News Archive • Page 2 of 6 • Pathstone Partners Healthcare Consulting Chicago

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

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

PBMs and the Hospital Landscape

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

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

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

PBMs Under Scrutiny

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

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

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

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

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

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

Case Study: Selecting a Strategic PBM Partner

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

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

Vendor Types Considered

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

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

Financial Evaluation Criteria

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

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

Value-Added Services Evaluated

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

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

How Pathstone Partners Can Help

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

Our services include:

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

What is Digital Health Technology?

Health Care Financial Consultant Digital Health

The importance of digital health technology

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

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

What are the Benefits of Digital Health?

Better Patient-Doctor Relationships

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

Improves Access to Information

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

Disease prevention
Physical therapy
Occupational therapy

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

Promotes Lifestyle Changes Among Patients

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

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

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

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

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

What is the Future of Digital Health?

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

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

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

Navigating Tariff-Induced Supply Chain Challenges in Healthcare

Key Takeaways

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

I. Introduction

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

II. The Global Supply Chain of Healthcare Products

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

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

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

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

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

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

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

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

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

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

IV. Impact of Tariffs on Healthcare Contracts

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

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

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

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

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

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

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

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

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

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

VI. Navigating the Path Forward

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

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

VII. Conclusion

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

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

Footnotes:

Aligning Blood Services Across the Health System

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

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

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

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

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

An Adaptable Approach Through the Covid-19 Pandemic

Pathstone Partners Chicago Health Care Consulting (11)

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

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

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

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

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

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

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

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

Phase 2a: Momentum (Years 2-3)

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

Phase 2b Resilience (Year 4-5)

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

Phase 3 Sustainability (Years 6+)

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

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

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

Why Healthcare Consultants are Valuable for Hospitals

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

Navigating the Complex Healthcare Landscape

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

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

The Imperative of Financial Oversight

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

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

Fostering Innovation in Healthcare

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

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

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

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

The Value of an Objective Perspective

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

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

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

Learn How Pathstone Partners Can Make an Impact

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

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

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

Current Challenges: NIH Indirect Funding Cuts and Grant Review Delays

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

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

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

The Impact on Hospitals and Health Systems

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

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

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

How Healthcare Organizations Can Mitigate Risks

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

Implement System-Wide Non-Labor Cost Reduction Strategies

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

Accelerate Speed to Value (S2V) Initiatives

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

Maximize Value Beyond Price Reductions

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

Conduct a Comprehensive Labor Cost Review

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

Pathstone Partners: Driving Cost Optimization in Uncertain Times

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

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

Coordination Across Fragmented Hyperbaric Oxygen Programs

Health Care Financial Consultant Hyperbaric Oxygen

Pathstone affected $120K+ annual savings for the highest-cost program via management fee reduction and program director cost reduction.

A west coast health system engaged our firm to review Wound Care Hyperbaric Oxygen (HBOT) programs across their organization. Hyperbaric Oxygen programs represented a $9M spend category on a mix of outsource and insourced staff, equipment, software, and corresponding supplies. Each hospital that has a Hyperbaric Oxygen program is in a distinct geographical setting from each other, varies by program maturity, and relies on an outsourced vendor to provide treatments for their patients.

Pathstone was introduced to this spend category due to lack of visibility into program structure across the health system and an ongoing negotiation between one hospital with the primary outsourced vendor of the system. This health system did not have supply chain members that oversaw HBOT contracts, and the health system desired to work as one system to standardize operations and drive efficiencies from a financial and service-level perspective.

Each strategy is driven by data – in conjunction with financial leadership at each location, Pathstone formed a robust framework to collect and organize data regarding the financial and service–level performance of each program. Comparisons of revenue, reimbursement, cost, and staffing between each program were built to drive program stakeholders towards actionable insights (i.e., why does my program have less treatment volume, but more nurses? How is that program able to drive X% revenue more than my program? Why are our staffing costs higher than the other programs?).

