Overcoming Financial Hurdles in Healthcare

July 25, 2024 Mimi Torrington

In this episode of CFO Weekly, David Kirshner, Executive Advisor to Innovators Serving Health Systems, joins Megan Weis to discuss the impact of non-clinical spending on financial health in healthcare organizations. They discuss strategies for optimizing vendor relationships, leveraging data and analytics, managing financial challenges, and navigating regulatory compliance in healthcare. David also shares his insights on the evolving role of CFOs in healthcare.

David is the Managing Partner of Healthcare at LogicSource, where he builds and maintains relationships with the CFOs of healthcare clients, a critical group for LogicSource's solutions. He is also a Senior Executive Advisor at Janus Health and a Senior Executive Advisor at Waterstone Properties Group. Before that, David was an Executive Vice President and Chief Financial Officer at Lifespan.

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Megan - 00:00:18: Today, my guest is David Kirshner. David is Managing Partner of Healthcare at LogicSource, where he fosters relationships with the Chief Financial Officers of Healthcare Clients, a crucial constituency for LogicSource's solutions. David joined LogicSource as a highly regarded healthcare financial executive, having previously served as Senior Vice President and Chief Financial Officer at Boston Children's Hospital and the University of Rochester Medical Center. Previously, David served as Chief Financial Officer and Senior Transformation Officer at Lifespan, Treasurer and Board Member of the Children's Health Corporation of America, and Senior Executive Advisor to Ernst & Young's Healthcare Advisory Practice. David, thank you very much for joining me on today's episode of CFO Weekly.

David - 00:01:35: Good morning.

Megan - 00:01:36: Today, we're going to be discussing non-clinical spend within the health system and how strategically managing it can help these organizations avoid bankruptcy. And I'm really looking forward to learning about you and from your experiences. So let's jump right in. Your career spans pivotal roles at prestigious institutions like Boston Children's Hospital and Lifespan. So what is it that initially drew you to the intersection of healthcare leadership and financial management? And how has your journey shaped your approach to navigating financial challenges in health care?

David - 00:02:12: Yeah, I think I probably like a lot of people in health care was drawn to taking care of patients. And the concept of being a doctor was always paramount in my upbringing and have numbers of family now. A daughter-in-law who's an obstetrician and our niece who's an internist. And so, but my strengths really were always in economics and business and accounting. So, I shifted toward the business side of healthcare and got my CPA at the Ernst & Whinney way back in the day. And it was a wonderful way to help the industry become much more businesslike and worked with a lot of physicians, continue to do that today, and loved it. Kind of was the best of both worlds. I got into the health care world by virtue of my public accounting audit experience. I got an MBA from Boston University, but half my clients were not healthcare. So, the concept is doing something where you learn a lot about other industries like manufacturing, retail. That concept was with me since the very beginning. Health care loves to do its thing. It's a very unique, differentiated kind of service and care delivery is obviously precious to all of us. But I think when you get down to some of what we do, it really is, what drew me is that you could really be specialized, but not necessarily agnostic to things that were going on in the business world in general.

Megan - 00:03:45: And for our listeners who don't work within healthcare and maybe aren't familiar with this specific topic, can you share what non-clinical spend is and why it can be difficult to manage?

David - 00:03:57: Sure. Yeah, it's a tough term. So I'm glad you asked about it. The way we spend money in healthcare or in most businesses is either directly with patients taking care of their needs around their length of stay and their internal challenges within their biological challenge of diseases and things. But there's a lot of support that goes into that around, the hotelling of the patient, the facilities, all the information technology support we need. A lot of our health systems today are really gigantic intensive care units that have a lot of technology supporting them. And then there's software that supports the back office. So non-clinical, what we mean when we say that is it's the back office. It's all the things that you need to run the health system without really touching patients directly. We found that that runs roughly 20% of the total budget.

Megan - 00:04:55: And you've recently taken on roles as Senior Executive Advisor at Janus Health and Managing Partner at LogicSource. So can you share a pivotal moment or maybe a learning experience from your career transitions that significantly influenced your leadership style and your strategic thinking in managing non-clinical spend?

