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.

Footnotes:

Aligning Blood Services Across the Health System

A large West coast IDN utilizes 6 different blood banks across the state.

A large West coast IDN utilizes 6 different blood banks across the state. Fees differ across these suppliers and even within the same suppliers, largely due to geographical restraints. In addition, suppliers were increasing their fees across all sites at the beginning of the calendar year. There were many agreements throughout the health system, spread across each region and individual sites, which were not co-terminus.

The health system’s goals included enhancing product quality, improving standardization of current services (delivery times, return policies), and lowering the cost of blood products and services across the system. A Request for Proposal (RFP) was distributed to allow incumbents to bid on their current business, and provided them the opportunity to gain additional regional business. In this RFP, it requested suppliers to agree to contract terms to enhance flexibility and support utilization policies. Multiple rounds of negotiations were conducted prior to selecting finalist(s) for the health system.

Utilizing Pathstone’s laboratory consulting services, the health system conducted an RFP allowed for them to select the best option for each regional facility. Though many regional facilities stayed with their incumbent, it allowed others to select another supplier if the proposal responses more closely aligned with the site’s goals. Suppliers agreed to a co-terminus end date to allow the health system to evaluate as a whole once the contracts expire.

During COVID-19, there has been an extraordinary demand for blood and blood products, yet a shortage of donations. Therefore, blood pricing has largely been dependent on availability and donations.

An Adaptable Approach Through the Covid-19 Pandemic

Pathstone Partners Chicago Health Care Consulting (11)

The supply chain leadership of a large $2B integrated health system identified the need to elevate its procurement function by establishing a strategic sourcing function that is critical in driving long-term value to the organization, then Covid-19 hit.

The supply chain leadership of a large $2B integrated health system identified the need to elevate its procurement function by establishing a strategic sourcing function that is critical in driving long-term value to the organization.

The client had limited strategic sourcing resources to serve its internal customers, partner with its supplier base, and address total non-labor expenditures of $1B.

Furthermore, the client was facing budget constraints that created challenges to secure resources to recruit, train and grow a team that is critical to its ability to achieve its goals.

As a result, the client engaged Pathstone to partner with the organization to embark on a journey to transform its procurement function to deliver and sustain value over the long-term.

Pathstone introduced its Balanced Partnership® approach, which offers a flexible support model that scales with each of the three phases of the client’s transformation journey.

Phase 1: Start-Up (Year 0-2)

Pathstone led support to identify and implement non-labor and strategic sourcing savings across all categories.
“Quick win” categories were identified and implemented such as translation services, records management, managed print, telecom.
After securing several wins, Pathstone worked with supply chain leadership to develop a business case to recruit and hire additional strategic sourcing FTEs to accelerate efforts.
The client was able to mitigate financial headwinds by achieving $2.5M+ in annual savings through Pathstone-led initiatives.

Phase 2a: Momentum (Years 2-3)

Pathstone worked with the newly formed sourcing function to plan for the next wave non-labor expense reduction initiatives.
Pathstone and the client allocated initiative responsibilities between both teams to maximize overall return on investment (ROI).
Complex categories such as Rx, lab and revenue cycle, purchased services were assigned to Pathstone.
Less complex categories such as clinical and non-clinical supplies were assigned to the client team.
Achievement of $7.5M in benefit through ongoing Increased non-labor spend addressed by the client supply chain team to impact cost.

Phase 2b Resilience (Year 4-5)

Emergence of the COVID-19 pandemic, leading to supply chain disruption, and significant financial challenges.
Pathstone worked with the client sourcing team to proactive source and secure PPE (gloves, gowns, sanitizers) needed by front-line staff.
Pathstone partnered with executive leadership to engage top spend and strategic suppliers to secure short-term concessions to mitigate financial impact.
Pathstone worked with IT leadership to evaluate and rationalize IT investments.
Quick implementation of $15M in non-labor expense savings within 9 months by engaging strategic suppliers.

Phase 3 Sustainability (Years 6+)

Pathstone provided ad-hoc implementation support on targeted complex categories in Rx, Lab and Biomed.
Pathstone also provided market intelligence, training and post-implementation reviews to augment the client’s ability to drive and sustain long-term value.
Achievement of $10M of benefit (combined team effort).