A market roadshow with the clinical and operational teams followed with each hospital to understand key pain points, opportunities for improvement, and level of category expertise. We found there were significant differences across programs in two categories:

Overall outsourced costs: outsourced staffing of program directors was more expensive than insourced program directors
FTEs per case volume: two programs were more efficient than the other two programs.

We aligned with system and local leadership to issue a request for quote (RFQ) in efforts to reduce costs and set up system knowledge sharing to improve efficiency across each program. The RFQ was constructed for the primary incumbent supplier (75% of programs) intended to improve cost competitiveness, initiate knowledge sharing across the programs, and align program category expertise using mature programs and the primary outsourced vendor.

Pathstone affected $120K+ annual savings for the highest-cost program via management fee reduction and program director cost reduction, representing 33% of outsourced program spend. This program was mature in nature, yet still relied heavily on their outsourced provider. The goal will be to eventually insource the director of this program for additional cost savings.

More than cost-improvement, our client was interested in how other programs were able to manage volumes without as many outsourced staffing members. The RFQ focused on areas where the outsourced provider could provide synergies from a staffing perspective and outsourced management was removed from the agreement. The primary outsourced vendor will now provide semi-annual reviews to discuss reimbursement improvement, cost reduction, and service level improvement opportunities for all their programs in the system. Also, Pathstone helped initiate and create an internal engagement platform for best practice, knowledge sharing to drive utilization, revenue, cost, and service-level efficiencies through an online platform for program stakeholders to discuss and share data across the system.

Before our engagement, HBOT programs at this integrated delivery network were fragmented and costly. After, HBOT stakeholders across the organization can discuss best practices and share data, have an outsourced category expert provider leading semi-annual discussions geared towards improvement opportunities, and have achieved cost reduction at the target program.

Delivering Benefits Through Biosimilar Conversion

Health Care Financial Consultant Pharmacy Cost

Pathstone developed drove $767K in expected annual net margin enhancement.

A large 11-hospital health system in the southern region recognized a need for external support to identify and implement solutions to enhance net margin within their pharmacy operations. Upon analyzing initial core data, the pharmacy to convert several reference drugs to biosimilars, which are biological products that have no clinically meaningful differences in terms of safety, purity, and potency, to reference drugs. For example, the reference drug for Pegfilgrastim, an injection received after receiving chemotherapy to promote white blood cell development, is Neulasta, while approved biosimilars for Pegfilgrastim include Nyvepria, Fulphila, Udenyca, and Ziextenzo.

Initial opportunity was identified at ~$750K in annual net margin opportunity through converting Pegfilgrastim, Bevacizumab, and Trastuzumab to biosimilar products with higher net margins.

Pathstone’s pharmacy consultants began by segmenting purchases by reference drug category (e.g., Pegfilgrastim) and account type (e.g., 340B, GPO), and charges by account type and payor type (e.g., Medicare, Commercial). It was quickly determined that there was significant financial opportunity through converting biosimilar products for 340B Medicare.

Pathstone began the analysis focusing on Medicare given the reimbursement rates are publicly set by CMS through Healthcare Common Procedure Coding System (HCPCS). The highest net margin biosimilars for 340B Medicare were Nyvepria (Pegfilgrastim), Zirabev (Bevacizumab), and Ontruzand (Trastuzumab).

Pathstone subsequently investigated opportunity on the 340B Commercial side by examining fee schedules by payor for the top five commercial payors. The highest net margin biosimilars on the Commercial side were very similar to Medicare, with minor variance in the biosimilar with the highest net margin for a given reference drug. However, payors do not always reimburse for all biosimilars.

Over a ~six-month period of working with , biosimilar identification strategy that Pathstone developed drove $767K in expected annual net margin enhancement. As costs and reimbursement are subject to fluctuation, Pathstone developed methodology for tracking and monitoring realized net margin gains on a monthly basis to be able to pivot if and when other biosimilar products yield higher net margins.

Driving Value in Recurring Pharmacy Revenue

Health Care Financial Consultant Pharmacy

Over a 9-month period of working with our client, Pathstone was able to drive $5.56M in recurring revenue enhancements.

