How to stay grounded in the new landscape of healthcare support services
 

Healthcare leaders need to take a new approach to protect the bottom line.

 

Shifting macro trends are transforming the supply chain.

 

Global shortages, transportation delays, and inflationary pricing have tested the resilience of the healthcare supply chain. A change, once thought temporary, continues to be the norm across the healthcare sector.

 

With mergers, layoffs, reduced hiring, and increasingly difficult requirements, supply chain managers are struggling to keep up with the new pace of business. This has led to increased employee turnover, with a record number of supply chain managers leaving their roles I 2021 (Sirtori-Cortina, 2022).
 

“Many systems are stretched. Managing the increasing demands of day-to-day is reducing the ability to carefully monitor supply chain contracts. This affects cost, quality, and ultimately, patient care” said Paula Keller, Principal of Kestgo, a healthcare support services consulting firm based in the Midwest.
 

Keller continued “Many systems are outsourcing more of their support services operations as a response to this strain. While outsourcing offers many benefits, healthcare leaders need to understand the economics of third-party providers and how it affects their total spend.”
 

Hospital supply costs have risen an average of 6.5% each year since 2017.

 

Current economic trends may make the increase even higher in the near term.
 

The economics of third-party supply
 

Health systems, hospitals, and senior living operators often outsource non-clinical activities to third-party providers. This could include support services such as facility management, food service, or laundry.

 

There are benefits to shifting operations, administrators need to understand the economics of outsourcing. These contracts are often high in volume, yet low on profit. This means that your contractor is incentivized to cut costs, substitute, or source more through their own channels to make a contract profitable.

 

From a supply perspective, this may mean sourcing food, cleaning supplies, or specialty service contracts through their own network. The higher the volume purchased, the more money the outsourced provider makes off your contract through cash vendor rebates.

 

The aggregate buying power of a global company may give you preferred pricing or service, but it also reduces the control your hospital has over what is contracted.

 

When reviewing your contracts, leaders should ask critical questions about what items or services are contracted, how vendors are selected, and requirements for safety and regulatory compliance.
 

Providers are incentivized via cash rebates to choose certain vendors and boost their profit margin.
 

Happy workers are 13% more productive, have less accidents, and deliver better patient care.

People are your most valuable assets.

 

People choose to work in healthcare because they want to make a difference. Stability, loyalty, and above- average compensation make it an appealing place to set roots (Kupietzky, 2023).

 

In cost-saving exercises, some healthcare systems choose to transfer their employee’s payroll from the hospital to a third-party provider. The benefits include reduced administrative costs, management oversight, technology, and the opportunity for broader talent recruitment. Employees may benefit from the new arrangement with increased opportunities for mobility and training.

 

While some transfers are successful, healthcare leaders must consider the effect on their people. Employees transferred may see wage or benefits reduced, struggle to adopt new systems, and suffer from a loss of morale due to perceived instability.

 

All these downsides lead to the most important part of working in healthcare: patient safety.

 

Happy workers are 13% more productive, according to an Oxford University study. They also are more attentive to their work environment, cause fewer accidents, and provide higher-quality customer service (Kupietzky, 2023).

 

When assessing whether to outsource employee management for support services, factor in the risks of employee disengagement. If morale is lowered, more accidents occur, and HCAHPS scores drop – the savings are eliminated.
 

Employee morale is reflected in HCAHPS scores as a reflection of service quality. Employees in payroll transition may impact your top-line reimbursement.

 

Requiring price exercises from supply contractors supports price competitiveness.

 

Benchmark costs with frequency

Supply management controls much of a health system’s external spending, approximately 40% of the total cost (Bowen et. Al, 2022). With such a high portion of the budget, leaders must be critical of quality and cost.

 

“Leaders no longer can accept less than when it comes to support services– hospitals must be clean, patient satisfaction high, and operating cost controlled” added Keller.

 

“The supply chain landscape is more complicated than pre-pandemic. To get the best results today, a new playbook is required.”

 

Professional management teams can help healthcare administrators assess their current supply mix while leading objective analysis for improvement. This includes consulting on contractual terms, benchmarking performance, and assessing market rate vs. supplied cost.

 

Adding this level of oversight can help strained supply managers to know where to focus their efforts. There are areas where cost control can be the priority and others where savings on paper could lead to increased expenses in execution.

 

“Support services are too important to be left to chance. There are skilled professionals, such as Kestgo, that can provide transitional support for shifting priorities and help healthcare systems achieve their top and bottom line revenue goals.”
 

40% of the total cost of a health systems external spend is supply. It’s the second highest expense after labor.

 
References
 
Bowen, B., Borja Carol Galceran, Karim, S., & Weinstein, W. (2022, August 23). Optimizing health system supply chain performance. McKinse Company
 
Definitive Healthcare. (2023). Annual changes in hospital medical supply costs. Definitive Healthcare.
 
Kupietzky, J. (2023, June 14). Council Post: The Role Of Employee Satisfaction In The Healthcare Industry. Forbes.
 
Ryan, P. and Lee, T (2023, March 2). What Makes Health Care Workers Stay in Their Jobs? Harvard Business Review.
 
Sirtori-Cortina, D. (2022, May 23). Stressed-Out Supply Chain Managers Are Throwing in the Towel. Bloomberg.com; Bloom