David - 00:05:17: Yeah, sure. This goes back to really my training, which has always been around data and trying to be rigorous with how we analyze problems and solutions. All of our healthcare organizations have challenges and opportunities. As time has gone by in the pandemic now, after the pandemic, I find what I go back to are my early days at Boston Children's when I, we were literally trying to figure out how to not lose a million dollars a week way back when in the late 90s. And when you're losing money, it obviously puts a real chill on any of your creativity or innovation. We very calmly went out and organized an approach to trying to measure pretty rigorously where we thought the opportunities were to either enhance revenue, reduce cost, grow volume, whatever the case may be. And it really pulled the entire team and organization together. And what I think I'm finding now is I go back to those roots where you really are looking for people to put it all on the table, with an opportunity to have the team respect their expertise for sure, but get back to the question of, is there an ROI? Is there an opportunity for us to do something different than what we were doing all along? That takes a lot of confidence. At times, it takes a lot of trust. And it's kind of counter to the culture because we're super specialized institutions. If you've ever been in a hospital, you probably know we have more specialists than you can take a stick at. And that translates into the administrative side of the institutions as well. The goal as a CFO is really to try to get alignment across the interdisciplinary leadership team with real data that's hard to walk away from. And the opportunity is sort of like, sure, give that a shot. Let's do it together. There's no criticism of anyone intended. It's simply, can we do this a better way and learn from, in this case, if it's logic source, it's really, can we learn from other industries who figured it out? They found out how to do it a better way.

Megan - 00:07:33: And talk to us about LogicSource. What is it that you guys do?

David - 00:07:37: Yeah, so it's helpful to understand that LogicSource, has started by being capital here in Boston, where I'm from. That's how I found out about it. It is really an organization. It's a collection of about 120 super experts in their respective domains, supply chain domains. So some of them know everything you could possibly know about, for example, waste disposal or some element of software related to protecting against hacking. It's an impressive group of practitioners who have honed their skills and are available as a utility to a variety of America's leading retailers. It's the name, it's the who's who of a retail that's been doing this. And I've known for 20 years in healthcare that we weren't necessarily doing this. We would call it purchase services, or we would get into the question of how do you learn from other industries. And oftentimes board members would come to you and say, why are your buildings so expensive? Or why can't you do what we do with this particular service? And you find out that there's always some circumstance that makes healthcare a little bit unique. But my sense, having gone through 35 years CFO career, as you were saying at Children's Hospital, also the University of Rochester, in Upstate New York. So, in New York, Massachusetts, Rhode Island, no matter what state I'm in, there's always a need to get at the question of how we're going to learn from some other part of the country, or maybe outside of healthcare, how to do something better. And everyone does it with a great deal, appropriately so, of concern about the expertise inside of the institution and obviously the safety of the patient. That's always, it's paramount in your mind. But I think that's where I'm seeing from LogicSource's perspective a challenge, which is how do we go into a new vertical, a new industry group like this? Most health systems are very used to buying clinical things, obviously, and they use very large group purchasing organizations that are also very well regarded. And those GPOs are relied upon for their scale, their leverage. When you buy anything, whether you go to Costco yourself or Walmart, you're looking to get the best deal because you're buying at a place that buys so many of them. At times, that makes a lot of sense. In the clinical world and the non-clinical world, at times, though, you can't do it that way. A particular physician needs something or wants something, will insist on it. Or in the case of your non-clinical, there may be codes. There may be unique regulations, that are required for you to strengthen the wallboard or whatever the case may be in your emergency room. All those things require some balance, though, so that you don't end up creating a situation where you can't afford anything because it's so specialized. So at LogicSource, we really try to get in the middle of the analysis of what you're buying and then try to open up the concept of, could you do this differently?

Megan - 00:10:52: And I'm curious, is non-clinical spend within healthcare, is it equivalent to indirect spend in any other industry?

David - 00:11:00: Yeah, surprisingly so. I think we found that consistently when we did our hypotheses on the first dozen health systems, that almost all of them averaged out to about 20% non-clinical. And I would think, at least from my point of view, I always thought that maybe 10%. It is a lot more than you would think it would be. I would say that's probably true because if you think about our food, how we buy it, what we do for our visitors, our patients, yes, some of it's specialized, but most of it's not. Same with facilities, same with technology. A lot of our corporate services, while they're delivered through specialized vendors, parking, audit services, banking, they're not that different from other entities. And it's really important to see the benchmarks from other industries, I think, to then judge what you think may make sense.