A large 4-campus health system in the southern region recognized the need for external support to identify and implement sustainable solutions to increase & maximize revenues within pharmacy. Pathstone was initially engaged to conduct a full-scale business case to identify opportunities within the pharmacy space, of which, 3 specific areas of pharmacy revenue cycle were moved to implementation.

Initial opportunity was identified at over $3.0M in recurring annual value through focusing on the following workstreams:

Rx Strategic Pricing: Restructuring pharmacy pricing methodology to be more transparent, more easily maintained and make up lost revenue during the client’s transition to charge on administration.
NDC Cost Update: Optimizing NDC cost updates through an evaluation and mapping of the current drug update processes and current technology capabilities.
Rx Revenue Capture: Maximizing the revenue simultaneously improving on missed revenues

Pathstone formed a comprehensive team of stakeholders throughout the organization consisting of key leaders and operational owners within: Pharmacy, Revenue Cycle, Finance and Supply Chain. Recurring touchpoints with this team and other subcommittees generated the necessary momentum and buy-in to achieve maximum value and sustainable success.

Pathstone’s original business case gave excellent insight into the historical performance of this client, but ever-changing regulations and innovations made it necessary to garner new and refreshed data around billing & claims detail, charge master, drug database, revenue & usage, wholesaler catalog(s) and other policies and procedures.

Within each of the identified 3 workstreams the Pathstone pharmacy consulting team utilized a collaborative approach to tailor a solution that fit within the client’s department and organizational goals and objectives:

Rx Strategic Pricing

Meet net revenue goals by modifying markups and/or to include within annual increase in budgeted revenue
Mitigate lost net revenue during transition to charge on admin
Transition to charge on administration
Create strategy to modify markups to meet net revenue goals
Increase collaboration with Rx, care contract management and rev cycle
Simplify charges with increased transparency and defensibility

NDC Cost Update

Sustainability and maintenance of drug cost database
Streamline technology and database updates to optimize daily, weekly, monthly, quarterly and annual drug update processes
Evaluate other opportunities to optimize technology related to the drug database and revenue cycle

Rx Revenue Capture

Identify and recoup missed revenue on specific drugs
Complete full audit of pharmacy HCPCS code assignment, usage, correlating bills and collections

Key drivers of the significant value stream were concentrated on increasing the gross revenue by $195M, mitigating losses by transitioning to charge on administration, identification of over 165 ERX IDs without HCPCS codes.

Over a 9-month period of working with our client, Pathstone was able to drive $5.56M in recurring revenue enhancements.

Employee Health Plan Prescription Drug Revenue & Net Margin

Health Care Financial Consultant Lower Prescription Dug Cost

Pathstone worked to ensure CMM program met 340B Drug Pricing Program requirements and increased overall 340B capture rate.

A multi-hospital health system on the west coast partnered with Pathstone to evaluate Employee Health Plan pre-rebate prescription drug spend ($40M+ annually). The health system was interested in internalizing services where the quality of care could be improved, and financial value could also be achieved. Pathstone identified an opportunity to develop a Comprehensive Medication Management (CMM) program for health plan patients and achieve maximum system annual benefit of $8.2M by capturing 519 covered lives in the first and second phases of implementation.

CMM is defined as the standard of care that ensures each patient’s medication (i.e., prescription, nonprescription, alternative, traditional, vitamins, or nutritional supplements) are individually assessed to determine that each medication is appropriate for the patient, effective for the medical condition, safe given the comorbidities and other medications being taken, and able to be taken by the patient as intended. CMM includes an individualized care plan that achieves the intended goals of therapy with appropriate follow-up to determine actual patient outcomes. This all occurs because the patient understands, agrees with, and actively participates in the treatment regimen, thus optimizing each patient’s medication experience and clinical outcomes.

Pathstone reviewed claims data for the full scope of Employee Health Plan members (28,000+) to better understand the current prescription drug landscape. Our pharmacy consulting experts synthesized relevant information to identify the following:

Dispensing Pharmacy Landscape – prescription drug revenue varies based on dispensing pharmacy’s relation to health system (hospital-owned pharmacy, contracted pharmacy, other pharmacy).
340B Capture Rate – prescription drug net margin varies based on account type (340B, GPO, WAC).

