Structural Misalignment in Healthcare GPOs

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Executive Summary

Group Purchasing Organizations occupy a central and largely unquestioned position in the healthcare procurement ecosystem. Nearly every hospital in the United States participates in at least one GPO, and the strategy seems straightforward: aggregate purchasing volume, negotiate from scale, reduce sourcing overhead and secure pricing that standalone institutions cannot achieve on their own. 

That value proposition seems obvious; GPOs provide contract access, pricing benchmarks, administrative efficiency and scale leverage that many organizations would struggle to replicate independently. The question is not whether they add value – the question is whether their economic structure is fully aligned with the financial objectives of the hospitals they serve. 

It is not. 

GPOs are funded primarily through administrative fees paid by vendors as a percentage of purchase volume, an arrangement permitted under federal safe harbor regulations. A GPO whose revenue scales directly with total spend cannot be perfectly aligned with aggressive enterprise-wide cost reduction objectives. Compliance frameworks limit the pursuit of lower-cost alternatives, local negotiating gains are often offset in part by GPO fee structures, and some of the most powerful cost levers, utilization management, standardization, make vs. buy, revenue enhancement and strategic partnerships fall largely outside GPO influence. 

For a health system carrying $1 billion in annual non-labor spend, a one percent improvement in total economics represents $10 million in margin impact. At three percent, that figure rises to $30 million. For organizations operating on thin margins, those are not rounding errors, they are the difference between financial stability and uncertainty. 

This paper examines where GPO incentives diverge from hospital interests, quantifies the financial stakes for executive leadership, and offers a framework for using GPO relationships strategically in a broader cost management strategy rather than relying on them to drive financial improvement goals. 

The Historical Evolution of Group Purchasing Organizations 

Group Purchasing Organizations began in the early twentieth century as cooperative buying arrangements among hospitals operating in fragmented markets. Individual institutions lacked scale and procurement sophistication, suppliers often dictated pricing, and administrative resources were limited. By pooling demand, hospitals gained leverage, reduced overhead, and secured better terms. 

The modern GPO industry took shape in the 1980s when two forces converged. Reimbursement pressure intensified following Medicare’s shift to prospective payment systems, putting cost reduction at the top of every hospital CFO’s agenda. Simultaneously, Congress formalized the legal safe harbor permitting vendors to pay administrative fees to GPOs, a regulatory change that institutionalized a vendor-funded revenue model tied directly to purchasing volume and altered the economic foundation of the industry permanently. 

Administrative fees provided scalable, predictable revenue that fueled consolidation. By the early 2000s, a small number of national organizations – Vizient, Premier, and HealthTrust Performance Group had emerged as dominant players overseeing hundreds of billions in annual purchasing volume. As health systems consolidated, GPOs expanded beyond basic contracting into physician preference items, capital equipment, analytics, purchased services, and advisory functions. 

Today a hospital may simultaneously participate in a national GPO, a regional alliance, and an aggregator overlay, with pricing tiers and rebates dependent on compliance metrics across multiple portfolios. What began as cooperative purchasing has evolved into a complex, vendor-funded structure whose economics are not always transparent to the members it serves. 

Where Misalignment Becomes Visible

Commodity and Medical-Surgical Categories 

In commodity medical-surgical supplies, GPO pricing is structured around compliance. Diverting volume to a lower-cost alternative can jeopardize portfolio discounts across an entire category. The result is a structure in which hospitals are financially penalized for pursuing better economics outside the contract, not because the alternative is inferior, but because compliance thresholds protect fee revenue. 

Physician Preference Items 

National contracts in physician preference categories typically establish maximum pricing frameworks. Many organizations incorrectly treat these ceilings as the best available price. Local negotiations, particularly those supported by data and tailor-made strategies, frequently achieve significantly better terms. The gap between GPO contract pricing and locally achievable pricing in implants, cardiovascular devices, and other high-value categories can be significant and lead to multi-million-dollar savings potential. 

Local Negotiations and Fee Capture 

When hospitals do negotiate improved pricing independently, GPOs often prefer that those agreements remain on their contract paper, preserving administrative fee flows and compliance metrics. If pricing improvements originate from hospital-led effort but remain on GPO paper, administrative fees may still apply. The hospital captures some, but not all, of the value. The economics of the improvement are shared with the GPO even when the GPO contributed nothing towards achieving it. 

