leaders who observe their peers collaborating successfully to drive financial benefit will be motivated to support savings efforts within their departments. Pathstone Partners typically helps our clients achieve quick wins by leveraging our category market and industry knowledge, and addressing long-term incumbent partnerships and upcoming contract expirations.

Secure Executive Sponsorship & Alignment:

The success of margin improvement efforts heavily depends on the organizational reporting, accountability, and decision-making structure. Hospital stakeholders and consulting partners should align on who will be involved in each cost-savings initiative, and the level of authority to make decisions in each area. Pathstone Partners typically establishes an Executive Steering Committee, Core Team, and Work Teams to report out on project progress and advance margin improvement efforts.

Establish Well-Defined Process:

In order for true financial benefit to be realized as part of a margin improvement efforts, a well-defined initiative lifecycle must be established. Without clear decision-making authority, even strong initiatives can stall. For Pathstone, the initiative lifecycle spans opportunity identification to savings implementation and close-out. The well-defined process ensures that Pathstone and the client stakeholders are clear on roles and timeline, and where to flag barriers to push margin improvement efforts forward.

Pursue a Multi-Value Lever Approach:

As previously detailed in Joseph’s Spring 2025 AHRMM Summit Presentation, health systems should employ a multi-value lever strategy in order to drive optimal value across supplier partnerships. While price is often the most visible lever, it represents less than half of the potential opportunity. Pathstone helps clients capture the remaining 55% through strategic initiatives beyond benchmarking by employing additional value levers.

To maximize financial benefit across a margin improvement engagement, Pathstone employs additional value levers (revenue, utilization, standardization, make/buy and strategic alliance). For example, contractual volumes of goods and services can be reduced to more closely match actual utilization. Multi-supplier categories can be reduced to a single supplier, leveraging the full book of business to reduce prices. Insourcing and outsourcing of clinical purchased services categories can be evaluated. The revenue share-back percentage on supplier contracts can be negotiated to increase the bottom-line revenue to the health system.

As part of margin improvement efforts, Pathstone works with our client partners to identify potential benefit in a category based on historic knowledge of expected applicable value levers. For example, in one recent engagement, combining utilization with supplier consolidation yielded 23% initiative savings on total spend, with price only representing 8% of total savings.

Scale & Sustain Impact through Influence & Addressing Friction Points:

To ensure that the implemented savings are realized and sustained for the long-term, supply chain leaders and consulting partners must address change management needs and organizational politics.

Addressing Friction Points: Margin improvement efforts often require change management; hospital stakeholders may be need to transition to a new vendor, adjust utilization habits, or insource a service in order for the health systems to realize the savings. These changes may yield negative emotions or team workload concerns. Additional pressure from hospital leadership does not automatically create organizational comfort with change. Instead, Pathstone works alongside our clients to identify and remove friction points that may be holding up cost savings efforts. Through the balanced partnership model, we partner directly with stakeholders to develop an organizationally-tailored path to value.
Leveraging the S-Curve: Based on Pathstone’s experience, the level of engagement across hospital stakeholders as an engagement progresses can be represented by an S-shaped curve. In the early phases of the engagement, only a small percentage of organizational leaders are typically on board with the need to drive savings. Pathstone works with our project sponsors to highlight the initial project wins and build organizational momentum to excite all leaders about cost savings. By adopting the “one-team, one-goal” mentality, we help create internal visibility of successes and facilitate partnership between departments to drive maximum financial benefit.

Ensuring Sustainable Margin Improvement Efforts with Pathstone Partners:

Pathstone Partners brings years of experience partnering with healthcare organizations to achieve sustainable margin improvement. By combining quick wins, long-term process alignment, and a deeply collaborative approach, we help our partners realize measurable financial benefit that lasts well beyond the engagement.

Contact us today for a no-cost opportunity assessment and discover how Pathstone Partners can help your organization achieve lasting financial impact.

Building Supplier Partnerships for Sustainable Margin Improvement

Given mounting financial pressures and ongoing policy changes, healthcare supply chain leaders remain focused on driving cost savings and margin improvement. In our last article, we explored why benchmarking alone won’t deliver sustainable margin improvement in purchased services. While benchmarking has its place and can highlight immediate opportunities, real and substantial financial benefit requires a broader strategy. The broader strategy should be one that considers standardization, utilization, make-versus-buy decisions, and, most critically, stronger supplier partnerships.

Here, we dive deeper into the last strategy from the toolkit: why developing true supplier and provider partnerships is essential for both accountable margin improvement and service quality.

We’ve seen this approach deliver meaningful results. In a recent engagement, applying the same partnership strategies discussed here, Pathstone helped a client negotiate with two incumbent vendors, generating $1.2M and $700K in savings across separate categories, without damaging relationships or disrupting service. Those outcomes were possible because the focus wasn’t solely on price, but on transparency, shared incentives, and aligned goals.

Transactional vs. Partnership Models

Too often, healthcare purchased services are managed through transactional contracts. The focus is on price, terms are rigid, and transparency is limited. While transactional supplier negotiations can yield quick savings, it rarely lasts and it often creates an adversarial relationship that discourages collaboration.

Strategic partnerships, by contrast, emphasize collaboration, transparency, and mutual accountability. They enable hospitals and suppliers to align incentives, solve problems together, and continuously improve performance.

Below are key differentiators between “traditional” transactional contracting and “forward-thinking” strategic partnership contracting:

The Four Pillars of Effective Partnerships

Building meaningful partnerships takes structure and intentionality. In our experience, the most successful hospital – supplier relationships are anchored by four pillars:

Why Partnerships Drive Sustainable Outcomes

When these elements are in place, health systems achieve stronger, more sustainable outcomes. Partnerships reduce waste, improve predictability, and create incentives for suppliers to bring new ideas forward. They also build resilience by sharing risk and addressing issues collaboratively. The result: consistent margin improvement alongside better service quality for clinicians and patients.

Avoiding Pitfalls

Even partnerships once thought strong can fail if mismanaged. Common challenges include:

One-sided agreements that erode trust.
Contracts too rigid to adapt as service needs change.
Governance structures without accountability or follow-through (at minimum, quarterly business reviews are key).
Using “partnership” as a label without backing it up with action.

Avoiding these mistakes requires commitment from both suppliers and providers to openness, fairness, and accountability.

Looking Forward

Partnerships are not quick fixes: they require investment, time, and trust, but for health systems determined to achieve sustainable margin improvement without sacrificing quality, “Partnership” should be at the forefront of any contract negotiation.

By combining benchmarking insights with true partnerships, health systems can lay the groundwork for a sustainable, accountable future.

Pathstone Partners has extensive experience driving healthcare margin improvement initiatives while allowing clients to maintain strong supplier partnership. We ensure incumbent suppliers are treated fairly during the RFP process, and look for ways in which existing supplier partnerships can be expanded or improved to drive additional value.