Megan - 00:11:53: And in your experience, how critical is strategic non-clinical spend management for the financial health and also the sustainability of large health care systems? And can you maybe share with us some specific examples where effective management made a significant impact?

David - 00:12:13: Yeah, no, absolutely. I'll tell you a couple from Lifespan that we were doing the transformation, we're kind of laying the platform for now what has become Brown University Health, which is the new Brown School of Medicine affiliation. And we were looking at all sorts of different things. And I remember someone coming to me and saying, in the health system I came from, we used to work with IT, to look at all the purchase orders for all the software and hardware we'd buy. And I said, really? This is a supply chain person who I really enjoyed and appreciated. And we never really did that, at least in many places I've worked. IT pretty much does its own thing. It's very siloed, very specialized. And so we started to have supply chain much more involved in the information technology procurement process. And while of course, they have the expertise to look at all the different vendors, it's really helpful to have a guide or an advisor that basically can help you figure out how to contract and look at five or six other workday contracts, if that's your current challenge for your enterprise resource planning system. Software in and of itself carries a fair margin in it. So I think as a CFO, you sort of know that you really do want a second set of eyes on that. In fact, I'd say the more emotional you are, if HR is very emotionally connected because of the risk of recruitment right now to a particular vendor, you're going to want to have somebody with them to look at whether the deal that you've done is metrically organized. You've got the key performance indicators, very clear. I think all of us as CFOs have appreciated having some non-emotional ways of evaluating. It's like a prenup for a marriage. You really do appreciate having some of this written down. Because these vendor relationships evolve and many of them are long-term and they need to be refreshed periodically. We find that significant number of vendors we help support the negotiation with at LogicSource end up staying with the health system or the customer, but not necessarily in the same exact way they had. There's a lot of leverage there for sure, just in refreshing and looking at how you're buying things.

Megan - 00:14:32: And when we look at non-clinical spend, what do you see as the primary challenges that healthcare CFOs face? And how is it that these challenges can be turned into opportunities?

David - 00:14:44: I think feel like, and this is particularly true of the LogicSource experience, but I would say it's true of a lot of private equity companies that I think have tried to approach health systems. We are a very siloed, if you think about it, like a farm where you see six or seven siloed grain silos sitting on the farm. That's what healthcare systems are like. They tend to love to be siloed in their specialist expertise. And that would be true of some of these administrative functions. But strategically, the team that needs to help organize around this non-clinical activity is really a supply chain. It's clearly going to be the experts in the business units themselves, whether that's the key facilities person, for example, or the person who's just buying all the food or dietary services. Transportation, for example, is a really good example. If you can get them to partner, and we're, pretty hierarchical in healthcare. The CFO has a lot of authority and you get a lot of attribution of authority and that's great. But the problem is you want your supply chain person to be a lot more of a partner. And that's what we're finding is happening over the course of the last couple of years. We're finding a lot of people, CFOs themselves are much more open to looking at the supply chain person as a real partner, as opposed to, oh, well, you work for operations or you're down there in the basement. It's really important to see the supply chain leaders, I think, as real collaborators along with these business unit leaders. That's really what I think I aspire to do when we're working with clients. And I certainly would do it if I were the CFO of a health system in this country today. Supply chain used to be kind of a second-class citizen, at least in my mind. It would be payer contracting. It would be revenue cycle. You'd know who your right and left-hand people are. To me, it's supply chain leaders have become absolutely instrumental because the cost structure is escalating so much faster. Particularly the services, then our payer contract rates can to go up. So I like teaching them about what the whole system looks like. They are clearly core to the opportunity to do performance improvements, as we go forward.

Megan - 00:17:07: And for leaders who may also work at very siloed organizations, do you have any advice for them on how? How to maybe break down those barriers and get people working together towards a common goal.

