OC Reilly Blog: Managing at the Margins

By Bill O’Connor, President and CEO, OC Reilly Inc.


What do you do, when your operating margin – the pool of funds you rely on for growth and investment – plummets from 4.44% to 1.81% in one year?  And not only that, but the 1.81% that’s left doesn’t even take into account the 2% across-the-board reduction in federal spending mandated by sequestration?

Those are the serious questions posed in the aftermath of a recent report issued by the Hospital Council of Western Pennsylvania.  The hospital trade group surveyed 58 hospitals in southwest Pennsylvania and found that 43% reported a loss from operations for the 12 months ended June 30, 2013, along with the drop in operating margins cited above.

An article in the Pittsburgh Post-Gazette quotes an officer of the Hospital Council as saying, “How many more programs can a community hospital cut?  I don’t think we can see anything that’s going to turn this around.”

The article lists technology improvements, an increase in online medical capabilities, and a continued shift to outpatient care as areas where hospitals can protect their bottom lines from further erosion.  But those steps don’t represent the entire picture.

Careful analysis and informed attention to supply chain processes, contracts, and oversight strategies have been proven to result in immediate, high-impact cost efficiencies that also are sustainable over the long-term.  A quick fix may have some appeal to health care administrators, but once that step has been taken and completed, the problem can return.

The chief financial officer of a major health care system is quoted in the article as saying, “I see a light at the end of the tunnel, and it’s a train.  This is a challenging, challenging market that we’re in.  It’s here, and it’s only going to get worse.  We need to do better.”

If that’s true, why not take advantage of every option at your disposal?  Pay attention to supply chain issues to complete the full picture of bottom-line improvement strategies, especially during this time of churn, change, and challenge regarding hospital operating margins.

Copyright 2013 OC Reilly Inc.