Does this approach resonate with your organization?

Keeping in mind the theme of this article, Pathstone prides itself on collaboration and open communication with our partners. As we shape the next part of this series, we see governance and execution as natural next steps, but every organization’s journey is different. What areas would you find most valuable for us to explore next?

Let’s discuss & collaborate!

Rural Healthcare at Risk: Navigating the One Big Beautiful Bill

Key Takeaways

The One Big Beautiful Bill Act (OBBBA), a $1 trillion federal spending and tax package signed into law on July 4, 2025, includes major healthcare provisions alongside broader budget measures.
The One Big Beautiful Bill includes the Rural Health Transformation Fund, providing $50 billion over five years to support rural hospitals, though unjust fund distribution and competition for rural designations may skew the financial benefit away from the intended hospital recipients.
Medicaid work requirements could create administrative challenges and potential coverage gaps, particularly in rural communities, impacting patient access and therefore hospital financial stability.
Rural hospitals face ongoing financial pressures, and Pathstone Partners is uniquely positioned to support rural hospitals in optimizing operations, managing costs, and improving resilience without impacting the quality of care.

Unpacking the OBBBA: How the Law Shapes Healthcare

H.R. 1, the One Big Beautiful Bill Act (OBBBA), a spending and tax law passed through the reconciliation process and signed into law on July 4, 2025, has prompted widespread discussion regarding potential impacts on healthcare programs, with the bill representing an overall $1.4 trillion reduction in federal spending. States are now required to implement health-related provisions, including changes to Medicaid coverage and rural healthcare funding.

The Congressional Budget Office (CBO) anticipates that 11.8 million people will lose health insurance over the next decade as a result of the OBBB, creating serious consequences for community health and straining healthcare providers. Uninsured individuals already face steep challenges: nearly half of uninsured adults go without provider visits, one in five skip needed treatment due to cost (vs 5-7% of insured adults), receive less preventative care, and are consequently more often hospitalized for avoidable conditions. These projected coverage losses highlight the urgent need for solutions to safeguard access and strengthen care delivery in underserved areas. One such solution authorized by the OBBBA is the Rural Health Transformation (RHT) Program to invest in rural healthcare delivery.

Facing Closure: The Growing Crisis in Rural Healthcare

Rural facilities have faced an alarming rate of closures, with over 100 closing in the last decade. Southern states are at particularly high risk; in Alabama, 23 rural hospitals – half of the state’s total – are at immediate risk of closure. Rural hospitals carry high fixed costs, including 24/7 staffing, facility maintenance, and fully equipped departments, yet service smaller populations, generating less revenue to offset expenses than their urban hospital counterparts. Without sufficient federal support, these hospitals must negotiate with private insurers from a weaker position, often accepting lower reimbursement rates due to smaller patient volumes and limited market leverage.

Number of At-Risk Rural Hospitals Across the US

Number of At-Risk Rural Hospitals across the US based upon hospitals classified in the top 10% Medicaid payer mix of rural hospitals across the country and experiencing three years or more of negative total margin.

Source: Cecil G. Sheps Center for Health Services Research, University of North Carolina

Funding the Future of Rural Hospitals: Lifeline or Limited Relief

While the OBBB seeks to reduce overall federal Medicaid spending by $1 trillion over the next decade, it establishes the $50 billion Rural Health Transformation Fund – a five-year program to support rural healthcare and mitigate disproportionate impacts on rural hospitals. Analysts caution that this temporary lifeline is insufficient to offset massive financial losses from Medicaid cuts, straining hospitals (particularly those with high Medicaid populations), and limiting investment in care coordination and critical resources. However, broad discretion by the Centers for Medicare and Medicaid Services (CMS) and individual states in allocating funds raises concerns that resources may not reach hospitals most in need.

Johns Hopkins and Brown University research shows 400 urban hospitals now claim “rural” status; over a quarter are for-profit, and at least five generate more than $4 billion in annual net patient revenue. These are so-called dual-classified hospitals (those designated as both rural and urban) are uniquely positioned to take advantage of the new Health Transformation program, potentially diverting funds away from smaller hospitals facing genuine financial distress, as outlined in the graphic below.

Source: Wang et al., 2025; Sharp Rise in urban hospitals with rural status in Medicare, 2017-23. Raw data retrieved from RAND Hospital Data, Medicare Cost Reports. Note the number of geographically urban hospitals remains stable between 2013 and 2023 (2,543 – 2,258 respectively).

Medicaid Reform: Consequences for Patient and Providers

The OBBBA also introduces Medicaid work requirements, intended to encourage able-bodied adults to contribute to their healthcare coverage. While designed to promote employment and reduce reliance on public programs, evidence suggests these requirements often cause coverage loss due to administrative and technological challenges rather than unwillingness to work. For example, in Arkansas, over 18,000 people lost coverage within five months of a work requirement pilot, with little measurable increase in employment. Many beneficiaries already had jobs, caregiving responsibilities, or health limitations that made obtaining documentation difficult, and for rural communities, these requirements are especially burdensome. Eligibility checks every six months, technology demands, and verification for seasonal or self-employed work, such as farming, create challenges for both patients and county offices.

Rural hospitals are expected to be further negatively impacted by the new Medicaid work requirements. Coverage loss even among working populations could increase gaps in care and increase uncompensated care for rural hospitals. This decline in Medicaid coverage may reduce reimbursement streams, strain hospital finances, and heighten the risk of service cutbacks and closures, particularly in already vulnerable rural areas. In 40 Medicaid expansion states, federal funding cuts could lead to an average of 19% decline in operating margins, and safety-net facilities could see an average reduction of 56%. Together, these pressures underscore how Medicaid work requirements, while intended to encourage employment, may ultimately destabilize rural healthcare systems and weaken community access to essential medical services.

Looking Forward: Operational and Patient Impacts of the OBBBA on Rural Hospitals

Operational Strain on Rural Hospitals: High fixed costs, limited patient volumes, and reliance on Medicaid make rural hospitals financially vulnerable to the new bill
Coverage Loss and Access Gaps: Medicaid work requirements may cause individuals, even those employed, to lose coverage, increasing gaps in care and uncompensated services
Funding Allocation Challenges: Broad discretion in Rural Health Transformation Fund and urban hospitals claiming rural status may divert resources away from truly at-risk facilities
Impact on Care Coordination and Resources: Reduced funding and coverage instability can limit hospitals’ ability to invest in technology, supply chain efficiency, and coordinated care programs
Patient & System Impacts: Loss of insurance and resulting delays or forgone care can lead to preventable negative health outcomes, increased emergency department use, and more intensive interventions, while ongoing financial and operational pressures may erode staff morale and weaken the stability of rural healthcare delivery

To navigate the evolving healthcare landscape, medical providers must take proactive steps to improve operational efficiency and financial stability. Hospitals are facing the challenge of doing more with less, as high pharmaceutical, labor, and administrative costs, coupled with looming Medicaid cuts, strain finances. In response, providers are adopting targeted strategies such as better controlling drug utilization, implementing new technologies, minimizing waste, and optimizing supply chain and procurement processes. With the urgency to reduce costs and operate more efficiently at an all-time high, these measures are critical for maintaining both quality of care and organizational resilience, while preparing for anticipated reimbursement reductions and declines in Medicaid enrollment.

