Health systems facing tight margins have to move beyond revenue generation strategies and look towards cost cutting.
This was one of the major themes of a recent wide-ranging conversation between Clarium CEO Steve Liou, former Jefferson Health CEO and executive-in-residence at General Catalyst Dr. Stephen Klasko and Becker’s Healthcare founder and publisher Scott Becker on Becker’s Healthcare Podcast.
Supply chain is an ideal area for cost cutting and will allow health systems to reinvest in patient care.
“Health systems have really focused on how to increase revenue, which is why revenue cycle and prior authorization automation has received tremendous investment in the last several years,” Liou said during the podcast, which went live on May 6. “We think that a lot of that juice has been squeezed and we think that they need to reframe their thinking into how we can cut dramatic costs out of our health system and help really dramatically expand margins.”
Here were five key points addressed in the podcast.
- A dollar cut vs. a dollar added. Health systems need to rethink their strategies in terms of margin expansion. Cutting a million dollars in cost is around the same equivalence economically as generating $100 million in revenues, Becker said on the podcast.
- This has an outsize impact on rural health and health equity. Rural and safety-net hospitals pay more for certain supplies, such as hip implants, because they don’t have the same purchasing power or intelligence as an academic health system. Every dollar spent unnecessarily on the supply chain is a dollar that doesn't reach a patient who needs insulin or another important treatment, Dr. Klasko said.
- Hospitals are still dealing with COVID-19-era margin challenges. Klasko said that hospitals are running on a pre-COVID mentality in a post-COVID era. The labor crisis didn't end. The supply crisis didn't end. The margin crisis didn't end. We just stopped looking at them as a crisis,” Klasko said. “You can't run a 2026 health system on a 2019 procurement infrastructure and pretend it'll hold.
- Supply chain waste in the U.S. healthcare system is enormous. Citing data from Navigant, Liou estimates there is between 40 and $45 billion per year in unnecessary spend on supply chain and operations. Hospitals could potentially double their margins if they optimized clinical and supply chain margins.
- Supply chain can’t be relegated. Supply chain executives need to be part of the health system strategic conversations. CEOs, chief financial officers and chief operating officers need to pay attention to how their supply chain operates, Liou said. “Stop viewing supply chain as a back-office function,” he said. “Bring your chief supply chain officer into the C-suite, into the boardroom. Give them a seat at the table. Learn how you can further support them really to unlock a transformational change.”