2022 Healthcare Cost Savings Year In Review | E. 59

Lisa Miller shares her experience of successful hospital cost savings projects from the past 12 months and looks ahead to 2023.

Episode Introduction 

 

Lisa Miller shares her experience of successful hospital cost savings projects from the past 12 months and looks ahead to 2023. Topics Include. the need to set big stretch goals, how dysfunctional teams affect change management projects, the in-depth cost analysis that saved jobs at one hospital, when people would ‘’rather be rich than right’’, and why the ‘’tsunami’’ of inflation is still healthcare’s #1 priority in cost management. 

 

Show Topics

 

Healthcare’s approach to marketing needs to change  Huge cost savings are still available for hospitals  Incentivizing right behaviors to achieve big wins  The 5 dysfunctions of every team  Big health systems have big spend challenges  Purchased services spend is a cost savings opportunity The ‘’tsunami’’ impact of inflation on hospitals

 

 

01:33 Healthcare’s approach to marketing needs to change 

Lisa Larter said businesses and hospitals must focus on the things they can control, rather than media negativity. 

 

‘’…one of my insights is the marketing landscape has changed significantly in 2022, and things that once worked no longer work. And so whether you're a hospital who has a marketing team or you're an entrepreneur or a small business owner, the way that you approach marketing needs to really change. You can't do what you used to do to get the results that you want, because what used to work isn't working. And there's an expression out there that if you just try harder at something that doesn't work, it doesn't make it work. So it's really a time for innovative thinking when it comes to marketing. The second thing that I would say that I've noticed in 2022 is too many people are listening to the media, and they're buying into doom and gloom instead of taking charge of what possibilities are out there. I think that people forget the media gets paid for clicks, and they get paid for impressions and eyeballs and all of that stuff. And so when people read headlines in the media about the recession and they start to panic and worry about things, instead of getting into a place of "How can I make changes? How can I improve my business, how can I improve my profitability? What is within my control?" I feel that they're missing opportunities. So I see a lot of people that are almost immobilized by what they see in the media, instead of taking control of the so many things that they still have control of. So those would be the two things that I've really noticed this year.’’

 

 

08:33 Huge cost savings are still available for hospitals

Lisa Miller shared a ‘’wow experience’ of how digging deep into cost saving prevented job losses at one hospital. 

 

‘’I absolutely, unequivocally know there's opportunity in costs. And our clients are achieving unprecedented cost savings in almost every single area. And what I think is very interesting is we're finding big savings. And it's not because these initiatives weren't done prior or people aren't good at what they do, I just feel like we're going deeper. We're taking more time. There's a lot of AI and technology, and we have technology too, but nothing replaces human thinking, a human review, expertise. And we're finding just enormous amount to take out in cost. So I feel like that's an opportunity. It shouldn't be perceived as a downer. Like, "Oh, we've got to have a cost review." And I think really we need to flip the script on it. And I think there's opportunities to connect growth, connect employees and morale and have a culture around that. One of the things that happened last year, I had a number of these situations happen, but we had one, it was really unique. We had uncovered a couple of line items that happened to just fall off contract. We were just, and this is a very advanced health system, very smart people, and it was just this odd connection issue. And it just turned out to have a several hundred thousand dollars savings. And when we achieved it, we brought it to the department leader. The leader was about to have to lay off three people in their department. And these were just, I think it was an environmental service department. And because of that savings, he did not have to lay off anybody. …. it's a wow experience for me.’’

 

 

16:20 Incentivizing right behaviors to achieve big wins

Lisa commented that hospitals need to set one or two big stretch goals to achieve significant cost savings.

 

‘’And so many of our hospitals bonuses, part of the bonuses put in place are hitting certain milestones. And cost savings is one. And I think that's fantastic. I think the nuance about that is what I've noticed is sometimes people get one cost savings goal. Let's say they have to achieve, I don't know, a million dollars in cost savings for the year. And sometimes they may achieve that in the first quarter. Like me, Lisa Miller, my goal is achieve $1 million for general hospital, and I could hit that in month three. Now I have other responsibilities, of course. It's not my own responsibility. I have to, I'm strategic sourcing, I'm doing all these other things, but what happens for those other nine months? And so my experience is very well-intentioned. Good people have checked the box, have said, "I've got that one covered. Now I can focus on my other day-to-days." And I work and I may get thrown something else. So I check that box and I think, "Oh my goodness, you got nine more months. Come on, let's save more money." And they got a lot going on, and they've clicked that box. So I think there's an opportunity to really evaluate these cost savings goals and make a stretch goal. So you have a million, but maybe there's two stretch goals. And I think there's a missed opportunity there.’’

 

 

21:41 The 5 dysfunctions of every team 

Lisa said there is a change management aspect to achieving cost savings. but team dysfunction can be a barrier to success. 

‘’So okay, this is where I might get a little controversial. So with cost savings and contracts benchmarking, pricing, analytics, looking at negotiations, this is whole part of the aspect of achieving savings. There's a methodology, and there's a way to do it, and there's a lot of work that gets done on that side. And what I've seen over the years and what's really jumped out at me this past year…, is that there's a change management aspect to achieving performance improvements, like an organizational-wide cost savings initiative. That's a change management project. So I'm going to probably do a longer podcast about this, but something happened a few months ago, and it made me realize that unfortunately, there's dysfunctions. And we all have dysfunctional families, dysfunctional business relations. I mean, just people. So there's going to be dysfunctions. And change management's really about how do we identify, assess, and pull it together and recognize that we might have to change some of our behaviors in order to have the best outcome for the organization? So it led me to reread a book called The Five Dysfunctions of a Team. And the reason why that happened is because over the years, I have noticed that we could pull together the most brilliant strategy, have the right analytics, the right benchmarking, the identification, pull everything together, and we have this tremendous cost savings number. It's all teed up. There's no reason in the world why it can't be implemented.

