Unleashing the potential of non-clinical spend management
As providers deal with increasing financial pressures, they can find savings by analyzing expenditures that typically are overlooked.
As the healthcare industry wrestles with mounting financial pressures — declining reimbursements, inflation and resource shortages — innovative strategies are essential for survival.
In a recent conversation with Matt Gattuso, managing partner at LogicSource, the spotlight turned to a largely untapped opportunity in healthcare — non-clinical spend management. Non-clinical spend, encompassing categories like information technology, human resources and indirect procurement, often represents about 20 percent of a health system’s net patient revenue. However, it has received scant attention in contrast to the clinical supply chain.
This oversight is costing healthcare organizations millions of dollars annually. By leveraging proven methodologies honed across industries like retail and consumer goods, health systems can realize substantial savings and redirect resources to improve patient care, Gattuso contends.
The hidden costs of non-clinical spend
In healthcare, it’s no secret that costs often exceed those in other industries for identical services. Gattuso illustrated this with a striking example — a seat license for the same software might cost $150 for a health system but only $75 for a nearby non-healthcare organization. These discrepancies, compounded across numerous contracts and vendors, add up to a significant financial drain.
Gattuso estimates that approximately 20 percent of net patient revenue — potentially hundreds of millions of dollars in larger health systems — goes to non-clinical spend. Alarmingly, much of this spending is unmanaged or misaligned with market benchmarks. As he puts it, healthcare is “paying a premium across the board.”
One key reason non-clinical spend remains an untapped opportunity is focus. Supply chain leaders prioritize physician-preference items and clinical supplies that directly impact patient care, leaving non-clinical spend on the back burner.
However, with labor shortages and budgetary constraints intensifying, healthcare executives are recognizing that optimizing non-clinical spend is not just a cost-cutting exercise — it’s a pathway to funding critical care initiatives.
Gattuso emphasized that health systems often lack the bandwidth and expertise to tackle this challenge internally. “It’s not that CFOs and supply chain leaders don’t care,” he explained. “They just haven’t had the resources to get there.”
The power of executive sponsorship
Success in non-clinical spend management hinges on strong executive sponsorship. According to Gattuso, initiatives often begin with CFOs or CEOs who can rally department leaders around the potential savings. For instance, a CIO or CHRO may need encouragement from the top to align their teams with cost-saving measures.
Executive sponsorship also enables cross-departmental collaboration, a critical component given the decentralized nature of non-clinical spend. From IT to HR, these categories span multiple departments, making coordinated efforts essential.
A winning approach combines deep industry expertise with actionable data. Gattuso shared how his team of category experts frequently works in the market, negotiating contracts and gathering benchmarking data that provide valuable insights into what “good” looks like in terms of pricing and utilization.
For example, the analysis of a health system’s software contracts may reveal that they are paying for twice as many licenses as needed. By identifying and eliminating waste, the organization not only reduces costs but also enhances operational efficiency.
These savings can be dramatic. Gattuso shared that for a $5 billion health system, his team often identifies $50 million to $70 million in potential annual savings over just a few years. This kind of financial relief can fund new initiatives, address budget shortfalls or invest in workforce development — benefits that directly or indirectly improve patient care.
Empowering overwhelmed teams
While executive buy-in is crucial, engaging department leaders and frontline managers is equally important. These teams are often stretched thin, juggling workforce challenges and operational demands. Success is possible by deploying independent project leaders who take ownership of the process, from identifying priorities to executing strategies.
This hands-on support ensures that non-clinical spend initiatives do not add to the existing workload of healthcare staff. Instead, it empowers them by streamlining processes and demonstrating the tangible impact of their decisions on patient care.
Effective non-clinical spend management requires a data-driven approach. Gattuso highlighted several key metrics that should be used to measure success.
Spend under management. The percentage of total non-clinical spend actively managed through contracts or strategic initiatives.
Contract utilization. Ensuring organizations maximize the value of existing agreements, such as by aligning with the appropriate group purchasing organization tier.
Payment terms optimization. Extending payment terms to improve cash flow while maintaining supplier relationships.
By focusing on these metrics and others, health systems can achieve greater transparency, control and savings.
The path forward
For healthcare organizations looking to embark on this journey, Gattuso recommends starting with a mutual value assessment. Typically, this starts by analyzing a health system’s accounts payable data to identify opportunities and estimate potential savings. This initial assessment lays the groundwork for a detailed roadmap, outlining specific strategies and benchmarks.
In an industry where every dollar saved can be reinvested in patient care, the case for non-clinical spend management is compelling. By shifting focus to this often-overlooked area, healthcare leaders can unlock significant value, enhance operational efficiency and ultimately support their mission of delivering exceptional care. “Our goal is simple — free up resources for patient care. Because at the end of the day, that’s the mission that matters most,” Gattuso said.