Unlocking Savings and Resilience with Pathstone Partners

Pathstone offers rural hospitals cost-effective, hands-on support – bringing deep niche expertise, the agility to respond quickly to shifting challenges, and a partnership approach that tailors solutions to each hospital’s unique community and financial realities. Our boutique size and flexibility allow us to design customized strategies rather than using one-size-fits-all models, drawing on years of direct experience helping rural hospitals navigate financial pressures.

Reach out to Pathstone Partners today to request a no-cost spend assessment and understand how we can help drive financial efficiency for your organization.

Recognized on the 2025 Inc. 5000 List of Fastest-Growing Private Companies

Pathstone Partners, a Chicago-based healthcare consulting firm, has been honored with a spot on the 2025 Inc. 5000 list of Fastest Growing Private Companies in America, marking its second consecutive year on this prestigious ranking of America’s fastest-growing private companies. This recognition underscores Pathstone’s unwavering commitment to delivering impactful, operational solutions for healthcare organizations nationwide.

Strategic Growth Aligned with Changing Healthcare Needs

Pathstone Partners has achieved an impressive 92% revenue growth over the past 3-years, reflecting its success in partnering with healthcare providers to optimize costs while maintaining high-quality patient care. This milestone highlights the firm’s ability to adapt and thrive in a rapidly changing healthcare environment, where rising costs, staffing challenges, and evolving regulations are reshaping how hospitals and health systems operate.

Comprehensive Solutions for Healthcare Organizations

Pathstone Partners specializes in offering a range of services designed to enhance operational efficiency and financial performance:

Non-Labor Solutions: Streamlining laboratory and clinical supplies, purchased services, IT systems, and pharmaceuticals.
Labor Solutions: Optimizing workforce structures, reducing contract labor costs, managing overtime, and enhancing productivity.

By focusing on sustainable, data-driven strategies, Pathstone has continued to be a trusted partner for healthcare organizations navigating an increasingly complex and competitive landscape.

Proven Impact Across the Healthcare Sector

Pathstone Partners has collaborated with over 250 hospitals across the United States, generating more than $500 million in margin improvements. By leveraging a data-driven approach, the firm empowers healthcare leaders to make strategic, informed decisions that enhance operational performance while maintaining high-quality patient care.

Looking Ahead

As Pathstone Partners expands its impact amid a rapidly evolving healthcare landscape, the firm remains committed to transforming healthcare operations through innovative, data-driven solutions. Recognition on the 2025 Inc. 5000 list, along with 92% three-year revenue growth, underscores the dedication of the entire Pathstone team and reinforces its position as a trusted partner and leader in healthcare consulting.

Rethinking Purchased Services: Why Benchmarking Alone Won’t Deliver Sustainable Margin Improvement

In healthcare supply chain, benchmarking is often treated as the default starting point for purchased services cost reduction: compare your rates to a national dataset, flag the categories where you’re paying more, and then push vendors to match “market pricing.” On paper, this seems logical, but in practice, benchmarking alone often falls short, especially when it comes to the complexity and variability of purchased services.

Why Benchmarking Isn’t Enough

Purchased services are rarely “apples to apples” in any industry, and this is especially true in healthcare. Factors such as regional supplier availability, organizational size and scale, and the quality standards or service levels that leadership expects can all significantly influence pricing. A rate that looks “high” compared to a benchmark might actually be completely reasonable once these, and other, variables are factored in.

We see this challenge play out frequently with our clients. For example, a system that requires quick response times from its clinical engineering services partner, or expanded coverage for rural hospitals, may pay more than peers – and for good reason. These higher costs often reflect intentional leadership choices to protect service quality or operational flexibility. Benchmarking alone doesn’t capture these nuances, and when organizations chase a lower “market rate” without that context, they risk eroding performance or compromising patient care.

In this same example, clinical engineering spend could be evaluated more holistically. While benchmarking offers a snapshot of the market, a stronger approach might involve optimizing service coverage levels, analyzing technician dispatch patterns, or exploring regional partnerships with other rural entities to preserve quality while improving efficiency.

The Problem with a Price-First Mindset

When benchmarking becomes the sole driver of negotiation, the conversation quickly narrows to cost, often at the expense of value. This price-first mindset can obscure bigger opportunities, such as aligning service volumes with actual demand, consolidating fragmented vendors, or updating outdated scopes of work.

In many of our engagements, we’ve seen previous benchmarking efforts deliver short-term “wins” that erode over time, or worse, create downstream effects that impact clinical outcomes and vendor relationships. These downstream effects can take many forms. For instance, locking in a lower maintenance rate without updating scope can lead to costly repairs for newer equipment. Similarly, reducing linen service frequency to save on fees can cause shortages, emergency deliveries, and staff frustration. Ultimately, focusing solely on price can sacrifice long-term value and operational stability for the illusion of quick savings.

A Broader Approach to Unlock Value

Purchased services optimization requires a broader, more strategic approach—one that moves beyond comparing rates to national averages. At Pathstone, we help organizations evaluate a wider set of levers to unlock both financial and operational value. These levers include:

Standardization – Aligning vendors, terms and scopes across facilities to reduce variation and strengthen organizational negotiating leverage within the vendor relationship.
Utilization Management – Identifying overuse or inefficiencies by reviewing actual utilization of goods and services.
Make vs. Buy Decisions – Evaluating when in-house delivery or outsourcing services produce better value and clinical outcomes.
Revenue Opportunities – Identifying services that can be billed or reimbursed, or areas where revenue potential exists.
Strategic Supplier Partnerships – Building relationships that foster innovation and long-term value creation.

Each lever has trade-offs and requires alignment across stakeholders, but when applied strategically and thoughtfully, they can deliver far greater, and more sustainable, results than benchmarking alone. For a deeper look at when and how to deploy these value levers, see Unlocking Hidden Value in Healthcare Supply Chain: Insights from AHRMM 2025 Spring Summit.

Putting Context Before Comparison

Every health system is different. What works for a large academic center may not be right for a community hospital or rural network. That’s why we begin each engagement by understanding of organizational goals and operational realities:

What service levels are truly non-negotiable?
Where are there redundancies or inefficiencies?
Are current suppliers structured to scale with future needs?

By pairing operational insight with data analysis, we build a custom roadmap that reflects not just “what others are paying,” but what makes sense for your organization.

