Healthcare organizations must constantly keep an eye on Non-Labor expenses, which typically represent approximately 40% of their total operating expenses.
This is an ongoing battle with frequent periods of regression and sometimes a lack of focused oversight leading to missed budgets. Most organizations rely on their Group Purchasing Organizations (“GPO”s) to access competitive price points for supplies and services while using departmental leadership and processes, such as value analysis, to manage existing expenses as well as expenses associated with the various new technologies entering the organization daily.
Non-labor expenses are often not managed with the same rigor dedicated to managing labor expenses. Because of this, many “typical” strategies for managing Non-Labor expenses only address bits and pieces of the total Non-Labor cost equation, resulting in a huge opportunity cost associated with overlooking the full picture.
The equation for total expense of a supply or service is PRICE x USAGE, and there are several items that should be investigated in each part of that calculation, such as:
- Is the product or service truly needed in the first place?
- Is there an equivalent product or service that could be evaluated that might provide efficiencies?
- Are you using the supply or service in an appropriate manner, and is the way you are using it based on sound evidence, business case analysis, and/or clinical necessity?
- Are you delivering the product or service in the most efficient way possible?
- Are you engaging the right people in the decision-making process?
- How does the price and utilization of the product or service support your reimbursement model, patient care needs and/or the needs or your internal/external customers?
- Are you getting the best value out of the product or service you selected?
Simply relying on your GPO to manage these challenges is an incomplete solution.
The GPO is focused on maximizing purchasing volume to drive better pricing, and they often encourage the use of contracts they have negotiated, when the contract or solution may not be the best available to you.
The fact is, GPOs frequently do not manage a significant portion of Non-Labor spend as they are focused mostly on supplies and select contract services, with more of an emphasis on pricing than utilization.
Traditional non-labor expense reduction efforts end up being a temporary fix if sustainable governance models are not employed to create accountability.
Any reset or launch of a sustainable Non-Labor expense management process must be supported by the appropriate structures and effective, repeatable methodology and tools, including:
- A steering committee, led by a C-Suite sponsor, and focused on total Non-Labor expense management
- Advisory councils for nursing and physician leadership to effectively engage the right stakeholders in the decision-making process
- Effective project management workplans that highlight progress and barriers along with tracking documents to summarize overall status of efforts
- Visibility to real-time impact to the bottom line
The GE Healthcare Partners Advantage
Our experience working alongside our clients proves we can generate a reduction of approximately 5-7% on total Non-Labor expenses, and sometimes as much as 8-10%--even with clients actively working with their GPO partners.
Non-Labor Expense Reduction from GE Healthcare Partners offers the advantages of:
- Appropriate oversight of the full non-labor expense management process
- Proven methodology supported by boots-on-the-ground subject matter experts who promote sustainable process changes that become embedded into your culture and daily work activities
- Accelerated financial impact that delivers significantly more value than currently experienced with current GPO relationships and existing internal processes