Structural Misalignment

Figure 1. GPO coverage territory relative to total non-labor spend. Categories in the blind spot zone — representing 70-75% of spend — receive no meaningful GPO contract leverage.

Beyond Price: The Levers That Matter Most

Price is one lever among several in a comprehensive margin improvement program, and often not the most powerful one. Utilization reduction, standardization and vendor consolidation, make-versus-buy analysis, and strategic partnerships frequently deliver greater financial impact. These strategies are also largely GPO-agnostic and can directly reduce purchasing volume, ultimately reducing administrative fee revenue. The structural incentive to expand these efforts does not exist within the GPO model. 

Purchased services such as IT, revenue cycle, facilities management, and outsourced ancillary and support functions represent approximately 30% of non-labor spend for most health systems and fall almost entirely outside meaningful GPO influence. External spend for supplies, pharmacy, and purchased services makes up 30 to 40 percent of a typical health system’s total cost base, yet only a fraction of that spend benefits from GPO leverage. In organizations where purchased services constitute 30 to 40 percent of non-labor spend – this is not a minor gap. 

Financial Implications for Executive Leadership

For CFOs, CEOs, and Chief Supply Chain Officers, the structural dynamics described above are not abstract; they have direct impact on margins. 

GPO contracts provide genuine value as a pricing floor. In most categories, they protect hospitals from obvious overpayment and establish a benchmark against which local negotiations can be measured. That is not nothing. But pricing benchmarks do not guarantee optimized total economics, and the distinction matters enormously at scale. 

If GPO contract pricing reflects negotiated averages rather than fully optimized outcomes, the opportunity cost compounds every year. A health system that consistently accepts contract pricing as the destination rather than the starting point leaves meaningful margin on the table recoverable through more assertive local negotiation, utilization management, and category strategies that go beyond price. 

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Figure 2. Five-year cumulative savings divergence. For a $1B non-labor spend health system, a 3% local negotiation improvement generates a $58M gap over four years compared to a GPO-only baseline. 

The Administrative Fee Question

Vendor-funded administrative fees are embedded in the economic structure of GPO contracts. Many GPOs distribute a portion of these fees back to members as patronage dividends, rebates, or credits, and in large systems these distributions can reach seven figures or more annually. GPOs often cite these payments as evidence of aligned incentives. 

However, administrative fees are paid by vendors and are ultimately embedded within the broader pricing structure of purchased goods and services. Member distributions represent a redistribution of GPO economics. Hospitals receive back a portion of the fee stream generated by their own purchasing activity. The question is whether the overall structure, including compliance constraints and category limitations optimizes total non-labor economics or merely returns a fraction of embedded costs. 

If compliance requirements limit the pursuit of deeper savings, the net financial impact of distributions may be outweighed by missed optimization opportunities. A seven-figure distribution does not necessarily offset the cumulative cost of structural constraints across a billion-dollar spend portfolio. 

The Economics of Local Negotiation

One of the most persistent misconceptions in GPO strategy is that moving spend off GPO contract paper creates unacceptable financial risk. In practice, the breakeven threshold is far lower than most organizations assume. 

For a $10M category with a 2% admin fee rate and a 5% distribution rate on gross fees, the total fees-plus-distribution at risk when moving off GPO paper is approximately $210K representing a 2.1% pricing improvement needed simply to break even. Any local negotiation achieving better than a 2.1% price reduction creates net value for the hospital, with no floor on how much better that outcome can be. 

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Figure 4. Illustrative example assuming $500M covered spend, 2% admin fee, 80% distribution, 1% net GPO discount, and 4% local negotiation discount. 

What Optimization Looks Like In Practice

Pathstone has observed this misalignment firsthand. Working alongside health systems ranging from small rural hospitals to large multi-facility IDNs, we have consistently found that a focused, implementation-led approach that combines the institutional knowledge of the organization with market intelligence that goes deeper than benchmark data unlocks margin that GPO relationships are unable or unwilling to deliver. Across non-labor spend categories, that effort has translated to improvements of 5% or more beyond what existing GPO contracts were providing. 