David - 00:17:22: Yeah. I mean, the circumstances, I didn't realize this until I got into academic medicine, but there were times where I feel like I was getting elected every year to be the CFO. It's very political. And so you really tend to be scarce and manage judicious with your political capital. And some of this is political because people like the idea that they are responsible and accountable. They understand that for buying things, for representing the institution through their authorization of a particular vendor. There's plenty of old saws that it's tough to get fired as the CIO if you pick IBM or something. Microsoft is probably the counterpart today. I think what I'm saying is that politically, it's possible for you to actually generate and build relationships and political capital if you do this the right way. There are a lot of supply chain people who have taken a much more defensive position around this area because they don't necessarily feel confident, and I understand that, in how they, if one were approach it, or they're new to the organizations that we're working with. But at some of the largest, most sophisticated ones, it's clear to them and to us that the more opportunity there is to look at things differently, the more vendors, the more we source from unique different places, around the country, around the world, the better the supply chain will be, the more resilient it will be. It's really interesting to see the haves and have-nots. Because in the haves, they're much more willing with their politics to work it out. It oftentimes doesn't even need to have the CFO referee it, which of course is my favorite idea. But as the CFO, you know you're there to resolve conflict. You're there to help isolate on focus on problems and set priorities, but ROI always is a big help when it gets super political. What else can we do at this point? We need another $25 million. It's fiscal year 25. It starts in three months. Let us at least look at the data and then we can decide together how we want to approach the solution.

Megan - 00:19:34: And with the rapid advancement of healthcare technologies and technology in general, how is it that CFOs can leverage digital solutions and data analytics to optimize non-clinical spend without compromising patient care?

David - 00:19:50: I think the data got in a health system today is the CFO is very close to that idea that you either set the culture up to be very data literate and available. And that's what I like to do. The more data I can get to people, the better. I always like to make sure they understand the question, before we go off and go deep on a very resource intensive analysis. I'd like to make sure that the organization understands what the question is. And if the executive team gets that, then the answer comes back. And it's usually the charge is very clear. So it's very easy to get muddy in some of these things. So you want to make sure that whoever the leadership team is understands. That's one of the reasons I love doing ROI, look backs on ROI. It just makes it very clear. Here's what we thought would happen to the good. This is what we thought it would cost to and make the investment. Here's the return. We love doing that. Private equity loves doing that. Stock market loves doing that. Part of the reason we do it is it gets you to really answer the question of what exactly am I trying to do here? Is it improved service? Is it reduced cost? Is it a little bit of both? Value is a very interesting kind of thing to measure. It's like Aldi in healthcare. It can be very difficult, but oftentimes we're trying to just get something to be depreciable longer, just getting more life out of a particular thing in a health system is worth it these days. I think it's the digital solutions that are out there for transacting, basic disbursement, purchase orders, monitoring how things are being spent, to me are, to be honest, pretty infantile still. When I see what LogicSource has in its data and how it was organized organically, it has so much more information about, what vendors do and how they behave and their sponsors. And I think AI is going to likely do more of that within the software. But for the amount of resources we put into our ERP systems, our workflow around all this, I think that's, an area I think many of us realize we're going to have to do better than we're currently doing. And I like the idea of working with something like LogicSource because you see it. You can just see the depth of the relational database they have and how they're doing it. So to me, it's like pilot test like crazy. Do your proof of concepts with something like LogicSource because you then can see what's possible. And that's half the battle. And then everybody gets to be like, I think we can do that ourselves. That's fine. Or let's do these three things. They're hard. They're going to require data we don't have. No GPO in the country has data on how Lululemon buys what it does. It just doesn't do it that way. So going multi-industry in healthcare, I think is going to be really helpful. And I think most of the CFOs I talk to really like the idea of leaving healthcare as the only reference point they have for performance benchmarking.

Megan - 00:22:53: And what strategies have you found that have been effective in optimizing vendor relationships and negotiating contracts that achieve cost savings without compromising service quality?

