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 ther