For example, a large IDN operating both adult and children’s hospitals had a fragmented reference lab partnership model with multiple vendors relying on GPO pricing, or in some cases no contract at all, with no meaningful leverage from volume consolidation or test-level negotiation. Pathstone facilitated a competitive RFP process, supported by test-level utilization analysis and market pricing intelligence, which resulted in consolidation around two primary reference lab partners. This support went beyond just the RFP, but also addressed internal stakeholder concerns to pave the way for smooth adoption and implementation. The new local agreements ultimately delivered best-in-class pricing with no annual spend commitments, simplified vendor management, and generated more than $2M in annual savings, none of which the existing GPO relationship had surfaced or pursued. 

In another instance, a regional health system was fully compliant on its GPO ortho/trauma surgical supplies contract, capturing the top tier discount and an annual distribution payment of approximately $180K. While this seemed optimized, Pathstone’s analysis went deeper, modeling the full potential cost reduction including pricing, fees, and utilization patterns rather than evaluating performance within the context of the existing GPO arrangement. That broader lens revealed significant variance between contracted rates and what a competitive market would return. A targeted RFI with a focused but intentionally reduced volume commitment leveraging best available pricing from multiple vendors (even though it dropped the organization out of its top compliance tier) produced a local agreement priced 15% below the GPO contract rate. The tier drop cost the organization its top-tier discount and some of its distribution, but even absorbing both, the net improvement was $660K annually. 

A Path Forward for Executive Leadership

None of this argues for fully abandoning GPO relationships. The contract access, benchmark data and administrative infrastructure they provide are genuinely valuable, and most organizations would struggle to replicate them independently. The argument is for using GPO participation as one tool in a broader sourcing strategy rather than as a substitute for one. 

Supply Chain and Finance leadership should be able to answer several foundational questions: What percentage of total non-labor spend is meaningfully influenced by GPO contracts? How are administrative fees structured, and what is their net impact on pricing economics? How frequently is GPO pricing independently benchmarked against market alternatives? How are locally negotiated agreements structured, and who captures the value of hospital-led improvements? 

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Figure 5. Executive diagnostic scorecard. Four questions to assess GPO optimization readiness. Organizations unable to answer “yes” to all four face material margin exposure.

Organizations that can answer these questions are in a position to use GPO relationships on their own terms, capturing the genuine benefits of contract aggregation while pursuing the deeper optimization that the GPO model is structurally constrained from delivering. Those that cannot are likely leaving margin on the table every year, compounding over time. 

The most durable margin improvement programs in healthcare do not treat any single tool as a ceiling. They use GPO contracts as a floor, local negotiation as a standard practice, utilization management as a discipline, and standardization as a strategic requirement. That combination, not GPO participation alone is what fully optimizes non-labor economics. 

Reach out to Pathstone Partners today to request a no-cost opportunity assessment and discover how we can help your organization plan for the future.

 

 

U.S. Government Accountability Office (2014). Group Purchasing Organizations: Funding Structure Has Potential Implications for Medicare Costs. 

Wikipedia. Group Purchasing Organization — History and regulatory background. 

Apenteng B.A. et al. (2024). Role of supply chain intermediaries in steering hospital product choice: Group Purchasing Organizations and biosimilars. PMC / NCBI. 

Ott, J. / symplr (2024). The Overlooked Goldmine: Optimizing Purchased Services in Healthcare Supply Chains. 

McKinsey & Company (2024). Optimizing healthcare supply costs — from the physician’s perspective. 

McKinsey & Company (2022). Optimizing health system supply chain performance. 

Definitive Healthcare (2020). How to control costs by balancing the supply chain. 

Chief Healthcare Executive / symplr (2023). The 4 things supply chain managers wish healthcare executives understood. 

Herrera, A. / Estudios de Economía Aplicada (2006). The Role of Group Purchasing Organizations (GPOs) in the U.S. 