As a result of Pathstone’s Balanced Partnership® approach, the client was able to achieve the following results:

Achievement of $35M+ annual non-labor expense reduction: The client achieved over $35M+ in annual savings in all major non-labor spend categories, including clinical supplies, information technology, telecom, pharmacy, lab, support services and purchased services.
Enhanced credibility and relationships with internal stakeholders: Previously, the supply chain & sourcing team had limited resources to truly serve the needs of its customers and the organization. Over time, internal customers viewed supply chain as a strategic advisor that can make a meaningful contribution to their departments. The paradigm shift led to earlier integration of supply chain
Increased internal knowledge & expertise: Pathstone served as an extension of the client sourcing team, which enables the client to “learn by osmosis” by jointly participating in a full strategic sourcing lifecycle from start to finish. Furthermore, through Pathstone’s ad-hoc support model, the internal team gained access to formal training and knowledge sharing sessions that facilitated their growth over time.
Enhanced ROI over time: Through Pathstone’s flexible model and investment in the client team, overall return on investment on supply chain & Pathstone resources increased from 4x to 10x. This was largely driven by the supply chain team’s growing capabilities, which led to a higher number of spend addressed and impacted internally as opposed to relying on Pathstone’s resources over time.
Sustainability: With access to Pathstone’s ad-hoc support including market insights/leading practices, negotiation support and post-implementation support, the client significantly increased its ability to sustain benefit achieved over time. For instance, Pathstone conducted a post-implementation review of a translation services sourcing event, which revealed over $1M+ in value leakage over-time due to lack of contract pricing compliance. The client utilized Pathstone’s findings to address both pricing and utilization opportunities to drive costs down with its key suppliers.

Why Healthcare Consultants are Valuable for Hospitals

In the intricate world of healthcare, hospitals face the constant challenge of balancing providing exceptional quality patient care, mitigating financial pressures, and matching the pace of medical innovation. Healthcare consultants offer vital support, providing expertise and strategies to navigate financial complexities. Let’s explore why the contributions of a healthcare consulting firm are so valuable to healthcare organizations.

Navigating the Complex Healthcare Landscape

The healthcare industry is dynamic and multifaceted, requiring a deep understanding of regulatory requirements and hospital financial structures. Healthcare consultants bring this specialized knowledge to help navigate these unique challenges. They offer expertise in areas such as:

Financial Management: They help hospitals manage costs effectively, freeing up funds to invest in enhanced patient care and innovation. A consultant might also identify an opportunity to increase revenue on a given service line through more appropriate billing and coding, or may point out an alternate supplier with reduced pricing for existing services.
Operational Efficiency: Consultants assess current clinical and non-clinical workflows and processes, identifying bottlenecks and inefficiencies that hinder productivity.
Technology Integration: Consultants can help hospitals integrate new technologies and optimize use of software modules already owned. They may identify areas to rationalize and eliminate duplicative technology purchases across campuses and departments.

The Imperative of Financial Oversight

Maintaining financial stability is crucial for hospital systems. Healthcare consultants play a key role in ensuring hospitals prevent runaway spend growth. To manage overall system finances, healthcare consultants can work to:

Improve Margins: Consultants work to enhance revenue and reduce expenses across categories, leading to improved financial margins. Margins can be improved through negotiating more favorable supplier contracts. Pathstone Partners has improved margins by over $500 million across the combined client portfolio.
Reduce Operational Costs: By streamlining processes and optimizing resource allocation, consultants identify areas where internal costs can be reduced. Pathstone Partners, for example, focuses on streamlining operations and lowering operational costs for healthcare providers.
Non-Labor Cost Reduction: Consultants also focus on the optimization of non-labor costs through negotiated price reductions with suppliers and reduced utilization of goods and services. Typical target areas for non-labor cost reduction include laboratory supplies, clinical supplies, clinical purchased services, information technology, and pharmacy.
Labor Cost Reduction: Consultants provide labor solutions that help with structure optimization, contract labor, premium pay reduction, and overtime reduction.
Data-Driven Insights: Consultants use data analysis to track spending, identify cost drivers, and provide actionable insights for financial improvement.

