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Joy Avery, RN, MSN is vice president of Clinical Services for 

The recent Costs of Caring Report published by the American Hospital Association is an urgent wake-up call for health system CEOs and CFOs. 

America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities

, paints a dire picture of the financial health of our nation’s healthcare system.

Consider the following six points cited in the report:

1. Many health systems continue to operate at a deficit, and for many others, margins remain below 1%.

2. Inflation rose more than 2x the growth in reimbursement from 2012 to 2023.

3. Since the start of 2022, days cash on hand among health systems has declined by 28.3%.

4. Last year alone, the average age of capital investment in medical equipment and infrastructure increased by 7.1% across all hospitals.

5. Hospital employee compensation increased 45% from 2014 to 2023 versus inflation of 28.7% (57% faster).

6. Cumulatively, Medicare underpayments from 2013 to 2017 were $375 billion. From 2018 to 2022, they grew to $522 billion.

These metrics underscore the pressing need for immediate and decisive action. Pursuing the same performance improvement efforts isn’t sufficient to change the tide. Cost-cutting initiatives in 2024 must be bold to be effective.

Never before have new ideas to improve health systems’ financial position been so necessary and welcomed by executive teams. This article presents an urgent strategy to improve health systems’ financial health: introduce discipline to back-of-the-house, non-clinical spending.

New opportunities lurk in the shadows of clinical care

Non-clinical expenditures typically consume 20% or more of a health system’s revenue. Examples include grounds maintenance, window cleaning, parking lot management, food, beverage, trash services, and even health IT.

Yet, health systems often fail to apply the same discipline in sourcing and contracting these types of services as their counterparts in other business sectors such as consumer goods, hospitality, and education.

For example, a health system may pay substantially more for ground maintenance than a neighboring shopping center or community college campus. Furthermore, decentralized contracts for these services result in disorganized, deregulated, and ill-informed spending.

Five proven steps to regulate non-clinical purchases in healthcare

Indirect procurement encompasses a broad spectrum of areas, including employee benefits, IT services, facilities management, and professional services. These represent a significant portion of healthcare spending yet often remain unseen and under-optimized.

Here are five steps healthcare systems can take to improve their non-clinical procurement processes to unlock new cost savings in the supply chain.

1. Assess procurement processes and measure against a procurement maturity model

Self-assessment tools are now available to help health systems gauge their processes, workflows, and performance in managing indirect spending.

These tools identify areas for improvement across various procurement steps, departments, and care delivery locations. By understanding where organization-wide procurement processes currently stand and measuring their current maturity level, health systems can close gaps in procurement practices and begin finding valuable efficiency and cost-saving opportunities.

Data analytics are crucial for gaining insights into spending patterns and cost-saving opportunities. Real-time visibility into non-clinical procurement activities is essential to improve resource allocation, leading to increased operational efficiency and agility. Enhanced data analytics also support better decision-making and more effective negotiation with suppliers.

3. Foster strategic supplier relationships

Many non-clinical suppliers, such as those mentioned above, have transactional relationships built at the departmental level. Shifting from department-by-department relationships to strategic relationships with enterprise-wide key suppliers leads to better pricing, improved service levels, and more reliable supply chains. Best-practice relationships include regular communication and collaborative planning with suppliers with innovation and quality improvements continually introduced.

4. Standardize and automate procurement processes

Consistent processes reduce complexity and errors. Implementing standardized workflows across the organization ensures compliance with procurement policies and achieves cost savings. Automation coupled with consistency reduces manual workload and minimizes the risk of human error in such steps as requisitions, approvals, and order management.

Healthcare is a specialized industry that requires nuanced knowledge and a commitment to continuous improvement. Health systems should invest in training and development programs for their procurement staff to ensure they are experienced with the latest tools, techniques, and best practices. Access to benchmarking data and insights from other industries is also extremely valuable to innovate non-clinical procurement processes.

While clinical excellence remains paramount, a new focus on non-clinical expenditures has emerged as a powerful, often overlooked, lever for improving financial health.