Upon review, Pathstone determined that only 10% of claims spend was being dispensed at a hospital-owned pharmacy and determined significant opportunity ($11M+) to increase 340B capture rate via qualification of the 340B Drug Pricing Program.

The 340B Drug Pricing Program is a federally based drug purchasing program that enables hospitals to save millions of dollars annually. As a requirement for their medications to be covered by Medicaid, manufacturers must agree to provide medications to certain covered entities at significantly reduced prices (i.e., 340B price). To participate in the program, covered entities must meet certain criteria and comply with program requirements (e.g., maintain OPAIS data, recertify eligibility, prevent diversion to ineligible patients, prepare for audits).

Pathstone formed a cross-functional team of C-Suite, Supply Chain, Pharmacy, and Health Plan stakeholders to develop a CMM service for a subset of targeted qualified members. The team worked closely to establish a comprehensive workflow including steps for patient identification and outreach, referral process, and prescription qualification measures for the program to achieve maximum value:

Increase Drug Revenue: Pathstone partnered with the pharmacy team to optimize the dispensing pharmacy landscape by routing the maximum number of prescriptions to either a hospital-owned pharmacy or contracted pharmacy
Increase Net Margin: Pathstone worked with the health system to ensure CMM program met 340B Drug Pricing Program requirements and increased overall 340B capture rate

IV Fluid Shortage in 2025: Be Prepared with Pathstone

Pathstone Partners’ Strategies for Supporting Hospitals

The recent announcement by the FDA regarding the ongoing shortage of IV fluid containers highlights the significant challenges facing hospitals and healthcare providers. With shortages expected to persist through March 2025, hospitals are grappling with how to meet patient needs amidst constrained supply. At Pathstone Partners, we understand the complexities of such supply chain disruptions and are committed to providing solutions that ensure continuity of care and operational efficiency.

Here’s how Pathstone Partners would help hospitals navigate this critical issue:

Standardization: Exploring Alternative Sourcing Methods

Pathstone’s team would begin by evaluating the hospital’s current sourcing practices. Many hospitals rely on long-standing vendor relationships, but in times of shortages, testing the market can reveal alternative suppliers with available stock.

Review existing vendor agreements for flexibility.
Obtain quotes from multiple vendors to identify potential alternatives.
Navigate contractual constraints and provide guidance if exclusivity clauses are present.
By diversifying supply options, hospitals can mitigate the risk of disruptions tied to a single vendor.

Utilization: Reducing Waste and Maximizing Resources

Another critical step is to analyze current IV fluid utilization processes to identify opportunities to minimize waste. For example, unused IV fluids removed from stockrooms and later discarded represent preventable losses.

Conduct a process review to identify waste points.
Develop staff education programs to optimize IV fluid use.
Introduce protocols for more efficient stock rotation and usage tracking.
These measures not only conserve valuable supplies but also foster a culture of resource mindfulness among staff.

Strategic Alliances: Partnering with Nearby Health Systems

In times of scarcity, collaboration is key. Pathstone would assist hospitals in exploring partnerships with nearby health systems to share resources and secure more favorable vendor agreements.

Identify geographically close health systems open to collaboration.
Facilitate the creation of mutual aid agreements to share IV supplies when needed.
Explore joint contracts with vendors, leveraging combined purchasing volumes to negotiate better terms.
This approach fosters resilience and resource-sharing across the healthcare ecosystem.

Pathstone’s Commitment to Innovation and Support

The IV fluid shortage underscores the importance of adaptive strategies in healthcare supply chain management. At Pathstone Partners, our expertise lies in helping hospitals navigate complex challenges with tailored, actionable solutions. From sourcing alternatives to fostering alliances, we ensure that hospitals remain equipped to meet patient needs without compromising care quality.

The Pathstone team is proud to be a trusted partner for hospitals nationwide, delivering innovative strategies that turn challenges into opportunities. Together, we can create a resilient and efficient healthcare system. If your hospital is navigating supply chain challenges, connect with Pathstone Partners to learn how we can support your team.