Final Thoughts

Benchmarking is a helpful reference point, but it’s not a strategy. In purchased services, context and alignment matter just as much as cost.

At Pathstone, we help healthcare organizations identify the right mix of improvement levers, whether that means quick wins or long-term transformation. If benchmarking is the only tool being used, your organization may be overlooking more meaningful and sustainable value.

Let’s connect to discuss what this could look like for your organization.

Improving the Affordability and Access to Language Services

Key Takeaways:

Hospitals are facing increased interpretive service costs due to rising demand for rare languages, increasing costs for ASL and on-site interpretation, and a growing LEP patient population, highlighting the need for modernized language access models.
Within the last year, Pathstone helped three hospitals achieve $1.4M, $1.3M, and $1.7M respectively in annual benefit through vendor consolidation, contract optimization, and telehealth integration.
Success was driven by early stakeholder engagement, hybrid service models, and tailoring solutions to each hospital’s unique needs.

In our recent work with multiple hospital clients, we focused on a common but often overlooked challenge: interpretation and translation services. While language access is essential to delivering safe, equitable care, many health systems struggle with outdated models, fragmented vendor relationships, and rapidly shifting patient needs. Despite different starting points, each organization shared a commitment to improving care for patients with Limited English Proficiency (LEP) or hearing impairments.

Let’s explore why interpretation services matter, the current industry landscape, and how hospitals can take practical steps to modernize and optimize their approach. We’ll draw from case studies across our client base to demonstrate meaningful results. Pathstone Partners helps hospital systems improve language services access and costs by reducing interpretation & translation service spend while improving, not sacrificing service quality and compliance through vendor consolidation, contract optimization, and performance monitoring.

Why Language Access Should Be a Priority

Hospitals are required by law to provide interpretation and translation services, including in-person interpretation, over-the-phone interpretation (OPI), video remote interpretation (VRI), and document translation. For patients who don’t speak English fluently or who rely on American Sign Language (ASL), clear communication is directly tied to safety, trust, and improved clinical outcomes. These services ensure patients with Limited English Proficiency (LEP) or those who are deaf or hard of hearing can understand and actively participate in their care, provide informed consent, and participate meaningfully in clinical decisions.

Interpretation services are particularly important as miscommunication in a medical setting can lead to medication errors, missed diagnoses, or avoidable readmissions. Effective language access programs enhance patient satisfaction, reduce liability, and support more informed clinical decision-making for physicians and patients. These services are not only a clinical asset, but also a strategic investment in risk management, compliance, and operational efficiency.

The Demand is Growing Rapidly

Interpretation needs vary significantly by hospital depending on patient demographic, service lines, and in-house capabilities. Many hospitals rely on multiple vendors, each with different pricing structures and service levels. This often leads to administrative burden, inconsistent quality, and limited visibility into performance.

Meanwhile, the US population is becoming increasingly linguistically diverse. According to the US Census Bureau, nearly 68 million Americans speak a language other than English at home, tripling since 1980. Over 8% (25 million Americans) are classified as having Limited English Proficiency. Notably, the growth in non-native English speakers who don’t speak English well has outpaced those who do, especially over the past four years, as shown below.

Source: Data compiled from 2024 US Census Bureau Tables American Community Survey (ACS) annual estimates from Table B16001 – “Language Spoken at Home by Ability to Speak English for the Population 5 Years and Older”

In January 2025, the US immigrant population reached an all-time high of 53 million, making up 15.8% of the total population. This surge reflects a broader trend, with 2023 seeing the largest annual increase in the foreign-born population since 2000. This isn’t just driving demand for commonly spoken languages like Spanish or Mandarin; hospitals are now experiencing increased needs for rarer languages such as Amharic, Tigrinya, Burmese, Nepali, Pashto, and Dari.

At the same time, industry trends like offshoring language services have introduced interpreters with limited knowledge of US healthcare, raising quality concerns. In-person ASL interpreters are becoming more difficult to source and more expensive. As local demographics evolve rapidly, hospitals often realize too late that their coverage no longer aligns with the communities they serve.

Without centralized oversight or strategic planning, it’s easy to overspend, miss coverage gaps, or lose sight of performance metrics. Hospitals committed to health equity, patient safety, and financial efficiency must reevaluate their language access strategy.

A Closer Look: Three Hospitals, Three Approaches

Across our client engagements, we have seen that while challenges may be similar, solutions must be tailored. Below, we share highlights from three hospitals in which we approached language financial improvement from different angles, and each has resulted in high-impact meaningful results.

Quality	Client 1	Client 2	Client 3
Baseline	6 incumbent vendors, High use of in-person interpretation with certified interpreters, Administrative burden due to fragmented vendor landscape, Strict compliance with local interpreting laws	4 incumbent vendors, Rising demand for language services with further increases projected, In-house interpreters primarily utilized for in-person services	8 incumbent vendors, Rising demand of rare languages due to influx of immigrants locally, Team of internal interpreters primarily focused on in-person services covering 4 languages
Value Levers Employed	Price, Standardization	Price, Standardization	Price, Standardization
Most Common Languages (Not including Spanish)	Russian, Vietnamese, Arabic, ASL	Arabic, Dari, Amharic, ASL	Arabic, Dari, Amharic, ASL
Results	$1.4M annual benefit, Successful transition to nationally recognized telehealth vendor as well as audio, video, in-person and written vendors, Maintained patient experience and quality standards	$1.3M annual benefit, Consolidated audio and video services from 4 vendors to 1 offering comprehensive rates and coverage	$1.7M benefit, Successful transition of audio, video, in-person, and written translation services, Consolidation of vendors from 8 to 3, Telehealth and Call Center integration at no additional cost
Unique Attributes	Longstanding vendor relationships made transition politically and operationally sensitive, Client risk averse about offshoring and Artificial Intelligence	2/3 service modalities were transitioned (audio and video); in-person services remained with incumbents, Telehealth and written translation not included in scope of engagement	Previous vendor standardization efforts were interrupted by COVID-19 which altered industry dynamics including suppliers’ reluctance to provide on-site interpretation citing inadequate compensation
Key Takeaways	Even systems with limited flexibility can achieve meaningful savings with strategic vendor negotiations, Quality and compliance do not need to be sacrificed when modernizing language services, Vendor billing dynamics (e.g., Coordinated Care Organization relationship) which manages	Clearly communicating vendor model benefits can shift client mindset, Clients value strategies that build early trust such as patient surveys that demonstrate user-centered planning, Clients can be receptive to primarily contractor-based	Standardizing language services can reduce administrative burden and improve efficiency system-wide, Vendor adaptability is important — choose a partner that aligns with your organization’s unique needs which change over time, Information Systems teams should be involved early in RFPs

What Drove Success

Modernizing Doesn’t Mean Sacrificing Quality: Even with strict compliance requirements, the hospital improved service delivery and cost efficiency through better contracts and vendor alignment.
Vendor Education Was Key: Initially skeptical executives embraced new models once they understood the operational gains and scalability.
Trust-Building Early Helped Later: Staff buy-in was secured through early surveys and needs assessments, leading to smoother implementation.
Balanced Vendor Models Outperformed: Combining in-house and vendor-based services allowed flexibility and optimized resource use.
Future-Proofing for Demographics: Attention to rare language trends helped avoid gaps and enabled planning for future demand.
Standardization Reduced Leakage: Clear vendor workflows and centralized oversight eliminated off-contract usage and improved compliance.