However, there remains a lack of discipline in the procurement of these goods and services.

Traditional purchasing processes for non-clinical items no longer suffice. This is especially true during a year when margins are thin, and services are restricted.

Now is the time to use self-assessment tools, best practices, automation technology, and benchmarks from other industries to improve the procurement process for back of the house spending. It’s a worthwhile journey—one step at a time.

Mark Van Sumeren is strategic advisor on healthcare and board advisor for LogicSource.

There are five steps healthcare systems can take to improve their procurement processes to unlock new cost savings in the supply chain.


Topic

Lack of discipline costs real money: Non-clinical spend targeted for cost savings | Viewpoint

Two Massachusetts hospitals have closed their doors for good.

Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer have shut down. Steward Health Care had owned the facilities and 

is selling its hospitals nationwide after declaring bankruptcy

. But Steward and state officials say no one has emerged to take over Carney and Nashoba Valley.

 updated their websites early Saturday morning with a message to say that they are permanently closed and no longer accepting patients. 

 with its landlord, Medical Properties Trust, to help move the hospitals to new ownership. Steward said the deal would allow most hospitals to remain open.

Massachusetts Gov. Maura Healey announced plans to preserve five former Steward hospitals

 in Massachusetts, lining up new ownership for those facilities. But state officials say there’s no operator willing to take over the two hospitals and they are poised to close.

Residents and healthcare workers are saddened by the prospect of losing the two hospitals, and some are seething. Massachusetts State Sen. Jamie Eldridge tells Chief Healthcare Executive® that the communities are still hoping for a long-shot remedy to save the facilities.

“I would say there’s massive frustration and disgust from many of my constituents,” says Eldridge, whose district includes Nashoba Valley.

Residents joined nurses, elected officials and others at 

a rally outside the Massachusetts State House Wednesday

 urging the state to preserve the two hospitals. Hundreds gathered outside Nashoba Valley in a demonstration to save the hospital earlier this week, Eldridge says.

 that an ambulance will remain at each facility for one week in case someone shows up at the hospitals in need of emergency care.

The closure of the two hospitals means less access to essential health care, Eldridge says. He says the nearest surrounding hospitals in the Nashoba Valley are about 30 minutes away from the residents in those communities.

“A lot of the municipalities, especially in Nashoba Valley, you have a lot of rural communities that have limited fire and EMS,” he says. “The cost is going to shift on municipalities.”

The longer distances to nearby hospitals are going to be especially troublesome for patients suffering heart attacks and other emergencies, he says.

“It's really going to leave a massive hole of healthcare access for Nashoba Valley residents,” Eldridge says. “People are going to die.”

Carney Hospital has served the Boston area for more than 160 years, opening in 1863. The hospital had 91 staffed beds in 2022, according to 

. Nashoba Valley was founded in 1964 and had 38 staffed beds in 2022, according to state data.

The Healey administration says it is taking steps to ensure residents have the care they need. Healey and Massachusetts lawmakers have long hammered Steward over its management of the facilities and 

pushed the for-profit system to transfer ownership of the hospitals months ago

The Massachusetts Department of Health and Human Services outlined steps to maintain healthcare services to Chief Healthcare Executive®.

“The Healey-Driscoll administration shares the frustration of communities and staff regarding Steward's planned closures of Carney and Nashoba Valley Hospitals,” a health department spokesperson wrote in an email. “We have been working with other hospitals and health centers in these regions to preserve access to essential medical services, help patients transition their care and connect staff with new employment opportunities.”

State officials say they have been meeting with other area hospitals to help them prepare for the increased number of patients they will see following the closure of the facilities.

The health department says it’s also been talking with fire chiefs in the region to ensure emergency care and transport services are available.

State officials have also been working with the U.S. Department of Veterans Affairs and Massachusetts Executive Office of Veterans’ Services to help veterans who relied on the two hospitals for care.

