Healthcare Cost Savings: Surprises & Predictions | E. 100

After 25 years and $1 billion of hospital cost savings, Lisa Miller is joined by Rich Dormer, Bryan Covert, and Pandu Mitre to celebrate this landmark episode of THLE.  

 

Episode Introduction 

Together, the team discuss the cost savings surprises of 2023 and look forward to 2024. Insights include the two-tiered approach to cost savings goals that all hospital leaders might want to consider, and why difficult vendor negotiations will continue in 2024. The team also review the potential impact of AI on cost reduction, why finding hidden costs always comes back to line-item data, and why every hospital needs a spend data strategy in 2024. 

 

Show Topics

 

• Building strong teams in a post-Covid era

• Vendor negotiations became more difficult in 2023

• ‘’It always goes back to the line-item analytics’’

• A two-tiered approach to cost savings goals

• The hidden cost savings in AI 

• Vendors will continue to say ‘’no’’ in 2024

• Two keys to an efficient supply chain

• More buying power doesn’t always equate to ‘’best pricing’’ 

 

 

02:26 Building strong teams in a post-Covid era 

Rich said healthcare systems are hiring people with a broader skillset that need an accelerated learning curve. 

‘’…one of the biggest things that we saw this year, or I saw specifically was a lot of organizations were building those sourcing and supply chain teams. Where in the past they've been really lean and relying on GPO or other types of resources. But with COVID and the need to really do a lot of contracting, a lot of complicated agreements, most organizations recognize that they really needed to build their teams. But the issue that a lot of them have is that there's really only a limited pool of seasoned players on the market essentially. Therefore, when they look to hire, they're hiring a lot of people that are either early in their careers or they come from a different industry which when we look at healthcare it's really unique and complex. So bringing someone from the manufacturer industry coming in and looking to do a sourcing or some sort of negotiation in healthcare, it's very different. So with these large obviously needed cost savings goals for organizations, these newer teams that are being put together need to really accelerate their learning curve. So we've seen a lot of conversations around the support that they need. Right? And probably the biggest one that we keep hearing is that access to data, really that line-item invoice level data is critical to be able to do these large initiatives that a lot of them are working on now and they struggle to get that information. Because the biggest piece is to really do analytics around it and they're doing it off of projected data or vendor supplied information which is not always accurate. So those are the biggest pieces for a lot of these teams coming in and really trying to meet these aggressive goals that are needed for these organizations to maintain their profitability and not only with analytics and data but also negotiations.’’

 

12:06 Vendor negotiations became more difficult in 2023

Bryan said utilization and market data are just two elements hospitals can us to combat vendor refusal to reduce costs. 

‘’I think the most surprising thing for me was just how difficult negotiations with vendors became in 2023. To your point and Rich's, point earlier we saw on the hospital side more investment in supply chain teams, probably some of the largest cost savings goals we've seen at our clients throughout the years. Just because costs were going up and they're trying to come up with ways to combat them, the vendors had a really solid narrative. We had 8% inflation; their costs were up. They're also coming out of a time with COVID where a lot of the vendors had to really step up in supply services and crunch time, so they really developed stronger relationships with the stakeholders at the hospital. And then we're seeing in 2023 the vendor is more willing to tell supply chain no to cost reduction, costs are going up and then lean on those relationships with the stakeholders. In some cases have stronger relationships with the stakeholders than supply chain and finance, it was really a difficult time to just negotiate for cost savings because you're really up against a lot of external factors. So for us I know achieving cost savings for our clients more than ever we really leaned into a lot of contract compliance and also a lot of the utilization, implementation, ways that you could improve service, improve scheduling, lower costs that way. But more than ever heading into negotiations you really needed a solid strategy, good market data to combat that. But also more than ever you really need involvement with the stakeholders at the hospital. …. also what we see is our clients who are successful were the ones that were more willing to engage the stakeholders, maybe take a little more risk and look at change and look at consolidation and kind of think outside the box.’’

 

18:14 It always goes back to the line-item analytics

Rich explained why invoice details are vital to understand cost drivers and strengthen negotiations with vendors. 

‘’So it always goes back to the line-item analytics, right? So the invoice details are super important to be able to build the baseline and understand where the cost drivers are and then to be able to negotiate and Bryan, mentioned utilization. Obviously, there's a lot of opportunity in utilization now and it's not just pricing. In some cases we're saving our clients 60, 70% of the total spend for a vendor because they're not using them properly. There wasn't things that were set up that weren't even being utilized and that wouldn't be identified on just a contract review on just a 12-month spend report from the vendor. These are the things that you would get from the invoices and working with the stakeholders and understanding and diving into each one of those applications you'll figure out okay, well we don't need these. Why are we even paying for these? And that's where a lot of the cost savings came over the last year outside of those line-item analytics negotiations.’’