Physician Shortages Threaten U.S. Healthcare

Physician Holding Stethoscope
Key Takeaways:

  • The U.S. faces a projected shortage of 86,000 physicians by 2036, with primary care experiencing deficits of up to 40,400 physicians, and surgical specialties facing shortages of up to 19,900 surgeons. 

  • These shortages are driven by an aging population, rising chronic disease burden, and an undersupply of domestic medical school graduates relative to demand. 

  • Rural and underserved communities have struggled to attract and retain physicians, making them disproportionately reliant on foreign-trained physicians  – recent changes to immigration policy may further strain physician supply in the US. 

  • Physician shortages may additionally drive locum tenens costs given projected limited physician demand, as well as increase uncompensated care and force service line reductions.

  • The Resident Physician Shortage Reduction Act (H.R. 3890) may help reduce reliance on foreign-trained physicians; however meaningful workforce relief will likely not materialize until the early 2030s. 

  • Pathstone Partners specializes in helping healthcare organizations implement operational efficiencies that preserve care quality while controlling costs during workforce constraints. 

The physician shortage confronting the United States threatens both the financial viability of healthcare organizations and the health of millions of Americans. According to the Association of American Medical Colleges, the US will face a shortage of between 13,500 and 86,000 physicians by 2036, with demand continuing to outpace supply under all scenarios. The shortage will also impact specialties disproportionately distribution, with primary care experiencing the most severe deficit, between 20,200 and 40,400 physicians by 2036, representing over 10% of the current 234,300 active primary care physicians nationwide. Surgical specialties will also face shortages of 10,100 to 19,900 surgeons, while psychiatry and mental health services are forecasted to see continued critical deficits as demand surges with a growing mental health crisis. 

The Growing Physician Crisis
The Physician Bottleneck and an Aging Population

Multiple factors have created this physician labor crisis – the US population will grow by 8.4% through 2036, however the 65-and-older population will increase disproportionately by 34%, and those 75 and older increasing nearly 55%. Since older Americans utilize physician services at three to four times the rate of younger populations, demand growth also increases accordingly.

Meanwhile, the physician workforce itself is aging. Over 40% of currently active physicians will reach traditional retirement age within the next decade, threatening to remove more than a third of practicing physicians from the system. This retirement wave arrives precisely as demand for physicians accelerates, creating a compounding effect on healthcare systems and patients in need of care. 

The pipeline for new physicians, however, remains constrained. Since 1997, CMS has maintained a cap on federally funded residency positions. While the Consolidated Appropriations Act of 2021 added 1,000 new positions, this falls far short of projected demand needed to account for both an aging physician workforce, and an aging general population. Even if medical school enrollment were expanded today, the 7- to 10- year training timeline means meaningful relief remains approximately a decade away. Geographic maldistribution further compounds this problem as physicians disproportionately concentrate in urban and suburban market, which leaves rural and low-income communities underserved regardless of national supply figures. 

Both California and Congress have begun responding to a need to expand the physician pipeline, though the scale of the proposed solutions are still likely to remain short of the projected need. At the state level, California’s CalMedForce grant program has supported over 1,183 residency positions across 162 programs. Approximately 75% of residents trained in the state remain in California, making in-state training one of the most reliable tools for building a durable local workforce. At the federal level, bipartisan legislation has emerged to finally address the Medicare residency cap that has constrained supply since 1997.

The Resident Physician Shortage Reduction Act (H.R. 3890) would add 14,000 Medicare-funded residency positions over seven years, with 2,000 new slots annually from 2026 through 2032. The bill would also authorize $63.5 million in grant funding for rural hospitals seeking to launch new residency programs. However, if passed, the long training timeline means meaningful workforce relief would not materialize until the early 2030s at the earliest. 

Immigration Policy and the Potential Impact on Vulnerable Communities 

Recent immigration policy changes have also threatened to worsen the shortage where it hurts most. Analysis published in JAMA reveals that in fiscal year 2024, approximately 11,000 physicians, or nearly 1% of the national workforce, were sponsored for H-1B visas. Foreign-trained physicians fill critical gaps particularly in underserved communities –  in US counties with the highest poverty levels, H-1B-sponsored physicians comprise 2% of the physician workforce, which is nearly four times higher than in low-poverty counties, and are also substantially more likely to enter specialties less attractive to US-trained physicians such as primary care and psychiatry.