Looking Forward

The need for high-quality interpretation and translation services will only grow. Leading hospital systems are shifting from reactive, compliance-only language access models to proactive, strategic programs. These programs enhance patient safety, support health equity, and deliver measurable financial outcomes.

At Pathstone, we help hospitals build sustainable, data-driven language access strategies. Our work delivers cost savings while maintaining quality and compliance. Let’s discuss how your system can modernize language services and support every patient with the right care, in the right language.

Unlocking Hidden Value in Healthcare Supply Chain: Insights from AHRMM 2025 Spring Summit

Key Takeaways:

Move Beyond Price-Centric Thinking: Joseph Jang challenges the overreliance on price negotiation as the primary strategy for supply chain strategy.
The Multi-Lever Strategy Unlocks Greater Value: Pathstone’s framework enables organizations to apply multiple value levers (standardization, utilization, make vs buy, revenue, and strategic alliance) based on their specific market conditions, operational realities, and strategic priorities.
Dartboard Analogy Reframes Strategy: Rather than aiming for a single “bullseye” solution, organizations can coordinate multiple levers like darts on a board, with each targeting a different opportunity, to create a more resilient, financially optimized supply chain.
Strategy Starts with Context: Unlocking supply chain value begins with context-driven analysis to select the right combination of value levers, each with its own trade-offs, aligned to the organization’s goals, capabilities, and readiness for change.

Unlocking Opportunity at AHRMM: Rethinking Supply Chain Strategy

At the AHRMM 2025 Spring Summit, one of healthcare’s most influential forums for supply chain leaders, Pathstone Partner’s Joseph Jang delivered a powerful session titled Beyond the Surface: Unlocking Hidden Value with a Multi-Lever Strategy. His talk addressed a central challenge many healthcare organizations face: how to drive sustainable financial value without relying solely on pricing tactics.

Joseph challenged the historical approach of leaning on price negotiations as the go-to lever for reducing supply chain costs; in a healthcare environment shaped by constant change and margin pressures, organizations can do more than yield short-term gains without addressing root causes of system inefficiencies. Pathstone’s structured, multi-lever strategy empowers supply chain leaders to drive sustainable value and increase operational performance by using multiple tactics in tandem—not just price.

Going Beyond the Surface: The Dartboard Approach

The traditional view of cost reduction assumes that there is a singular “bullseye” solution—an ideal scenario where the lowest possible price is achieved through brute force negotiation. However, in reality, supply chains are far more dynamic. Joseph reframed this traditional thinking using the dartboard analogy: instead of chasing a single perfect shot, imagine evaluating the entire board—the full landscape of a category. When a multi-value lever strategy is employed, the more levers you have, the more darts you can throw. The goal shifts from hitting the bullseye once to scoring as many points as possible across the board. This approach allows supply chain teams to layer strategies, diversify efforts, and generate a greater cumulative impact—not from one perfect move, but from a well-executed series of targeted actions. In doing so, organizations “score higher” and build not just cost efficiency, but a more resilient and adaptable supply chain.

Why Value Levers Matter: A Framework for Action

Each organization faces unique constraints like budget, capacity, and stakeholder buy-in, and therefore requires flexibility in how it pursues cost savings and efficiency gains. Instead of a one-size-fits-all solution, the multi-lever framework allows teams to take a holistic view of their organization and match specific levers to their context, determine the most viable path forward, and recognize that multiple options may increase the likelihood of success.

To do so, organizations must begin with a thorough analysis of the external market environment by evaluating trends, supplier landscape and competition, pricing and volume history, and contractual shifts. Equally important is engaging with clinical and operational stakeholders through transparent conversations to validate how market data aligns with real-world utilization, pain points, and evolving needs. Then with this combined insight, organizations can identify and quantify opportunities across relevant levers by considering the appropriate market conditions. Strategy selection should reflect the organization’s financial goals, operational constraints, and internal capacity. Ultimately, success depends on structured analysis, stakeholder alignment, and a prioritized path to value that makes sense for your organization.

From One Lever to Many

Each value lever in Pathstone’s framework comes with trade-offs. Some levers are quick wins, while others require more time, alignment, or investment. Below is a simplified breakdown of how these levers work, when to use them, and what organizations should expect:

Value Lever	Typical % Impact	Typical Savings %	Appropriate Market Conditions	Advantages	Disadvantages
Price	50%	5-20%	Non-concentrated markets, Cost shifts, Misaligned pricing, New entrants to market	Fast results, Low disruption, Minimal resistance	Most supplier leverage, Short term impact
Standardization	20%	10-25%	Fragmented use of suppliers, Multiple similar suppliers/products, Expiring patents	Higher leverage, Operational efficiency	Customer pushback, Service disruption risk
Utilization	15%	10-30%	High or under-utilization, Cost tied to usage, Leadership buy-in to reduce utilization	High value, Resilient to supplier price hikes	Difficult to sustain, Behavior change required
Make vs Buy	15%	15-35%	Poor service quality, Internal capability growth, Service model shift	Transformative impact, Aligns with core strengths	High risk and high effort, Requires strong leadership
Revenue	5%	5-15%	Margin decline, Low visibility into revenue collection	Hidden opportunity, Possibility for quick wins	Requires financial alignment, Customers may be sensitive to changes
Strategic Alliance	5%	20-23%	Long-term partners, New services, High investment potential	Shared risk, Long-term value	High effort, Mutual commitment, Disruption risk

Pathstone works with clients to match these levers to their current state, determine which levers are most likely to deliver impact, and prioritize a path forward that reflects their financial goals, internal capabilities, and appetite for change.

Ready to Unlock More Value?

If you’re interested in how a multi-lever strategy could help your organization navigate uncertainty, improve supply chain resilience, and unlock hidden value, Pathstone can help. We offer a tailored evaluation to determine which levers are most appropriate for your organization, whether you need quick wins or are planning a multi-year transformation.

Joseph’s full AHRMM talk, Beyond the Surface: Unlocking Hidden Value with a Multi-Lever Strategy, is available for purchase through the AHRMM 2025 Spring Summit Site.

Watch Full Talk Here.

