How Hospitals Can Avoid Five Spending Pitfalls

With news about hospitals’ financial health worsening by the day.

A recent report from KaufmanHall found that margins could sink as low as negative 7 percent in the second half of 2020 – strategic spending that averts unnecessary costs becomes a do or die proposition for many. This is particularly so at a time when there is no promise of returning to normal any time soon.

Yet when they try to bring spending under control, hospitals confront a number of potential pitfalls. The five we list here are particularly threatening. The good news is that strategic sourcing solutions exist that effectively address all of these challenges.

Pitfall #1: Non-negotiated or maverick spend

Amid the chaos COVID-19 has wrought, non-negotiated and maverick spend – a perennial concern – is on the rise. Too often, supply chain purchasers work ad-hoc with non-approved suppliers, exposing hospitals and health systems to liabilities and compromising their ability to track spending and identify problem areas. Worse, unsupervised spend leaves your organization vulnerable to fraud and price gouging, which has been a consistent problem during the pandemic.

Pitfall #2: Inaccurate or incomplete data

Without a consistent flow of all spending data – and a line of sight to that data – you don’t know what you don’t know. You can’t compare what you’ve spent with agreed-upon contract terms. You can’t catch potential spending problems early. The result: CFOs are operating in the dark when they make decisions about where and how to rein in spending.

Pitfall #3: Poor data categorization

Absent a standardized method for categorizing data, monitoring spending across departments on an ongoing basis becomes nearly impossible. Again, this compromises any CFO’s ability to see spending clearly enough to make confident, data-driven decisions for controlling wrong-headed purchases and closing on the right deals at the right time.

Pitfall #4: Siloed purchasing

In many healthcare organizations, supply chain teams operate in hard silos, blind to how other teams operate. Different departments and service line managers emphasize and track different things. Physician preference might trump value analysis in one department; the reverse is true in another. This, too, frustrates CFOs trying to get a firm grasp on spending. The lack of a standardized methodology across departments obscures, among other things, duplicate or unnecessary contracts, off-contract and rogue spend, and failures to attribute spending to the right cost center. These problems are, of course, exacerbated in a crisis like the COVID-19 pandemic, when people are moving quickly and paying less attention to standard operating procedures.

Pitfall #5:  Poor analytics capabilities

Many hospitals still rely on spreadsheets or paper-based receipts. This outmoded approach denies hospitals access to powerful analytic solutions that empower CFOs to reliably monitor spending across categories and create customized reports that regularly identify spending outliers unique to their facility.

Strategic sourcing solutions guard against the pitfalls

Sophisticated spend management, value management, and contract analysis solutions – along with expert consulting – create a consistent vision of your hospital’s spending, enable you to reconcile spending with contract terms, and provide unbiased benchmarking to help you identify areas for substantial savings.

In short, a reliable, data-driven approach for monitoring spending and strategically sourcing your purchases is essential to surviving the increased financial pressures brought on by COVID-19. For some hospitals, it provides a much-needed lifeline for surviving troubled times and thriving on the other end.


Tom Watson

Senior Clinical Strategist

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