Recent policy changes, including significant increases to visa-related fees, and in some states, administrative freezes on new applications, have raised some concerns for the future of hospitals which rely significantly on international physician recruitment – particularly those that are smaller or rural institutions that are already operating on thin margins. 

Financial and Clinical Consequences 

Physician shortages translate directly to financial pressure and compromised care. For example, research consistently shows that physician shortages correlate with worse chronic disease outcomes, lower cancer screening rates, and higher mortality. Additionally, capacity challenges also highlight the need to free cash to fund growth and meet patient demand. 

Some examples of more immediate downstream effects for hospitals include: 

  • Uncompensated care rising as communities lose primary care access, forcing patients to delay treatment until conditions require expensive emergency department visits or hospitalizations. 
  • Service line reductions becoming inevitable when organizations cannot recruit or retain physicians in critical specialties. 
  • Rural hospitals may face choosing between maintaining money-losing service lines with expensive contract labor or discontinuing services entirely. 
  • Long-term increases in permanent physician compensation and locums tenens rates as organizations compete for limited talent. 
  • Patient outcomes decreasing due to longer wait times, delayed diagnoses, and reduced access to preventive care. 
Strategic Solutions to Maximize Value  

As physician shortages continue to strain healthcare organizations, Pathstone Partners has worked with clients to implement strategic operational improvements that maximize value from existing resources.  

Our engagements have included reviewing and optimizing virtual care models that allow specialists to serve multiple locations efficiently and enable primary care physicians to consult remotely, therefore gaining more capacity from an existing physician base. A key insight from this work is that telehealth implementation is not one-size-fits-all. Organizations can choose from a spectrum of staffing models depending on their goals, resources, and patient population. Helping clients evaluate and plan across these phases is an important part of building a durable virtual care strategy. 

By appropriately diverting lower-acuity cases, physicians are freed to focus on higher-acuity patients where their expertise is most needed, which improves resource utilization, the quality of care patients are able to receive, and provides meaningful operational improvement particularly for organizations already grappling with physician recruitment challenges.  

Beyond workforce strategy, Pathstone also works across a wide variety of operational initiatives designed to free up cash flow, fund critical priorities, and help organizations meet growing patient demand, including supply chain restructuring, cost reduction, or revenue cycle improvements to help health systems unlock capital that can then be redeployed. 

While the physician shortage represents a significant challenge, forward-thinking organizations can differentiate themselves through operational excellence. Those implementing strategic measures now will be better positioned to maintain care quality and ensure long-term financial sustainability. 

Reach out to Pathstone Partners today to request a no-cost opportunity assessment and discover how we can help your organization plan for the future. 

Sourcing Healthcare Software in the Age of AI: Navigating Vendor AI Noise

AI article picture
Key Takeaways:
  • While AI has become a standard marketing claim across healthcare IT, not all AI is created equal. 
  • Vendors are using AI to justify both price increases, leading health systems to need partners to help understand the ROI of specific software modules.  
  • Competitive sourcing and industry benchmarking data are critical levers to separate marketing from genuine value. 
  • Pathstone clients have achieved 12% – 35% cost reductions on AI-marketed software tools through structured sourcing and negotiation strategies. 
 
Proliferation of AI Tools in Healthcare:

The healthcare IT vendor market has become saturated with AI claims. As of mid-2025, the FDA had authorized over 950 AI/ML-enabled medical devices for marketing in the U.S., and 94% of healthcare companies report using AI in some capacity. Industry analysts have noted that for many incumbent vendors, AI has become a bolt-on marketing feature rather than a core capability. Therefore, hospital supply chain departments are faced with evaluating whether a software tool’s AI component will deliver differentiated value to the organization, or if the AI buzzword is being used to justify price increases.  

AI is already woven into the tools health systems rely on every day, often without recognition. Email platforms suggest language as you type; CRM tools use AI to identify customer segments and drive campaign strategy; clinical platforms embed AI to support imaging reads; GPOs are adding AI to their analytics capabilities; and enterprise technology vendors routinely include AI components aimed at improving productivity or reducing consumption. In short, AI has become table stakes across virtually every category of health system technology. 