Pharmacy Benefit Managers (PBMs): Why Hospitals Should Pay Attention

Pharmacy Benefit Managers (PBMs) play a complex role in healthcare, managing employee pharmacy benefits, while also impacting hospital-owned pharmacy revenue. For hospitals, this dual exposure makes transparency around PBM pricing, contracts, and performance essential. As scrutiny and regulation increase, hospitals must take a proactive approach to managing these relationships. Pathstone helps hospitals navigate this complexity through a vendor-agnostic, data-driven approach — bringing transparency to PBM selection, optimizing financial performance, and aligning benefit strategy with clinical and operational goals.

PBMs and the Hospital Landscape

Acting as intermediaries between insurers, pharmacies, and drug manufacturers, PBMs are responsible for administering formularies, negotiating drug prices, and managing prescription benefit programs for employers, health plans, and other third-party payers.

In the hospital setting, however, their role extends beyond employee benefit administration. PBMs directly affect both what the hospital pays for employee prescriptions and the reimbursement it earns when those prescriptions are filled internally through hospital-owned outpatient or retail pharmacies.

As a result of this unique dual exposure, transparency into PBM pricing, contract terms, and reimbursement structures is essential. For hospitals, these factors are not just administrative concerns; they are strategic levers that influence drug spend, care access, and the financial performance of the health system’s pharmacy operations.

PBMs Under Scrutiny

PBMs have come under increasing scrutiny in recent years from policymakers, media, and healthcare stakeholders due to concerns that their business practices are contributing to rising prescription drug costs. Central to the debate are claims of inflated pricing structures, rebates designed to influence drug usage, and a lack of transparency — all of which raise broader concerns about fairness, accountability, and market dynamics.

A primary concern is spread pricing, where PBMs charge health plans more than they reimburse pharmacies for the same drug. This lack of transparency makes it difficult for hospitals and other plan sponsors to fully understand their pharmacy spend or assess the value of PBM services.

Vertical integration is another issue drawing scrutiny, in which some PBMs are part of larger organizations that also own retail pharmacies. This structure allows a PBM to manage the drug benefit while directing prescriptions to its own pharmacies — effectively controlling both the pricing and the dispensing of medications. Lawmakers worry that this reduces competition and limits patient choice.

Across the country, state legislators are beginning to respond by pursuing new regulations, reflecting a broader movement toward promoting competition, transparency, and fairness in how PBMs operate.

Arkansas enacted a law in April 2025 prohibiting PBMs or their subsidiaries from owning or acquiring retail pharmacy permits, in an effort to reduce conflicts of interest and support market competition.
Indiana’s Senate Bill 140 requires PBMs to maintain accessible and adequate pharmacy networks, ensuring patients are not restricted by narrow formularies or limited pharmacy access.
Iowa’s Senate File 383 passed June 2025 limits PBMs’ ability to steer patients or profit through spread pricing, while establishing an appeals process to protect rural and independent pharmacies from below-cost reimbursements.

As regulatory momentum builds, hospitals should stay informed about PBM-related policies, as these changes may directly impact employee health plans, pharmacy reimbursement, and patient access to medications, as well as impact on 340B pricing.

Case Study: Selecting a Strategic PBM Partner

Pathstone Partners recently supported a health system facing increased challenges with their PBM, who provided limited transparency around current pricing structures, discount/rebate guarantees, and data access, creating a lack of visibility and accountability that prompted the need for change. Thus, we partnered to conduct a comprehensive RFP process to evaluate, identify, and select a long-term, strategic PBM partner offering competitive and transparent pricing.

To support a robust and objective evaluation, a cross-functional committee with representatives from Human Resources, Finance, Pharmacy, Revenue Cycle, IT, and Nursing was established. This diverse team ensured a comprehensive review of vendors, balancing financial goals with operational and clinical priorities.

Vendor Types Considered

Three distinct PBM models were included in the RFP process, each offering a different approach to managing pharmacy benefits:

PBM Coalitions: Collective of employers, health plans, and other entities that jointly negotiate and manage pharmacy benefits to achieve better terms and pricing through scale.
Pharmacy Benefit Optimizers (PBOs): Independent organizations working with benefit consultants to optimize pharmacy arrangements with a focus on tailoring clinical programs, direct member services, and more aggressive pricing structures.
Traditional (Direct) PBMs: Full-service third-party administrators that manage prescription drug plans for self-funded employers, health plans, and other entities, providing end-to-end pharmacy benefit services.

Financial Evaluation Criteria

To ensure meaningful financial outcomes, Pathstone evaluated vendors using several key cost metrics:

Drug Discounts: The competitiveness of discount rates, often expressed as a percentage off the Average Wholesale Price, is a key determinant of projected pharmacy spend. These rates vary by drug class (specialty, retail, and generic) and reflect the PBM’s ability to negotiate favorable pricing on behalf of the health system.
Rebates: Rebate guarantees, negotiated between PBMs and drug manufacturers, directly reduce net drug costs. The size and structure of rebates, often varying by drug class, represent a significant portion of overall pharmacy benefit savings.
Formulary Flexibility: Flexibility within a PBM’s standard formulary can reduce administrative burden and cost. The ability to adjust brand and generic coverage without creating a fully custom formulary is particularly important for hospitals seeking to balance cost control with clinical appropriateness.

Value-Added Services Evaluated

Beyond core financial components, several program features were identified as opportunities to enhance value for the hospital and its employees:

Biosimilar Conversion Support: Strategic support for transitioning to biosimilars (lower-cost, clinically equivalent alternatives to specialty drugs) and driving adoption within the employee health plan due to the required clinical stakeholder buy-in.
Co-Pay Assistance Programs: Programs that reduce out-of-pocket costs for employees through manufacturer support or co-pay offset mechanisms can improve medication adherence and affordability.
Clinical Programs: Integrated clinical services, such as medication therapy management, adherence monitoring, and chronic disease support, contribute to better outcomes and long-term cost control.
Other Innovations: Additional offerings, such as utilization management tools, digital engagement platforms, or reporting dashboards, which can provide operational efficiencies and enhanced oversight.

How Pathstone Partners Can Help

At Pathstone, we take a vendor-agnostic approach to PBM evaluations, helping health systems navigate the complexities of PBM selection with a focus on transparency, long-term value, and strategic alignment.

Our services include:

Procurement Support: Facilitating a fair and methodical sourcing process to identify and assess PBM options through a fully vendor-agnostic lens.
Pharmacy Benefit Strategy: Providing guidance on long-term PBM and pharmaceutical health plan strategy, including recommendations for formulary design and biosimilar adoption to maximize value across the health plan.
Model Evaluation and Fit: Supporting a structured comparison of the full range of PBM models by outlining the benefits, drawbacks, and trade-offs of each to identify the model that best aligns with your organization’s current needs and long-term goals.

What is Digital Health Technology?

