OC Reilly Blog: Ensuring Financial Viability

By Ed Moran, Supply Chain Analyst, OC Reilly Inc.


Health care exists to care for patients, of course.  That’s why hospitals get built, why doctors dedicate their talents, and why support staff perform their vitally important tasks.

But if the financials of a health care system don’t add up properly, none of those things can remain in place to provide that patient care.  That’s why basic business concepts, like effective supply chain management, deserve attention and more widespread implementation among health care systems.

Add to this overall picture the unpredictability and churning change affecting the U.S. health care system today, and you can see that applying better control to those parts of the business that can be controlled has become imperative. 

In the April 14, 2014, edition of Modern Healthcare magazine, an article describes how the Florida-based Lee Memorial Health System increased its 2013 revenues and operating margins even as admissions declined.

“The three-hospital system realized $63.5 million in operating surpluses on nearly $1.3 billion in revenue, according to its financial report,” the article reads.  “That performance represents a 40% improvement over…the previous fiscal year.  Its operating margin also improved to 2.8% from 1.5% the previous year.  However, the report noted a difficult operating environment, where adult admissions declined 2.7%, pediatric admissions, 4.4%, and neonatal cases, 1.8%.  Patient days decreased 3.2%.”

While the article attributes the rise in revenues at this specific health care system partly to more outpatient services and higher net patient revenue per adjusted admission, the fact remains that every avenue of operating efficiency and increased margins must be pursued in the current environment.

Careful negotiations, expert contract language, a deep understanding of purchasing decisions and their ramifications, elimination or reduction of wasteful spending – these tools of supply chain management can add up to some powerful bottom-line results.

Because it can never be forgotten that in order to care for patients, there first has to be a financially viable provider in place.