 
Observed Vendor AI Marketing & Presentations:

As the healthcare IT space is currently reacting to the proliferation of AI within their software tools, Pathstone Partners has observed changes in the software marketplace. Currently, vendors are often taking one of several contrasting price tactics. Some vendors market AI as an additional value-add which will automate the hospital’s internal workflows and processes, necessitating increased contractual costs. Others pitch AI as automating people processes on the vendor side, reducing their internal resources needed to support their customers. The question is – how are these new AI components impacting the price of these healthcare software tools? Is AI an excuse for companies to charge more for new technology, or, charge less due to a decrease in labor costs? 

 
How Pathstone Drives Cost Savings with IT Vendors Marketing AI Components: 

Pathstone has helped many clients navigate the healthcare IT space, identifying cost reduction strategies and capitalizing on technology innovations through vendor partnerships. We help health systems identify high‑value opportunities and build strategies needed to execute them effectively. Our approach is practical, data‑driven, and aligned to each organization‘s operational and financial priorities. Pathstone works with its clients to analyze and prioritize cost reduction opportunities across all areas within a health system. This includes prioritizing use cases with measurable ROI, as well as developing and facilitating RFPs that clearly define requirements, success metrics, and implementation expectations. Pathstone also supports vendor evaluation, selection, negotiation strategy development, and due diligence to ensure solutions are a good fit for each organization.  

Our contract negotiation strategies are designed to protect the health system’s interests, including pricing models, performance guarantees, data ownership, and scalability provisions. Negotiation strategies are customized to each client and may draw on levers including our internal benchmark data and industry expertise. Given the increasing prevalence of AI-marketed add-ons within healthcare IT, Pathstone has quickly developed expertise in sourcing software tools with an AI component. Below are examples of ways in which we support AI opportunities, cost reduction identification, and execution.  

 
Three Recent Case Studies:

 Client A Case Study: AI Imaging Tool Negotiation

Client A signed a contract to use a vendor’s diagnostic imaging AI tool that would help identify abnormalities with increased accuracies and faster turnaround times. The vendor charged the client a premium, claiming the AI technology-driven innovation justified the higher prices. Based on client billing data, Pathstone determined that Client A was not turning a profit on the cases based on the ratio of reimbursement amounts to vendor costs with the AI component. Pathstone developed a negotiation strategy utilizing our pricing value lever that resulted in obtaining pricing reductions while also receiving a credit, resulting in 13% benefit.  

AI Sourcing Lesson: Hospitals should not blindly accept AI-driven software price increases without evaluating the full vendor/category spend and revenue. 

Client B Case Study: Evaluating AI Components of Marketing CRM Tools

Client B engaged Pathstone to facilitate and develop an RFP for Marketing CRM tools. The participating vendors submitted their proposals, and Pathstone discovered that nearly 70% of vendors advertised an AI component that would increase client productivity around personalization and campaign development. Pathstone partnered with the client to validate these AI capabilities. Through our collaborative efforts, Client B ultimately determined the AI add-ons would be beneficial to the organization but did not warrant the pricing premium. After further evaluation of the proposals and understanding of the capabilities and value adds, Pathstone negotiated 35% of the total cost down through the competitive sourcing process.  

AI Sourcing Lesson: Technology vendors are adding AI productivity components to pricing proposals, necessitating internal hospital evaluation of actual productivity enhancements and expected ROI. 

 Client C Case Study: Technology Usage with AI Component

Client C asked Pathstone to lead and facilitate an RFP for purchasing products through a Cloud Solution Provider (CSP). More than 30% of CSPs submitted bids highlighting their AI tools that would help right-size licenses and identify low utilization and consumption. The suppliers that offered this AI tool marketed this as a value add without an increased premium compared to the CSPs that did not highlight an AI tool. However, Pathstone identified additional opportunity to negotiate pricing through our benchmarking analytics, and we were able to renegotiate pricing by 12% – 16%, targeting both pricing and utilization value levers in this negotiation. 

AI Sourcing Lesson: In many instances, AI components of healthcare software tools will provide a net positive benefit to the organization. The competitive sourcing process can be used to identify market leaders within a category who also enhance internal hospital productivity with automation. 