 

23:59 A two-tiered approach to cost savings goals

Lisa explained why a ‘’stretch-goal’’ can help hospital leaders to identify more cost savings. 

‘’….Everyone gets a cost savings goal and they're driving to that, and I think the thing that surprised me this year and we've all talked about it and it's probably a little sensitive. So I will approach it from a sensitive perspective, is that once hospitals have hit those savings goals in the department everything kind of seems to stop. Right? In terms of savings. And so let's say the hospitals hit their savings goals in September, we do see... And we've seen it every year for years and years and years it slows up, unless the initiatives are driven let's say by say a CFO or someone there. Right? They're like, "Keep on going, keep on going." And I think that surprised me this year and I would've thought that everybody with all the losses and all the issues would've just continued to put their focus and would've just continued to drive, drive, drive right until the end of the year. Let's get as much as possible and I know that whether it's goals or incentives, they do drive behavior and outcomes and so maybe hospitals and leaders need to think of two tiered on this like a goal and a stretch goal. I think for me I was surprised to see the let up considering all the losses in hospitals in the…. I was surprised to not see like listen we got to forget my goal, I got to surpass my goal. So for me that was a big surprise.’’

 

33:55 The hidden cost savings in AI

Rich said transparency is need from vendors if they expect to make future cost savings from AI. 

‘’Obviously, AI is being talked about a lot and we're really starting to see some of the first steps and some of our clients recently worked for an IT call center and the AI functionality is going to really take the initial call desks. So this way it eliminates a lot of the costs that would be going to this third party that they were outsourcing. Then what happens is then the remaining calls are more complicated and take longer. So it's actually going to cost the vendor more to support the call centers because all the quick calls that could be taken with them that they're doing now are going to be eliminated by AI. So there's a lot of these disruptions that are going to happen within healthcare, it's coming it's just a matter of when and how quickly but we're definitely going to see them. I mean it's going to be patient financial services, transcription language services. There's a lot of these different that you could see it's going to impact and then there's going to be a lot that we don't know it's coming. But it's one of those where from an organization standpoint, negotiating contracts now, like if there is some pending or soon to be released AI functionality in certain areas, they really should know about it. Because if they're putting a five-year contract in place and there's a replacement lesser cost AI functionality, they would really need to know that beforehand going in because the vendors would probably know that.’’

 

38:48 Vendors will continue to say ‘’no’’ in 2024 

Bryan said hospital cost savings teams need to be prepared for inflexible vendors. 

‘’I think that cost savings teams at the hospitals have to just anticipate hearing no from the vendors more than ever. I think we heard it last year…..I think it's kind of a paradigm shift where supply chain used to come into these initiatives with either some level of benchmarking or cost savings goal and sort of bluff a little bit. "Give us this price or else." And now the vendors are just saying, "Okay. Well no, what's the “or else?" And then it became a question of are we going to look into the “or else” then? Are we going to go talk to stakeholders? Can we really move it? Can we impact this or impact change? But I think now more than ever moving into the new year, you really have to be prepared from the start. You have to get that engagement and think critically about how serious you are taking on a category, get with those stakeholders and really get that engagement and come up with a plan. Because you need to anticipate that they're going to say no and then you have to know what “or else” is and you have to have some teeth behind it or it's just not going to work.’’

 

42:49 If you’re not in the business of data you’re not in business

Lisa explained why a spend data strategy is vital for cost savings in 2024. 

‘’….. My prediction for this year as it relates to 2024 because it talks about data. So I read this quote, and I really loved it, "If you're not in the business of data you're not in business." And I actually think it's data, data, data for 2024. Right? Using data with brave new strategies versus being reactive in your decision-making. So I think that while we've had some advances in hospitals being your supply chain or spend data, I think there's been some movement on how we look at data. I think there's still a big quantum leap in the discipline of data. Anything, in department sourcing, how do we look at spend data from a real monthly approach? Line-item approach? It is going to require either an investment or resources, but I actually think that's the easiest part. I think the hardest part is the change, it's actually putting in that data discipline and metrics and all those things in place. I think that's the harder component, but I just think there's so much money available to hospitals if they just really had a spend data strategy. What's your spend data strategy? So that for me is the prediction for 2024 is it's all about data. ‘’

 

46:17 Two keys to an efficient supply chain in 2024  

Pandu said better communication between internal stakeholders and more effective contract organization will help to improve renewal processes. 