David - 00:23:05: Yeah, no, it's a great question. If you break down the contract, I remember having this conversation with someone at one of the big for-profit chains about a year ago. It's just interesting how we get charged for things versus how we think we might get charged. The Pepsi versus Coke versus Dr. Pepper thing that's going on. A lot of it's fountains and a lot of it's pores and a lot of it's data you wouldn't know as a generalist. But people do know in the industry. I think it's really important to interview your subject matter expert who does nothing but buy a particular thing. And so, then you'll find out that, for example, paper moves up and down every week. It's not something that stays static. You think you go to Staples and buy it? That's not how it works. Pulp and paper and lumber moves all over the place every week. The people that are in that market buy the newspaper print all over the country, weekly. And I think we have this concept that somehow we can just go do it and it's static. It's not. It's very dynamic. So my advice is to get to know, maybe not something we were taught in CFO school, but get to know the commodities that you buy energy, for example. I did a lot of energy trading within my health system. And I think there are things I learned that I needed to know that I didn't. And I think part of that is that on those, we're so revenue focused as health system CFOs. You want to grow. You want payer contracts to be great. You want to take risk with Medicare Advantage and do all the things that we do. And then there's this sort of mundane, here's how we buy this. And I just wish we had more regular, like on this kind of a podcast, I love the idea that we're talking about the things that you actually buy in scale that you might actually want to know more about. You'd certainly want to do that if it were part of your retail chain. And I think what we find in healthcare is you get so caught up in the top line revenue and all the net revenue issues that go on and collection and everything. And then you're left with the bottom of the P&L, it's labor and non-labor. And really it's non-labor that's probably the best place to go to really master how you're going to approach this. That's been my philosophy.

Megan - 00:25:26: And let's talk about change management, which can be one of the most difficult steps along the way. How is it that a CFO should approach change management when they're implementing these changes to manage spend? How is it that you get these changes to stick and key stakeholders to buy in?

David - 00:25:45: It takes time. I really do think that I have some scars to share with people about this. I've done five turnarounds in my life, my career in healthcare. Some big ones and some ones that were really vital to the survival of the community hospital. It always helps to have a burning platform. If there isn't a burning platform, the thing I learned is to use competition. And in a big academic system, people will talk about them as futile systems like the old ancient Japan, where everybody has their own thing. I think change comes from helping people see what's in it for them. What's good about what we wanted to do differently, how it could actually benefit patients. Because a lot of non-clinical benefits go to improving care delivery. I remember one of my mentors at Children's, she said to me, David, what we love about the overhead areas, the non-clinical areas, is that whatever you save, we'll get to put back into the patients. And the physicians love that. The scientists love that. Because they're trying every day in their grants and their managing of their service lines to do everything they can. So I always think, it's helpful when people see that they're all pulling in the same direction. And that this is just one of those ores, like LogicSource, there's just another ore that you're trying to bring to the table that's going to help reduce cost or improve performance from a vendor. I've been in some hospitals in the last month. Where the patient experience in Atlanta, for example, was just so exceptionally well done. And while they're talking to visitors, it just helps everybody get through the process better. That's what I'm perceiving that this is going to be like. You're just going to have a better workflow and a better process on some of these purchase services. These areas that really are so mundane, they're there every day. The lawn mowing, the snow removal, but you're getting looked at professionally by people who do nothing but that.

Megan - 00:27:46: And health care is obviously very highly regulated. So how do you recommend that CFOs navigate regulatory risk and compliance considerations when they're restructuring non-clinical spend?

David - 00:27:59: We've had several clients come to us. These are some of the biggest mergers that are being contemplated in the country. And this particular area has not been standardized. It's very local for good reasons. I think the best way to do this is to give, in fact, every CFO that's listening to this, I would say, get yourself a logic source analysis done because it's like no regrets. You're going to see the data at the vendor level for all these categories in a taxonomy that about two dozen health systems are now looking at. That taxonomy will give you insights into where you could go that you wouldn't even know you have in your budget. And that's the way to start when you're fragmented or you're bringing two systems together. There are a lot of health system CFOs who will tell you this. The system is a system to a point, but there's still many different parts of the system that kind of operate as though they're still along. And the more non-clinical initiatives you run on behalf of the whole system, the more the system starts to feel like a cohesive whole. I love that because I think that's most of us worry about the alignment standardization. How are we going to do this if we need to move services from one location to another? As we see more bankruptcies, we see more consolidation. I think the more likely it is that people are willing to move their cheese from one institution to another, or the physicians are willing to sign one contract on behalf of the entire system's ORs, the better it feels. That's not easy if you come from a place where everybody did it on their own, where the system's been made up of two or three different parts. These are big systems, 5, 10, 15 billion dollars systems. I like this idea as an early tried in a region, tried it in the southern region, tried it in all of the institutions, acute care facilities in Ohio, whatever the case may be. There's a lot to this, and I think it's worth really breaking it down and trying to pilot it, and then trying to apply it to the larger system as a whole to bring it, to make it more cohesive.