Health Care Financial Consultant Digital Health

The importance of digital health technology

Digital health encompasses the use of various technologies such as such as mobile health (mHealth), health information technology, and telehealth to enhance to overall efficiency between doctors and patients across healthcare systems. The scope of digital health creates opportunities for physicians to gain a holistic view of their patients’ health and for patients to have greater access and ownership to their information.

The importance of digital health technology has increased over time, especially with the COVID-19 pandemic. In addition to increasing access to health information for both providers and patients, digital health also enhances patient-doctor relationships, increases patient disease prevention methods, and creates a shift toward value-based care.

What are the Benefits of Digital Health?

Better Patient-Doctor Relationships

Through digital health, patients can access information about their own health as well as have a stronger relationship with their provider. For example, many hospital systems have digital health portals where patients can message their providers and receive answers back relatively quickly, rather than needing to wait for their next appointment. With digital health portals, patients can also meet with their doctors via video chat, which is especially important during the COVID-19 pandemic. Providers can provide real time updates to their patients regarding lab work and testing all without the patient needing to come into the office.

Improves Access to Information

Using digital health technologies, patients can actively manage their own health and monitor any irregularities that they may experience. Through digital health, patients also have access to information related to the following:

Disease prevention
Physical therapy
Occupational therapy

Having such information at their fingertips allows patients to make more informed decisions about their health.

Promotes Lifestyle Changes Among Patients

The amount of education individuals have access to because of digital health is immense and can lead to lifestyle modifications for patients who may be at risk for common diseases, such as heart disease or diabetes. Physical and occupational therapy can also be achieved through digital health platforms which are paramount to a patient’s recovery.

What Impact Does Digital Health Have on Value-based Care?

Value-based care has been discussed frequently as an alternative to fee for service care. Through digital health technologies, the shift towards value-based care is now being made in the United States.

Value-based care creates a model where providers are rewarded for giving the highest quality care to patients rather than providing care at a lower standard which leads to readmission rates and complications. This type of approach can be used to expand a patient’s care management and ensure that the patient is not suffering because of a lack of quality providers.

Digital health allows for multidisciplinary care management that could be lacking in value-based care. Multidisciplinary care management consists of constant communication between providers, something that digital health has a crucial role in. Digital health technology paired with value-based care gives patients the opportunity to decide for themselves which providers are best equipped to handle their health.

What is the Future of Digital Health?

Digital health is still relatively new in the United States but with continued healthcare services moving towards a digital model, patients will be able to take their care into their own hands. This means that individuals across generations will be more educated about their health and will be able to make informed decisions regarding their own care. Advances in digital health are numerous and the United States will see many more in the future.

As the demand for digital health continues to grow throughout hospitals and healthcare systems, so does the challenges of finding a cost effective solution. At Pathstone Partners, our expert consultants specialize in providing information technology solutions for healthcare systems across several different markets.

From contract negotiations to software rationalization efforts, we take a comprehensive approach to improving outcomes and reducing inefficiencies for health systems. Contact us online to sit down with our experience consultants to learn about our healthcare consulting services how we can help with digital health technology.

Navigating Tariff-Induced Supply Chain Challenges in Healthcare

Key Takeaways

Tariffs on imported healthcare products are introducing significant financial strain and operational uncertainty for hospitals, affecting everything from medical supplies and pharmaceuticals to IT infrastructure and construction materials.
With limited ability to absorb or offset rising costs, hospitals must take proactive steps to maintain financial stability.
Pathstone Partners supports health systems by challenging unjustified supplier price increases, analyzing vendor responses to tariff pressures, and guiding strategic contract negotiations.
Pathstone also helps identify and vet alternative suppliers, execute sourcing events, and implement contingency plans to preserve continuity of care and long-term supply chain resilience.

I. Introduction

The U.S. healthcare system depends on a globally integrated supply chain not just for medical equipment and supplies, but for virtually every facet of operations, including pharmaceuticals, IT systems, laboratory instruments, construction materials, purchased services, and more. Historically, healthcare products received strategic exemptions from tariffs — but new policies highlight the potential for tariffs to negatively impact these products. The current administration has implemented, or plans to implement, tariffs on key trading partners. Further, executive orders indicate pharmaceutical tariffs may be implemented within the coming weeks or months. For hospitals and healthcare systems, this policy shift introduces real risks: increased costs, supply delays, and reduced access to lifesaving and life-sustaining products.

II. The Global Supply Chain of Healthcare Products

The U.S. imported $36.7 billion in medical equipment in 2024¹, with much of its healthcare infrastructure relying on global partnerships. Several countries play critical roles in the healthcare supply chain, and as of June 2025, varying levels of tariffs apply to their exports, according to the Reed Smith Tariff Tracker:

China: Supplied nearly $2.31 billion, primarily for face masks, gloves, and syringes in 2023¹, and remains the dominant source for active pharmaceutical ingredients (APIs) used in both U.S. and global drug production². The U.S. currently has a 20% tariff with China, with a 34% tariff set to start 8/12/25¹⁰.
India: Provides around 40% of the U.S. generic drug supply, which accounts for 90% of prescriptions filled, while relying heavily on Chinese API imports³. A 27% tariff on Indian goods is expected to start 7/9/25¹⁰.
Mexico: Exported $12 billion in medical equipment, including syringes, diagnostics, and surgical tools¹.
Canada: A key supplier of prescription medications and raw materials, often offering lower-cost alternatives to U.S.-produced drugs. Canadian and Mexican goods that fall under USMCA rules (fully sourced from USMCA countries) are exempt from tariffs; otherwise, a 25% tariff applies to products from Canada and Mexico¹⁰.
Other Key Suppliers: Germany, Ireland, and Japan also play important roles — exporting advanced surgical instruments, hosting major medical technology manufacturing hubs, and supplying high-tech diagnostic equipment, respectively¹.

This global network ensures innovation, availability, and affordability across the U.S. healthcare landscape — but also introduces potential vulnerabilities in times of geopolitical or logistical disruption.

III. Understanding the Complexity of the U.S. Healthcare Supply Chain & the Influence of Tariffs

Hospitals operate within one of the most intricate supply chains in any industry. Medical products often require highly specialized manufacturing processes and must meet strict FDA and international regulatory standards, which significantly limit sourcing flexibility.

Mark Pascaris, Senior Director and Analytic Lead for Nonprofit Healthcare at Fitch Ratings, cautioned that new tariffs could undermine the modest financial recovery many nonprofit hospitals have achieved in recent years. “This adds yet another headwind for not-for-profit hospitals, which are already navigating post-pandemic pressures, workforce shortages, and persistent inflation,” Pascaris said⁸.

Given that medical supplies and pharmaceuticals make up 20% or more of hospital operating expenses⁹, tariffs could affect a broad range of items. Tariffs on critical inputs like diagnostic reagents, telecom hardware, or steel and HVAC components could drive up costs, delay major projects, and disrupt operations. These impacts are far-reaching: a price hike in imported IT equipment may impact cybersecurity readiness, while construction material tariffs could stall facility upgrades or expansions. Even software platforms used in electronic health records may be built on globally sourced technologies, leaving hospitals exposed to cost increases and longer implementation timelines.