‘’The biggest thing is just communication between internal stakeholders, we see a lot of times where you're working on an initiative it's a large vendor and there's just multiple services coming through. We talked about it a little bit, and you have two different people working on essentially the same initiative but they're looking at two different aspects of the initiative. So they're not aligned, they're not communicating and they're kind of just looking after their own goals and I think that needs to change. I think a formal process that then needs to be put in place is going to help make that change. So having a written checklist with things that you need to evaluate, a list of questions that you're constantly asking, and you have to ask on every initiative and then the timeline to completion. So that everyone's aware of when things need to be done so that they have time to collaborate with each other. And then in addition just organization. Having a repository of all of the contracts that you've worked on in the past, all of the data, all of the utilization reports that you should be requesting as a part of that checklist and then commitments or notes that you're making now when you're negotiating a contract. So you can look back on it a year or two years or five years down the road, which will make your renewal process a little bit easier. So I think there's so much more, but I just wanted to keep that high level.’’

 

48:04 More buying power doesn’t equate to ‘’best pricing’’

Rich said that most of the time larger health systems are not getting the best value from contracts.  

‘’It really comes down to a lot of the health systems, they're pooling that money together, the buying power. So you would think they're getting the best pricing and a lot of times we've seen our clients and some of the larger health systems, they're not getting the best pricing, they're not even getting even average pricing. And a lot of the times it's because the contracts are so complicated, the services are so different and unique by location that to kind of put everything together it doesn't mesh. Right? So they're trying to fit everything together as quickly as possible when a lot of times these things are not aligned. Right? So like food nutrition services or EVS or medical gases. It's just how are they winding up and how quickly they can line up these different services from even sometimes the same vendor but competing vendors as well. Without that, we've come to it again the line-item analytics and really that contract mapping. Right? So it's a combination of both the line-item analytics, the contract mapping by location. The quicker they can do that, the more money they save. Even if they line up these contracts, most of the time they're not getting the best value. So it's really how quickly they can do that, even though they're so big and they have this buying power a lot of times like I said they're not getting the best rates.’’

 

 

Connect with Lisa Miller on LinkedIn

Connect with Jim Cagliostro on LinkedIn

Connect with Rich Dormer on LinkedIn 

Connect with Bryan Covert on LinkedIn

Connect with Pandu Mitre on LinkedIn

 

Check out VIE Healthcare and SpendMend 

 

You’ll also hear: 

 

Hospitals need to put in layers: ‘’Vendors and vendor partners dedicate an enormous amount of resources, time, training….they're putting in layers and jobs in their organizations for pricing committees….But how much so should hospitals be putting in those layers that thinking, that discipline that they are doing?’’

The hospital paying half a million dollars for ‘’software on a shelf’’: ‘’There's such a high level of disagreement between hospitals and vendors coming out of COVID where vendors seemed like they're really stepping up and being good partners and they kind of transitioned into “well, we helped you out. Now we need to raise costs because inflation's really high.’’

Focusing solely on contract reviews means missed opportunities for cost savings: ‘’… if you were just to look at a chemo dialysis agreement you would for the most part look at one-on-one, two-on-ones. But if you didn't look at the invoice details and you look at utilization, you wouldn't see delayed start times. You wouldn't see all those inefficiencies …..just reviewing contracts you lose so much opportunity.’’

Changing behavior to incentivizing cost savings: ‘’On the (hospital) side you're limited to just reducing budgeted expenses, that's it …I've hit my goal. If I close a project now, it doesn't do anything for me but if I close it next month it helps me meet my goal next quarter. So then you're actually incentivizing behavior to push off projects, to delay cost savings because people are going to look for their own job safety before anything else.’’

Reducing time for legal reviews. Could AI accelerate contract renewals? ‘’The biggest delay a lot of times is on the legal review, so you have to imagine that if there's an AI component there which would be a lot less expensive than a lawyer reviewing the contracts that could accelerate a lot of the different negotiations.’’

Having a back-up vendor rather than sole source: ‘’... We like sole source, we think there's aggregate discounts, there's reasons why. I just think that having a backup and a backup strategy, …. having a number two in some way, shape or form makes a whole lot of sense too. …I think hospitals have to take control.’’

What To Do Next:

 

1. Subscribe to The Economics of Healthcare and receive a special report on 15 Effective Cost Savings Strategies.

 

2. There are three ways to work with VIE Healthcare:

 

• Benchmark a vendor contract – either an existing contract or a new agreement.

• We can support your team with their cost savings initiatives to add resources and expertise. We set a bold cost savings goal and work together to achieve it. 

• VIE can perform a cost savings opportunity assessment. We dig deep into all of your spend and uncover unique areas of cost savings. 

3. If you are interested in learning more, the quickest way to get your questions answered is to speak with Lisa Miller at [email protected] or directly at 732-319-5700.