Megan - 00:30:18: And when evaluating effectiveness of non-clinical spend management strategies, what KPIs or benchmarks do you think are essential for CFOs to track?

David - 00:30:28: Well, obviously, I am a big believer in performance improvement tracking, particularly for supply chain. It can be challenging to know when exactly the contract term is going to expire and how to actually make sure that you're hitting all the metrics in order for the vendor to earn the payments that you're promising them. A lot of times, if you think about a statement of work and you're thinking about what it is you've asked someone to do, it's very general. It's not specific to the very nature of the kinds of things you want someone to do, these particular lots, this with this frequency. What we would call a service-level agreement internally in a health system, which we have had for many, many years, those service-level agreements don't always exist with a vendor. Let's just assume that. They'll do a good job, and they sometimes do and sometimes don't. I recommend highly getting to figure out what your service standard is. Measure it. Measure the turnaround. Measure the downtime. For almost everything that we work on, there needs to be some silver, platinum, gold kind of service. And I think you need to decide whether you need gold all the time. Sometimes you don't. Sometimes it's absolutely fine. And so you pay through that. Anyone who's done a lot of pricing strategies, which most of us CFOs have, you know you take margin, you take profit on premium. And you do it in a way that allows you margin or wiggle room because if you need to be there, you need to be there. But you don't always need FedEx. You just don't. And I think getting the organization to understand that and accept what's the standard takes a little slowing down and thinking. That's why I love having supply chain people involved because they're very good at that. They're sort of getting to the concrete level of performance. It all goes back to I want my vendors to trust me and I want to trust them. When you have a CFO who's going at the or a facilities person, for example, I've had this happen where the vendor, the contract, the contract, general contractor and the institution don't get along well. It's a mess. You really want the relationships to be healthy. And in order to have healthy relationships, you need accountability. The more you can focus on what are the five or six ways. We're going to hold people accountable, for this particular service and fill in the blank, the better. And that's the methodology that I think we've used really well, whether it's legal services, whether it's just looking at how our quality group does what it does with data. You really want to know that people are working toward the same common goal, but it's really hard to do that when it gets qualitative because it gets very political and it gets very difficult to measure. And then if you go around your organization and find out how many vendors relationships you have where they don't even know who you are, I bet you most people do that. I would strongly argue you should not have that. These are vendors. They should care. It's important. Most of these organizations we're talking about are super prestigious. Boston Children's is one of the best and strongest brands in the country, right up there with anybody in the country, with Mayo Clinic, Cleveland Clinic. Everyone's heard of it. And so you want vendors to really care and they should be giving you the four or five ways they would know what they've done a good job in three years. So long-term contracts are long-term relationships. That's how I think about it.

Megan - 00:34:06: Yeah, that's a great answer. Looking ahead, and this is the last question, how do you envision the role of the CFO evolving in healthcare organizations in general and specifically related to non-clinical spend? And what trends or innovations should CFOs be prepared to embrace?

David - 00:34:24: I'm thinking there's a lot more pressure coming on the credit story. I think we've got some really innovative CFOs out there trying to figure out how to deal with rising operating expenses. But almost all of us have a reimbursement challenge, which is that we just can't get rate increases. I talked to a lot of Blue Cross Blue Shield executives as well, part payer partners who are feeling enormous pressure to try to hold rates. And I think what that means is you've got to sort of rethink about your expectations on a cost per day basis or cost per discharge basis. And look at your direct costs and look at your indirect costs. And I think really think about the fact that almost always when we get our cost accounting data, Strat is one of the systems I've used a lot. So you get your indirects and you're talking to the physicians, the medical staff leadership about their service line and cardiology. And you look at the indirects and it's what can I do to help them? That's what this is about. This is about looking at those things that are not directly part of the care delivery, but could really make a difference to the overall margin. And obviously, you want to help get the message across that you're there shoulder to shoulder with them trying to really push to see if you can get to a better standard. It's really challenging, I think, to start to think about 2027 and 2028. The system is becoming much more governmental, which means it'll federal state. It's already two thirds that way. If it gets even more that way and we cover people without really making sure there's enough resources and people start to age, I think the CFO is going to end up becoming a pure chairman person. I mean, I have to say this. It is not something I ever thought I'd have to really learn, I feel everyone's got to stay competitive around what I'm buying from them, and the GPOs are really powerful. And I get that and I respect it. But I don't necessarily want to buy everything from a GPO. I think it takes, you know, you got to keep your head up. And my favorite CFOs right now in this country are working on this non-clinical area in their health system. All of them are working. They may not be working with LogicSource yet, or they may have worked with us and learned a lot and are going forward. But I got to tell you, it's common. It's about an 80% of all the CFOs are working in this non-clinical area just because it's one of those places where inflation's got to get resolved one way or the other. And we just can't afford it. So rather than hurting the quality of care, this is where you go. I think so. I'm delighted to be able to share some of what we're doing because I think this is a sweet spot from my point of view.