Fostering Innovation in Healthcare

Innovation is essential for healthcare to evolve and adapt to changing needs. Healthcare consultants play a role in driving innovation in the following ways:

Implementing New Technologies: Consultants help hospitals identify, select, and implement innovative technology solutions. Target new technologies may automate existing manual tasks and enhance data collection / revenue cycle management. These innovations can enable staff to focus on higher-level responsibilities and ensure clinicians practice at the top of their licensure.
Improving Processes: By redesigning workflows and implementing best practices, consultants enable healthcare providers to embrace innovative approaches to patient care and operational management.
Introducing New Models of Care: Consultants support the adoption of new models of care delivery that can lead to improved patient outcomes and efficiency.

Areas of Focus Consultants work with a variety of healthcare facilities including:

Acute Care Facilities
Academic Health Systems
Regional Health Systems
Pediatric Health Systems
Non-Acute Care Facilities
Community Health Systems

The Value of an Objective Perspective

Healthcare consultants offer an objective perspective that can be invaluable to executives making critical decisions. They can offer an unbiased opinion on:

- Process Analysis: They analyze workflows, identifying areas of improvement that might be overlooked by internal staff.

Supplier Relationships: Consultants can help hospitals challenge long-standing supplier partnerships and ensure they are receiving maximum value from current supplier contracts.
Strategy Development: Consultants work with hospital leadership to develop strategic plans that align with an organization’s goals and values. Their impartial strategic review can set an organization up for the best chance of success.

Learn How Pathstone Partners Can Make an Impact

Healthcare consultants are essential partners for hospital systems, helping them navigate the complexities of healthcare with expertise, objectivity, and a commitment to reducing costs while maintaining quality patient care. By partnering with a healthcare consultant like Pathstone Partners, hospitals can achieve operational excellence and financial stability, and position themselves for a successful future.

Navigating NIH Funding Cuts: How Hospitals Can Adapt and Optimize Costs

The recent developments surrounding NIH indirect funding cuts and blocked grant review meetings have placed hospitals, health systems, and research organizations in a precarious position. With federal funding reductions looming and grant disbursement delays continuing, healthcare organizations must find ways to adapt to maintain research efforts and financial stability.

Current Challenges: NIH Indirect Funding Cuts and Grant Review Delays

The National Institutes of Health (NIH) has proposed capping indirect funding for federal research grants at 15%, significantly reducing funds allocated for essential support costs such as:

Facility maintenance (electricity, janitorial services, etc.)
Administrative staff salaries
Other non-research expenses that keep clinical studies operational

Additionally, a temporary federal block on grant review meetings has delayed NIH’s ability to process new grants, restricting the disbursement of federal funds. While some scientific review meetings have resumed as of February 26, many grant review processes remain frozen, leaving hospitals and research institutions uncertain about future funding.

The Impact on Hospitals and Health Systems

If implemented, the 15% cap on indirect funding would reduce total federal spending on research support costs by over $4 billion. This change will force hospitals and health systems to:

Cut spending on research support services or shift funds from other areas
Reduce research efforts, leading to furloughs or job cuts
Disrupt clinical trials, directly impacting patient care and ongoing research initiatives

For many institutions, this funding shift could mean the difference between continuing life-saving research and having to scale back due to financial constraints.

How Healthcare Organizations Can Mitigate Risks

To navigate these funding reductions, healthcare organizations must prioritize cost-saving strategies across key operational areas. Pathstone Partners recommends the following:

Implement System-Wide Non-Labor Cost Reduction Strategies

Evaluate high-spend categories such as Pharmacy, IT, HR, and Purchased Services to identify cost-saving opportunities.

Accelerate Speed to Value (S2V) Initiatives

Address suppliers with significant year-over-year (YoY) spend increases and renegotiate contracts with upcoming expirations.
Identify under-utilized service agreements and optimize vendor relationships.

Maximize Value Beyond Price Reductions

Leverage utilization, standardization, and revenue-enhancement strategies to improve margins.
Assess make-or-buy opportunities to optimize resource allocation.

Conduct a Comprehensive Labor Cost Review

Analyze staffing patterns and pay structures to identify cost-reduction opportunities.
Implement efficient workforce management strategies to minimize unnecessary expenses.

Pathstone Partners: Driving Cost Optimization in Uncertain Times

As hospitals and research organizations brace for potential funding reductions, proactive cost management will be essential to maintaining financial stability and research capabilities. Pathstone Partners specializes in helping healthcare organizations streamline costs, optimize operations, and maximize financial resilience in the face of evolving funding challenges.

Learn more about how Pathstone can support your organization in navigating federal research funding cuts.