"We're re-engineering the process to ensure every purchase is made better," Noll says.
CFOs, CAOs, CEOs, and everyone else in the C-suite leading the financial efforts for hospitals and health systems continually struggle to reduce costs without impacting patient care. Unlike other businesses, healthcare providers cannot simply increase the prices of their goods and services when profit and revenue aren’t where the company wants them to be.
Keith Noll, chief administrative officer for WellSpan Health, an eight-hospital system in central Pennsylvania, recently connected with HealthLeaders to explain how the organization is innovating non-clinical purchasing to save money, protect margins, and make care more affordable.
HealthLeaders: Tell me about WellSpan Health, its mission, and your role with the organization.
Keith Knoll: WellSpan Health is an integrated health system that serves the communities of central Pennsylvania and northern Maryland. WellSpan is a charitable, mission-driven organization with approximately 20,000 employees and more than 220 patient care locations including eight hospitals. WellSpan is the region's only accredited Level One Regional Resource Trauma Center and Comprehensive Stroke Center with an endovascular neurosurgery program. Collaborating with respected organizations, including Johns Hopkins Medicine, WellSpan is a valuable community resource that provides more than $312 million in combined charitable, uncompensated care (2022) for its $3 billion healthcare delivery system.
I oversee all administrative support functions across WellSpan. Prior to serving as WellSpan’s senior vice president and chief administrative officer, I was the president of WellSpan York Hospital for 10 years.
HL: How is WellSpan re-engineering indirect (non-clinical) spending as the final frontier for healthcare savings? Purchased services spending?
Noll: At WellSpan, 50% of the products and services we buy are clinically oriented to care for our patients. However, the other 50% is on non-clinical purchasing, including IT systems, waste management, transportation couriers, furniture, fixtures, equipment, marketing expenses, legal services, equipment servicing, environmental services, food, and nutrition, and more. These items aren’t generally included in our GPO agreements.
To assess our true supply-chain spend, WellSpan performed an internal analysis in 2021. We ran our entire spending history through a national database to compare our costs versus other health systems and we found some opportunities for savings.
HL: What did the audit reveal?
Noll: That much of WellSpan’s non-clinical procurement (purchased services) wasn’t being managed through the supply chain department. Independent departments would negotiate and contract their own agreements. This isn’t unusual in healthcare, and it makes non-clinical spending very hard to track and manage.
Since ancillary departments aren’t experienced in all aspects of purchasing, they may lack proficiency with contract negotiations, financial terms and conditions, and service-level agreements. Discount dollars aren’t always maximized. Non-clinical contract terms aren’t negotiated to receive optimal benefits.
We will always be looking for ways to drive better value in the supply chain. But before you can shave dollars you need to recognize that even the supply chain in healthcare organizations has opportunities to improve in certain product and service areas.
Many organizations don’t consider non-clinical spending a significant enough area to dedicate time or resources to improve the process. But these dollars represent upwards of 20% of a health system’s annual revenue. They add up.
HealthLeaders: So, what is WellSpan doing with this information?
Noll: We’re re-engineering the process to ensure every purchase is made better. Part of our Vision Statement at WellSpan is to ‘reimagine healthcare’ and that is what we were trying to do in the indirect spend categories of our supply chain. Our thought was if this is not an area in healthcare that has a great deal of experience, why not work with a non-healthcare supply chain company that does it all the time?
After our internal evaluation, we started by assessing every category of non-clinical purchasing, who was making the decisions, and how they were purchasing these goods and services. Our partner, LogicSource, helped with this analysis and compiled the data by department as part of an exhaustive deep dive into our procurement capabilities via their mutual value assessment.
Through education, each department began informing the supply chain team of upcoming evaluation and acquisition initiatives. LogicSource also hired dedicated team members in more technically oriented specialties like IT and construction services who wear WellSpan badges and are embedded in those areas within our health system. This level of expertise helps build confidence amongst our internal customers in the competency of the services we are now providing.
HealthLeaders: What benefits were there to getting involved with the department’s contractual negotiations?
Noll: We made it easier for each department to maintain a positive relationship with their vendor partners during contract negotiations. We did this by having LogicSource experts working together with our supply chain team to negotiate all the financial terms of the relationship. We were the ones that pushed for greater discounts and more favorable contract terms.
We were able to provide departments with benchmarking data from other industries and LogicSource customers to drive faster decisions and a quicker return on investment for each purchase where we get involved. Traditionally, healthcare has only looked at and compared pricing and rates from others within healthcare. We knew we could do better. LogicSource validated that assumption for us, and provided the requisite insights, benchmarks, and best practices from retail and consumer goods industries. Applying best buying practices from other industries has resulted in significant efficiencies for WellSpan from a pricing and process perspective.
HealthLeaders: Where are you freeing up dollars to fund high-revenue clinical projects?
Noll: Every non-clinical procurement initiative that reduces expense leads to more money to protect the organization’s margin, reinvest in care, or make care more affordable for our community.
In 2022, our first year working with LogicSource and re-engineering how we purchase non-clinical indirect goods and services, we saved $6 million. That money is being put back into the organization. We expect to save roughly $20 million over the life of our current contract, and we are already well on the way to achieving this goal.
HealthLeaders: What tips and tricks have you learned about how to better contract and buy non-clinical goods and services?
Noll: You must acknowledge that there is a gap in non-clinical spending (purchased services). Nearly all healthcare organizations don’t invest the same number of resources in this spend category even though it is of equal size to their clinical/med-surg spend. It is a great area for potential cost savings and purchasing process improvements.
Consider consolidating or centralizing your non-clinical spending by educating ancillary departments on the benefits they can achieve through access to purchasing experts: cost savings, time savings, and the opportunity to remain the ‘good guy’ with your vendors—they shouldn’t go at it alone.
Tap into data to drive your decisions. Other industries also purchase items like enterprise resource planning systems, trash removal, employee benefits, etc. Use that intelligence to your benefit to achieve more favorable contract pricing and terms.
You’ll learn new best practices with each purchase, so incorporate these best practices into your own organization’s supply chain playbook.
Amanda Schiavo is the Finance Editor for HealthLeaders.