Partner with Pathstone to Drive Margin Improvement through IT Sourcing:  

AI is reshaping the vendor landscape in healthcare, and the financial implications are significant, whether vendors are using it to justify price increases or reduce their cost to serve. The right answer for any health system depends on the specific technology, the vendor’s business model, and the organization’s own strategic priorities. At Pathstone Partners, we help health systems ask the right questions. Whether evaluating an AI-enabled tool, facilitating a competitive RFP, or renegotiating an incumbent contract, our approach is data-driven and tailored to each client’s unique situation, ensuring health systems are paying for value. 

Reach out to Pathstone Partners today to request a no-cost opportunity assessment and understand how we can help your organization navigate AI-driven cost pressures. 

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

Healthcare Consultant 13
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.
  • Scroll Table
InitiativeAnnual SpendBenefit RealizedImpactValue LeversStrategyPediatric-Tailored Approach
Interpretive Services$6.0M$1.2M20% Cost ReductionPricingCompetitive sourcing and contract negotiationPrioritized 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$1.0M50% Cost ReductionPricingCompetitive sourcingAddressed 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$2.2M230% Revenue IncreaseRevenue, PricingCompetitive sourcingIntroduced 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

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 
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: 

Building a workforce analytics framework

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

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

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:

Transactional vs Partnership Models
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:

four pillars of high impact supplier partnerships
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

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

Navigating the OBBB

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.

Rural Healthcare at Risk Navigating the One Big Beautiful Bill Status .jpg

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 opportunity 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

inc 5000

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

Healthcare Concept

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

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.

linguistically diverse

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.

  • Scroll Table
QualityClient 1Client 2Client 3
Baseline6 incumbent vendors, High use of in-person interpretation with certified interpreters, Administrative burden due to fragmented vendor landscape, Strict compliance with local interpreting laws4 incumbent vendors, Rising demand for language services with further increases projected, In-house interpreters primarily utilized for in-person services8 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 EmployedPrice, StandardizationPrice, StandardizationPrice, Standardization
Most Common Languages (Not including Spanish)Russian, Vietnamese, Arabic, ASLArabic, Dari, Amharic, ASLArabic, 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 AttributesLongstanding vendor relationships made transition politically and operationally sensitive, Client risk averse about offshoring and Artificial Intelligence2/3 service modalities were transitioned (audio and video); in-person services remained with incumbents, Telehealth and written translation not included in scope of engagementPrevious vendor standardization efforts were interrupted by COVID-19 which altered industry dynamics including suppliers’ reluctance to provide on-site interpretation citing inadequate compensation
Key TakeawaysEven 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 managesClearly 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-basedStandardizing 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

  1. 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.

  2. Vendor Education Was Key: Initially skeptical executives embraced new models once they understood the operational gains and scalability.

  3. Trust-Building Early Helped Later: Staff buy-in was secured through early surveys and needs assessments, leading to smoother implementation.

  4. Balanced Vendor Models Outperformed: Combining in-house and vendor-based services allowed flexibility and optimized resource use.

  5. Future-Proofing for Demographics: Attention to rare language trends helped avoid gaps and enabled planning for future demand.

  6. 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

AHRMM24 Dennis Mullins 1000x450px
Key Takeaways:
  1. Move Beyond Price-Centric Thinking: Joseph Jang challenges the overreliance on price negotiation as the primary strategy for supply chain strategy.
  2. 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.
  3. 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.
  4. 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.

Unlocking Hidden Value in Healthcare Supply Chain

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:

  • Scroll Table
Value LeverTypical % ImpactTypical Savings %Appropriate Market ConditionsAdvantagesDisadvantages
Price50%5-20%Non-concentrated markets, Cost shifts, Misaligned pricing, New entrants to marketFast results, Low disruption, Minimal resistance Most supplier leverage, Short term impact
Standardization20%10-25%Fragmented use of suppliers, Multiple similar suppliers/products, Expiring patents Higher leverage, Operational efficiency Customer pushback, Service disruption risk
Utilization15%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 Buy15%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
Revenue5%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 Alliance5%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.