Steve Walsh, president & CEO of the Massachusetts Health & Hospital Association, says the organization is working daily with the state to ensure patients will get care from other providers.

“Our hospitals, just like local patients and communities, have spent many months preparing for the fallout of the Steward crisis,” Walsh said in a statement sent to Chief Healthcare Executive®.

“This transition has already begun with patients seeking care at nearby facilities,” Walsh added. “We are also focused on giving those hospitals’ workers new opportunities, as their talent and compassion are needed more than ever. Although these closures are unsettling, our members are ready to welcome any patient that comes through their doors.”

While state officials say they have prepared for the closure of the two hospitals, residents are frustrated that state officials found a way to save five other hospitals, but won’t rescue Carney Hospital and Nashoba Valley, Eldridge says.

The Healey administration is taking over one former Steward hospital, St. Elizabeth’s Medical Center in Boston, via eminent domain. Eventually, the Lifespan health system is slated to take over St. Elizabeth’s Medical Center.

Eldridge says residents expressed their anger at the gathering at Nashoba Valley this week. He says it’s compounded because many of the residents in the rural communities feel like they’re being ignored. He praised the Healey administration for saving the other hospitals, but he says he wants to see similarly bold action to preserve Carney and Nashoba Valley.

As Eldridge says, “I think that the frustration is, you know, why hasn't there been stronger action?”

Eldridge also says that he thinks the state has sufficient money to sustain the facilities until a new operator can be found. He pointed to the state’s strong tax revenues and the recent announcement of a $600 million tobacco settlement.

“​​I do believe the administration has that money and has the flexibility to provide money, even to keep these hospitals open after this weekend,” Eldridge says. “But I do understand that there needs to be a clear indication of a hospital operator willing to either operate the hospitals or to buy them.”

 has praised the Healey administration for moving to preserve other former Steward facilities, but continued to press state officials to save Carney and Nashoba Valley. More than 380 registered nurses work at the two hospitals.

The association says it continues to “stand with our colleagues at Carney Hospital and Nashoba Valley Medical Center, and especially those communities they serve, and we continue to call on the Governor and the state to take action to save those hospitals.”

Suzanne Koenig, a court-appointed ombudsman, issued a 

 about the pending closure of Nashoba Valley and its “devastating” impact on other emergency departments and local emergency services.

In the report, Koenig wrote, “In addition to limiting the availability of EMS personnel, the EDs in other communities are not staffed or equipped to absorb the former Nashoba patients. This toxic combination of delayed EMS response times and overtaxed EDs will lead to dire results for patients needing emergency care.”

While Koenig added that officials hope to reopen Nashoba Valley in the coming months, she said even a temporary closure would hurt the most vulnerable.

The hospitals will remain licensed for months, and Eldridge says there may be some operators willing to submit bids for the facilities after the hospitals shut down. And he says he sees a willingness from the Healey administration to provide funding.

“It is possible to reopen both hospitals after Saturday,” Eldridge says. “So I think that's where we're focusing our energies now.”

Editor's note: This story has been updated to reflect the fact that Carney Hospital and Nashoba Valley Medical Center have closed as of Sat., Aug. 31. It also notes Steward Health Care says it has an agreement to save most of the system's hospitals.

Carney Hospital and Nashoba Valley Medical Center will shut their doors Saturday. Steward Health Care couldn’t find a buyer, but some are urging state officials to save the hospitals.

Two Massachusetts hospitals have closed their doors, and many are angry

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Shortly after Orlando Health announced plans to acquire five hospitals, the Florida health system is planning to move ahead with another transaction.

Orlando Health has put in a $439 million bid to purchase three hospitals from 

, the for-profit system that has filed for bankruptcy and is selling its hospitals. Orlando Health is looking to buy Rockledge Regional Medical Center, Melbourne Regional Medical Center, Sebastian River Medical Center, and their associated medical practices. The hospitals sit along Florida’s east coast.

Orlando Health says it has been named the first qualified bidder for the hospitals and has been designated as the “stalking horse”, or the bid to beat.