 

 

30:36 Big health systems have big spend challenges 

Lisa commented that just one category of spend could equate up to $40 million in hospital costs across multiple vendors.

 

‘’So number six, and this relates to, I would say about 50% of the hospitals and health systems, but it's important because I saw this a lot in 2022. That big health systems have big spend challenges. These are health systems that have multiple hospitals across multiple states, many vendors for the same category, and they need to see their spend in many ways to make important operational decisions. And those operational decisions for those big health systems, those mega-systems, may actually impact cost savings more than pricing only. So these are the systems that may have 15, 20, 30, 40 hospitals. And now they've got to say, "Okay, we have a," let's say a linen contract. Or "We have linen services." Or "We have dietary services." They have need to have multiple vendors. Typically one vendor can't serve all the system, and it's may not even be a good idea to do that, but they have multiple vendors serving their whole system, their corporate system. And how do they take that volume of data? It's just massive. One category, let's say dietary or linen or regulated medical waste. One category could be 20, 30, 40 million across 10, 15 vendors. And so big systems have big spend challenges. And so we saw in 2022, and we were really supporting that is, taking all that data and looking at it as a collective spend. And being able to slice and dice it, helping hospitals say, "Wait a minute, General Hospital is doing something different than Fairview Hospital. And what are they doing differently and what's the variation?" But that's really very advanced analytics, but that's what the big systems need.’’

 

35:49 Purchased services spend is a cost savings opportunity 

Lisa said that purchased services spend needs to be included within the supply chain for more effective cost management. 

‘’So my number seven, which we'll wrap up this podcast with, and one of my favorite topics, of course, is purchase services remains a challenge and an opportunity. It's funny you said that, because our biggest challenges do become our greatest opportunities. So this space still is 50% of non-labor costs, and there's a lot of activity around it and focused on putting some of these services on a GPO contract. Whether or not that remains to be the best place or position for a hospital to do that, I'm of the insider, I'm of the thinking that there's so much... Again, back to utilization... of this invoice detail level analysis that needs to be done before you make any decisions to just move a contract to a GPO contract, or extend a contract or just take 5% off or 10% off. There just remains to have so much more rigor around analyzing purchase services. And again, lots of activity, lots of conversation about it, but I still think we need a lot more rigor and a lot more commitment for that. I did see it in 2022. A lot more hospitals are saying, "Yes, we're putting resources, time and energy." The unfortunate part is supply chain only oversees a very small part of overall all purchase services. So there's so much that resides outside. That's why the CFO and C-suite leaders do need to bring these services under their umbrella, because anything that would reside outside supply chain is probably not getting that same rigor. So in 2022 we saw more focus, more attention, which is great. I think 2023 is going to lead to lots of savings in this area.’’

 

39:44 The ‘’tsunami’’ impact of inflation on hospitals

Lisa said hospitals should consider reviewing contracts mid-term to offset rising costs. 

 

‘’So I think inflation's a big deal. Every aspect of inflation will impact a hospital. And a hospital can't charge more money. I mean, we've all heard it right from eggs just to food, of labor, everything is increased. So you have to not just look at those contracts that are coming due, but opening up midterm agreements. … I think inflation needs to be really addressed head on. And the way to do that is through your contracts. I often say that contracts are a hospital's currency, and you could really drive improvements, but we've got to catch that headwind that's coming. So inflation, to me, is a really big deal. There are shortages, there are staffing issues, but when it comes to just having almost this tsunami price increases from just about every aspect, I think this has to be priority one for hospitals.’’

 

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You’ll Also Hear:

 

Reasons for optimism: Why hospitals must explore innovative solutions and be poised for greatness. ‘’Even in a challenge, hospitals can thrive. You often hear the story of how many businesses were started in the Great Depression, and we've got to be reminded of that.’’

 

The revenue opportunities that sit outside of typical patient care. ‘’What things could you do for your community that could bring in revenue? .. you see companies out there that are charging for full body scans, or they're charging for extra monthly lab testing…. There are for-profit companies that are selling in the space where really, hospitals should own it.’’

 

True spend analytics will gather more momentum in 2023 ‘’…it's beyond technology, ERP tools. This is thinking, this is taking lots of data and pulling it all together.’’

 

Why some people would prefer to be right than rich – and why hospitals must be certain vendors are offering the best price available. 

 

How the five dysfunctions of a team be the reason why 30-40% of why initiatives fail to achieve the desired outcome for hospitals. 

 

Learn more about Lisa’s keynote speech ‘’Gain A Cost Advantage. ‘’It's engaging, it's informative, it's about 90 minutes. But it really is an area that really can drive enthusiasm, because you can gain a cost advantage.’’

 

What To Do Next:

 

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

 

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.  If you are interested in learning more, the quickest way to get your questions answered is to speak with Lisa Miller at lmiller@spendmend.com or directly at 732-319-5700