Cost Management for Hospitals, Aged & Residential Care Facilities
Following on from the previous interview with Grant Morrow on cost reduction opportunities in schools, Ruth Cohen addresses the opportunities for Hospitals, Aged and Residential Care Facilities.
Ruth has been working with many aged care providers in WA, and also draws on the extensive experience of her colleagues in the Eastern States.
Should Hospitals, Aged and Residential Care Facilities consider reviewing their costs?
All such facilities should review their costs on a bi-annual basis to ensure that, not only are they are getting the best prices and that suppliers are not applying increases without their knowledge, but that opportunities for process improvement are uncovered at the same time.
Especially for Aged Care, where government funding is being withdrawn, and staff and other costs are increasing, an independent review of costs should be a priority.
Why don’t hospitals and aged care facilities do this regular “self-examination”?
- There are several reasons which we see as the most significant:
- They don’t have the time – most are so busy with the day to day running of the facility, that they don’t have time for full and regular reviews.
- They don’t see the need – this, unfortunately, is very common when stakeholders feel they “have a handle on it” and don’t see the need for review.
- They have a long list of cost categories to review and haven’t gotten around to it yet – chances are they are losing out on potential savings for 12-24 months because it is low down on the list of priorities
- They don’t trust an external consultant to do it for them or don’t want to pay someone else to do it because they have the staff to do it internally. Unfortunately, as mentioned before – very often the staff don’t have the time to do it and savings are lost through competing projects!
How do these organisations know if they cost competitive?
There are some ways that they, just like every other business can tell how competitive they are.
For large dollar spends when reviewing categories organisations should consider tendering or requesting an RFP from 3 to 4 suppliers to ascertain competitiveness in costs but also service. Price isn’t everything, and it's more about getting a competitive price comparison for the services and goods required.
Many aged care facilities and hospitals are part of larger Church affiliated buying groups. Through that association, they should be able to benchmark some of their larger cost categories. The real challenge with this is to make sure that the comparison is on a like-for-like basis.
Ensure you are monitoring prices in the market on a regular basis and comparing to what they are paying, if you find that you are consistently paying over the average, then talk to your supplier. Sometimes the group deals are not as competitive as they should be.
What are some of the cost areas that hospitals, residential and aged care facilities should consider?
The top 5 Areas where we have traditionally found savings have been in:
Food services and catering
Our experience has been that our clients believe that the quality of their catering will be impacted if they try to save money on food. This applies to both internal and external food services provider. There are some excellent opportunities for savings in this area, WITHOUT compromising quality. There is strong competition for good accounts, and much of the savings come from ongoing monitoring, something which most organisations find difficult to achieve because it is so time-consuming.
The larger the spend in telecommunications – data, fixed and mobiles – the bigger the opportunity for savings. It is also essential to review on an ongoing basis, data usage; mobile phone costs and use/abuse; and opportunities for consolidation of accounts and review of available numbers.
Many of our clients are using brokers because of relationships with larger buying groups. We have been able to reduce costs and help our clients to improve cover in almost every review we have done for aged care and hospitals. The relationship with the broker is one that should be valued, but the costs and policies should be independently reviewed every two-three years to ensure ongoing best practice and transparency of fees.
We have experienced a reluctance by stakeholders to review this category because of the view that change would be difficult. In most cases, our clients remain with the incumbent supplier in all cost areas. Their opportunities for savings in the laundry are in process improvements, chemicals, and in reducing the costs of external services.
It is very important that proper and detailed specifications exist for cleaning, whether performed in-house or by external cleaners. A review of cost advantages of using in-house vs external cleaners is also worth doing every few years. There are good savings opportunities in this area, but the quality of service needs to be of primary concern, and it can be difficult to compare like-for-like because alternative suppliers may not be able to deliver on their promises. This is a category which needs to be adequately monitored, and costs and charges reviewed every month.
What other costs should you be reviewing regularly in this industry?
- Office supplies and print
- Medical supplies
Do you have any recommendations for CFOs reading this interview?
- Review your costs on a regular basis, even if it is each one on a rolling basis.
- Monitor and track your costs over a period for individual categories
- On larger category spends to make sure you have some transparency on your expenses. Consider setting KPIs so that you can measure your supplier’s performance.
- Request regular reviews with your suppliers, don’t wait for them to come to you.
- Benchmark your costs with your peers on a regular basis
- For the considerable costs, if you are not confident or don’t know enough about the category then engage someone like Expense Reduction Analysts, who does.
We help clients to support the health and growth of their business, whatever its nature, focusing on proactive expense and supplier management. As an Australian and global company, Expense Reduction Analysts can benchmark costs and spending, follow the latest supplier innovations, and have real-time data on changes and advancements. This strength gives Expense Reduction Analysts the recognition and power needed on supplier markets to serve your interests best.