Megan - 00:37:13: Yeah, David, thank you so much for being my guest today.

David - 00:37:16: It's a pleasure. Nice to talk with you.

Megan - 00:37:18: Yeah, I've really enjoyed speaking with you. And thanks for finding the time to be here with us today to share your knowledge and experience. And I wish you and LogicSource all the best.

David - 00:37:28: Thank you, Megan.

Megan - 00:37:29: To all of our listeners, please tune in next week. And until then, take care.


In this episode, we discuss:

  • How healthcare organizations can save money by optimizing non-clinical spending

  • Why non-clinical spend management is critical for the financial health and sustainability of your healthcare system

  • The importance of breaking healthcare silos to leverage non-clinical spending

  • How to effectively manage change in healthcare spending

Key Takeaways:

Optimizing Non-Clinical Spending to Manage Healthcare Financial Challenges

Non-clinical spending refers to the expenses in healthcare that aren't directly related to patient care but are essential for running the health system, like IT support and back-office software, accounting for roughly 20% of the total budget. Managing this can be challenging, but through data-driven analysis and teamwork, healthcare organizations can find opportunities to reduce costs and enhance revenue. A key career lesson for David was during his early days at Boston Children's, where he carefully measured and identified cost-saving opportunities, which united the team and drove innovative solutions.

optimizing spending to combat financial challenges in healthcare

“Non-clinical, though we mean that it's the back office, it's all the things that you need to run the health system without touching patients directly. We found that that runs roughly 20% of the total budget.” According to Kirshner. - 03:45 - 07:32

Maximizing Healthcare System Sustainability

Effective spend management is essential for the financial health and sustainability of large healthcare systems. Take Lifespan's transformation, for instance. Integrating supply chain expertise into IT procurement allowed them to optimize vendor selection and contract negotiations, which allowed the company to streamline operations and enhance cost efficiency. As CFOs, it's critical to avoid emotional attachments to vendors and ensure contracts are metrically sound.

David Kirshner Executive Advisor to Innovators Serving Health Systems Quote

“I think all of us, as CFOs, have appreciated having some non-motional ways of evaluating. It's like a prenup for marriage. You do appreciate having some of this written down because the vendor relationships evolve and many of them are long term and they need to be refreshed.” Kirshner said. - 11:55 - 14:32

From Healthcare Financial Challenges to Opportunities

In healthcare finance, leveraging non-clinical spending challenges into opportunities relies on breaking down silos. Health systems, often like separate grain silos on a farm, can benefit greatly from integrating supply chain expertise across all aspects, from facilities to food services. Today, CFOs are increasingly recognizing supply chain leaders more than operational support; they have become strategic partners essential for cost management and performance enhancement.

managing non-clinical financial spending challenges

“I would say it's true of a lot of private equity companies that I think have tried to approach health systems, we are very siloed. If you think about it like a farm where you see six or seven silo grain silos sitting on the farm, that's what health care systems are like.” Kirshner claims. - 14:32 - 17:06

CFO Strategies for Healthcare Spend Success

To effectively manage change in healthcare spending, CFOs should focus on creating alignment and showcasing benefits for all stakeholders. Start by identifying a compelling reason for change, whether it's improving patient care or reducing costs. Engage stakeholders by showing how these changes directly benefit them. Also, use data-driven insights, like those from a logic source analysis, to uncover hidden opportunities and standardize practices across fragmented systems. Before scaling up to larger systems, pilot initiatives in smaller areas.

As Kirshner said, “I think change comes from helping people see what's in it for them.” - 25:26 - 30:18

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