However, unlike many other sectors, shifting suppliers or relocating production is neither quick nor simple. It involves considerable time, cost, and logistical coordination — especially in a market where pharmaceuticals remain among the top U.S. import categories⁴. Even if some manufacturing is reshored to the U.S., Pascaris warned that hospitals may still face “permanently elevated costs and potentially fewer choices.”⁸

The COVID-19 pandemic underscored these healthcare supply chain challenges, exposing deep vulnerabilities in the global healthcare supply chain and leading to widespread shortages. More recently, the disruption of a single manufacturing plant in North Carolina — which impacted roughly 60% of the nation’s IV solution supply — demonstrated how localized events can have nationwide consequences.

For hospitals, these realities make clear the need for resilient, diversified, and well-managed supply chains to ensure continuity of care and protect against future shocks.

IV. Impact of Tariffs on Healthcare Contracts

Rising tariffs on imported medical goods are adding new financial strain for U.S. hospitals. Increased costs on essential supplies like gloves and syringes — many of which are sourced from China — are difficult to absorb, especially given long-term reimbursement contracts that prevent providers from adjusting prices. The costs of both pharmaceuticals and medical devices are also expected to be impacted by impending tariffs. In particular, complex and varied items such as surgical kits may be affected by the inability for providers to easily switch out kit items.

To manage these pressures, some manufacturers are shifting production to lower-tariff countries such as Malaysia. However, these changes take time and can introduce new sourcing complexities and delays⁵. Hospitals may experience a 6–12 month delay in feeling the effects of new tariffs due to fixed-price contracts with suppliers, which may shield them from immediate cost increases. However, as these contracts come up for renewal, hospitals are likely to face significant pricing hikes. In some cases, the magnitude of the increase may trigger force majeure clauses, allowing suppliers to renegotiate or exit contracts due to unforeseen economic hardship.

V. Sampling of Supplier Projected Tariff Financial Impacts & Strategic Responses

To better understand how suppliers in the market are adjusting to policy changes, the projected revenue between Q4 2024 and Q1 2025 as well as announced tariff mitigation strategies were compared for key healthcare suppliers.

The chart below illustrates how leading healthcare suppliers have revised their 2025 revenue projections in response to recent U.S. tariff changes. Each bar represents the estimated impact on a specific company, comparing revenue forecasts from Q4 2024 (prior to tariff implementation) with updated estimates from Q1 2025, after companies began adjusting to the new cost landscape.

Companies are also categorized by their tariff response strategy outlined in their Q1 2025 earnings calls: absorbing the added costs, passing them along to hospitals, adopting a mixed strategy, or having low exposure. The strategic decisions made by the suppliers are already influencing hospital budgets, contract terms, and supply chain planning—and will continue to do so heading into the second half of the year. Hospitals are particularly vulnerable based on their utilization of those suppliers who have announced they will pass increased costs onto the health systems.

The most significant projected revenue declines are seen among distributors and medical device manufacturers, reflecting increased import costs on surgical supplies, equipment components, and consumables. Pharmaceutical manufacturers tend to show smaller shifts, often due to more diversified sourcing or the fact that pharmaceutical tariffs have not been formally announced.

Suppliers expected to either fully or partially pass tariff-related costs to hospitals are among those with the steepest projected revenue declines. This suggests that companies pursuing downstream cost-shifting are still facing significant short-term financial pressure and indicates that price increases alone may not be enough to offset the broader impact of tariffs. In contrast, companies absorbing costs or reporting low exposure tend to show smaller revenue shifts, reflecting stronger internal cost controls or more resilient sourcing models that allow them to protect their customers.

*Source: Data compiled from Q4 2024 and Q1 2025 earnings reports and press releases from leading healthcare companies operating in the U.S. market. Each bar reflects a single company’s reported revenue projection change.

Hospitals are facing a difficult financial reality: higher supply costs without the ability to raise prices lead directly to shrinking margins and increased pressure on operating income⁶. Lawmakers have also expressed concern, warning that tariffs on critical medical products could lead to care rationing or treatment delays — outcomes that risk directly impacting patient safety⁷. Understanding how each supplier is responding to tariffs can help hospitals anticipate upcoming changes in spending, adjust contract strategies, and proactively manage supply chain risk heading into the second half of the year.

VI. Navigating the Path Forward

As tariffs and global supply chain disruptions continue to raise the cost of medical goods, hospitals and health systems face a growing need to balance financial sustainability with uninterrupted, high-quality care delivery. Addressing these pressures requires coordinated, data-driven action — and that’s where Pathstone Partners can help.

Push Back on Proposed Price Increases with Existing Suppliers: In the coming months, suppliers under current agreements may propose price increases on existing products or services, using tariffs as justification. Many suppliers already have cushions built into operating margins to better absorb the tariffs, while health system operating margins may be so slim as to not be able to absorb any price increases. Pathstone can push suppliers to act as true partners for health system clients in absorbing some of the tariff pressure.
Proactively Manage Supplier Relationships: Based on market review, Pathstone can tell which publicly traded suppliers project significantly decreased revenues or plan to pass the cost of the tariffs onto the hospitals. In conjunction with the hospital team members, Pathstone can provide insight into how a given supplier is managing the situation, informing supplier conversations, business reviews, and contract negotiations.
Identify and Vet New Suppliers in Response to Market Shifts: In response to shifting international trade dynamics, new domestic suppliers may enter the market, and existing suppliers may acquire each other or consolidate. New suppliers providing the same product or purchased service may present an opportunity to test the shifting market. Pathstone can conduct RFPs to test the market and understand the value offered by new suppliers.
Force Majure: If raw material prices increase considerably, suppliers may be unable to meet contractual pricing requirements, leading to an inability for the supplier to turn a profit. Hospitals may face backorders in these cases. In response, Pathstone can work with clients to quickly implement agreements with new suppliers to minimize patient care disruptions.
Evaluate Secondary & Tertiary Suppliers: In response to fluctuations in availability across the market, there may be an opportunity to negotiate and eliminate volume requirements or exclusivity clauses in supplier agreements. If suppliers are unable to meet contractual requirements, hospitals may need to implement agreements with additional suppliers. Pathstone can help health systems balance low prices offered by an exclusive supplier with the need for multiple suppliers to meet demand.

VII. Conclusion

Tariffs are reshaping the economics of healthcare supply chains, especially for hospitals. As costs rise and supply disruptions increase, healthcare systems must act decisively to protect financial health and patient access.

Pathstone Partners helps hospitals move from reactive responses to proactive strategies — building more resilient, cost-effective supply chains without compromising care quality.