Other applicants can submit higher or better qualified bids until Aug. 26, at which point a bankruptcy auction would occur.

David Strong, president and CEO of Orlando Health, issued a statement expressing confidence that the health system would be able to offer superior healthcare services.

“We have seen repeatedly that when Orlando Health enters a new area, patient care improves, relationships with physicians and team members grow stronger and surrounding communities benefit,” Strong said in a statement. “We believe we can recreate these same results for patients, team members, physicians and the communities in which these hospitals are located.”

However, Medical Properties Trust, which owns the hospital properties and leases them to Steward, has filed objections to Orlando Health’s bid, as reported by 

 filed this week with U.S. Bankruptcy Court in Houston that it’s improper for Orlando and Steward to set the terms of the transaction and expect MPT to agree to the price. MPT also contends that Orlando Health’s bid falls short of being a qualified bid because it doesn’t distinguish Steward’s property (the hospital operations) from MPT’s property (the land itself).

MPT argued that allowing the transaction to move forward “would be an abuse of the bankruptcy process and an affront to MPT’s property rights.”

In response, Steward contends in its own 

 filed with the bankruptcy court this week that MPT is acting improperly in moving to block the transaction. “MPT has interfered in the bidding and sales process. Indeed, the Debtors’ sale process has been challenged by the self-interested involvement and interference of MPT,” Steward said in the court filing.

Orlando Health says that if the deal secures the approval of regulators and the bankruptcy court, it hopes to complete the acquisition of the hospitals in the fourth quarter of 2024.

Orlando Health announced plans to acquire five Alabama hospitals from Tenet Healthcare in a $910 million deal

. Tenet is selling its 70% majority ownership interest in Brookwood Baptist Health in Birmingham, Alabama.

In the Alabama deal, Orlando Health says it will manage day-to-day operations of Brookwood Baptist Health in partnership with Baptist Health System. Brookwood will remain a faith-based organization, Strong has said.

Orlando Health, based in central Florida, operates 17 hospitals and 10 freestanding emergency departments, along with nine hospital-at-home programs. The system says it has four other hospitals and six other emergency departments in development.

Steward owns five other hospitals in Florida that are to be sold: Coral Gables Hospital: Florida Medical Center; Hialeah Hospital; North Shore Medical Center; and Palmetto General Hospital.

Gov. Maura Healey has moved to line up new ownership for five Steward hospitals

 to keep them open. The plans don’t include two other Massachusetts hospitals that are slated for closure.

Pennsylvania hospital systems complete mega-merger

Why hospital merger activity could rise in the second half of 2024

Orlando Health has put in a bid to purchase three facilities owned by Steward Health Care. The landlord for the facilities has filed an objection in bankruptcy court.

Florida health system plans $439M deal to buy 3 hospitals, but legal challenge arises

Even as Prime Healthcare looks to complete a deal 

to acquire Ascension’s nine hospitals in Illinois

, the system says it’s planning to close one of the hospitals.

 filed with the Illinois Health Facilities and Services and Review board earlier this month, Prime Healthcare and Ascension say the plans call for the closure of Ascension St. Elizabeth in Chicago after the transaction is finalized.

In its filing, Prime says that the only inpatient service offered at St. Elizabeth is treatment for acute mental illness, and that the facility’s average daily census in 2023 was around 17 patients. Prime also notes that the facility is only 1.5 blocks from Ascension Saint Mary Hospital in Chicago, which also provides services for acute mental illness.

“As a result, it is not believed that the proposed discontinuation will hinder the ability of area residents to access hospital services in any appreciable manner,” Prime said in the filing.

Prime said it plans to close Ascension St. Elizabeth within six months of finalizing the deal with Ascension and will repurpose the facility for other uses. The 

 first reported the plans to close the facility.

The Tribune also reported that Prime is paying $370 million to acquire Ascension’s hospitals and related facilities in Illinois.

