Travis MatthiesenChief Financial Officer
Hospital systems have never been under more pressure to reduce costs while improving quality. Operating margins are down, labor costs are up and climbing, and everything from supplies to the cost of capital is rising with inflation. Meanwhile, leaders must continue to invest in the future, and many must find every extra dollar just to stay afloat. Patients, payers, and regulators continually evaluate the quality and accessibility of care, adding pressure on the demand side.
In a recent longitudinal study, PartsSource reviewed the state of provider’s knowledge based on managing their medical equipment assets, and how they are currently managing them. Our teams compared results with national benchmarks derived from our database of 100,000 service contracts and 500,000 services events.
In this blog series, we will discuss the challenges hospital systems are facing, the opportunities they have based on our research and strategies to achieve them with case study examples. This piece will share a quick overview of some of these topics.
Today, hospital systems are under intense pressure to optimize their resources. There are multiple challenges that are making strategic spending imperative. Some the of the most significant of these challenges include:
- Declining Margins – Median operating margins are down 35% compared to 2020, according to KaufmanHall National Hospital Flash Report and returns on non-operating assets continue to be erratic.
- Increasing Workforce Expenses – The report by KaufmanHall shares that the unemployment rate for hospital workers is putting upward pressure on wages and per-patient labor expenses. The shortage is expected to intensify and labor costs are predicted to impact other expense categories like service contracts and third-party labor.
- Overall Inflation – With the spike in inflation, every aspect of hospital budgets has been affected. The AHA (American Hospital Association) says supply costs were up more than 20% by 2022 and other categories jumped even more. The cost of borrowing also fluctuates with interest rates, making the total cost of capital investments more unpredictable than it has been for years.
Despite the challenges hospital systems are facing, we still see significant opportunity to drive costs down and margins up in an area that is frequently overlooked: the management of medical equipment.
This area encompasses everything from million-dollar imaging equipment to bedside devices that represent a modest dollar investment but can make a life-or-death difference to a patient. For all these resources, uptime is crucial. Even one minor malfunction can represent thousands lost in revenue and every organization’s leadership understands how equipment downtime can reduce the quality of care and the satisfaction of both patients and clinical staff.
All organizations use some hybrid of outsourced and insourced labor. However, many make these choices reactively rather than strategically, and may fail to reevaluate them periodically to see whether better options are available. In either case, the provider rarely has any insight into its true cost of service. By routinely reviewing and analyzing their approach to medical equipment management, hospitals and health systems can remove costs from their supply chain with no impact – or even a positive impact – on service levels and quality of care.
Additionally, our research found an estimated value of this opportunity – to the nation’s healthcare system as a whole – at more than $2 billion per year.
What is the key to this opportunity? The answer is data.
Our survey found that fewer than 10% of surveyed hospitals monitor the performance of their service contracts to see if they are getting good value for what they are spending, and they are similarly in the dark about their spending on replacement parts. Shining a light on these areas can reveal ways to save millions by bringing the provider’s performance in line with national best practices.
In addition to the challenges of managing contracts, health systems often spend substantially more on parts than they should due to lack of coordination and lack of information. Based on our research, we found, for example, that health systems typically spend between 10-30% more than they need to on parts and are working with 400 to 800 different suppliers.
Centralizing medical equipment management for measurable performance is the key to solving some of these issues.
Despite the challenges that hospital systems are facing today, there is an opportunity for big savings. Our next blog in the series will dig deeper into the opportunities hospitals have and how to start taking advantage of them.
To learn more about how your organization can increase capacity and savings, contact us here.