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

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.