H-Source Blog


Excess Waste in Healthcare?

by H-Source on 10/26/2018

Is there any other sector or industry where wasting 25% of expenses is even remotely acceptable? I can’t think of one. Yet that’s our healthcare system in the U.S., and at a time when rural hospitals are closing, hospital profit margins are razor thin, and too many people can’t afford care. On its face, the absurdity of our healthcare situation is stunning. But if there were an easy fix, we’d have it in place already. Our healthcare industry employs more than 12 million caring, hard-working, well-intentioned people that are very good at what they do, and represents roughly 18% of our nation’s GDP. It is massive, and it’s not surprising we have inefficiencies. While there are legitimate, understandable reasons for much the waste, we can address some of it with our own individual efforts – maybe a new way of thinking, or an extra step in a process. Worth it? Yes, millions of dollars’ worth of worth it.

Check this out. The national average profit margin for a hospital in the U.S. was 2.1% in 2017 (and trending down). That means it takes roughly $48 in revenue to make $1 in profit. That factual tidbit alone brings clarity to why we need to reduce the amount of financial waste in our health system.

Now check this out. Members of the Colorado Hospital Association (CHA) have gotten resourceful in their mission to control costs and reduce waste in supply chain. Instead of throwing away items they no longer need or use, they sell them to other hospitals that need them. And they’re looking to other hospitals to purchase items they need at a discount. The result? They have recovered or saved costs totaling more than $175,000 in the first few months of 2018. That’s a lot of money, especially when budgets are tight. Now calculate how much revenue that amount of profit would have required. It’s well over $8M. $8,000,000 in revenue for $175K in savings, just by selling excess inventory to colleagues at other hospitals instead of throwing it away. Worth it? Yes. Eight million times, yes.

Read more on this at RevCycle Intelligence,  “How Hospitals Bring in Revenue Through the Healthcare Supply Chain.”