Prime Healthcare’s purchase price for Ascension St. Elizabeth is $5 million, according to 

After merger of Wisconsin hospital systems, CEO sees ‘best of all worlds’

In its filing with the state, Prime Healthcare also pledged to offer proper notifications to the community, including patients, providers and local EMS services.

Prime Healthcare announced its plans to acquire Ascension’s hospitals last month. The system also said it would invest $250 million to upgrade the hospitals and improve technology in the facilities. Prime Healthcare has committed to hiring all of the employees at the facilities. 

Illinois Health Facilities and Services and Review board

 is scheduled to consider the planned sale of the facilities at a meeting on Oct. 29. The board is planning to issue a report on the deal on Oct. 15, and members of the public can weigh in on the report’s conclusions until Oct. 21.

Prime said the system and Ascension both concluded that Ascension St. Elizabeth should be repurposed into a community resource that “addresses a broader spectrum of community needs,” Scott Barboza, a Prime spokesperson, wrote in an email to Chief Healthcare Executive®. Prime plans to work with community partners to find a new use for the facility, he wrote.

The acute care services at Ascension St. Elizabeth will be consolidated at Ascension Saint Mary in Chicago, and Prime plans to invest millions in the facility.

Under the deal, Prime Healthcare would acquire these Ascension Illinois hospitals: Ascension Holy Family (Des Plaines); Ascension Mercy (Aurora); Ascension Resurrection (Chicago); Ascension Saint Francis (Evanston); Ascension Saint Joseph (Joliet); Ascension Saint Joseph (Elgin); Ascension Saint Mary (Kankakee); and Ascension Saint Mary and Saint Elizabeth (Chicago). The deal also includes two ambulatory surgery centers.

Assuming the deal is finalized, Prime would also acquire Ascension’s physician practices, post-acute care facilities and senior living facilities in Illinois.

Sunny Bhatia, MD, president and chief medical officer of Prime Healthcare, said the acquisition of Ascension’s Illinois hospitals enables the company to establish a presence in the Chicago region, the nation’s third largest metropolitan area.

“This transaction will enable a continuation of this tradition and expand our dedication to compassionate care, clinical excellence, and service to patients and the greater Chicago community,” Bhatia said in a statement last month.

In a statement accompanying the announcement of the deal last month, Polly Davenport, president and CEO of Ascension Illinois, said the sale will ensure “that the greater Chicago area has sustainable, quality healthcare access long into the future.”

Prime, a for-profit health system based in Ontario, Calif., operates 44 hospitals and more than 300 outpatient facilities in 14 states.

Ascension, a non-profit Catholic system based in St. Louis, operates 139 hospitals in 19 states. But Ascension has been striking deals to sell some of its hospitals as the system has been looking to reduce the size of its footprint and improve its finances.

Ascension announced a deal to sell five of its hospitals in Alabama

 to the University of Alabama Health System in a $450 million deal. Ascension also announced a deal in the spring 

to sell three hospitals to MyMichigan Health

MyMichigan Health completed the acquisition of the facilities

Another Pennsylvania hospital merger moves closer

California health system completes acquisition of two hospitals

Prime Healthcare is buying Ascension’s hospitals in Illinois, but the system has notified state officials it plans to shut down one facility.

Illinois sale of 9 hospitals could lead to one facility’s closure

In a relatively short time, Valley Children’s Hospital in California has made some impressive strides in its sustainability efforts.

 certified the hospital’s sustainability program. The Joint Commission launched 

 at the beginning of the year, and Valley Children’s became the first hospital in California, and the second children’s hospital nationwide, to earn the certification.

Danielle Barry, senior vice president and chief operating officer of Valley Children’s, said the Joint Commission’s recognition was a boost for the organization.

“We're very excited to have had the opportunity with the Joint Commission and get to share with them our sustainability journey,” Barry says. “It's a really exciting thing for our team.”

The hospital received recognition from the Joint Commission for its efforts. Danielle Barry of Valley Children’s talks about the key ingredients.

Joy Avery, RN, MSN

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