Hospital CEOs track countless financial and operational metrics, but supply chain leaders say supply cost as a percentage of net patient revenue deserves the most attention. Because supplies are typically the second-largest expense after labor, the metric directly links supply chain performance to financial health — and even small increases can significantly compress operating margins.
The appeal is its breadth. Scott Meiser, vice president of supply chain at Pittsburgh-based Highmark Health, said the metric captures not just price management but usage, arguing health systems have a large cost reduction opportunity through demand and total cost of ownership management.
It also works best in combination. Rosa Costanzo, senior vice president and chief supply chain and procurement officer at Jackson Health System in Miami, said pairing it with total supply cost per adjusted patient day provides a fuller picture.
“When paired together, it provides valuable insight into supply chain efficiency relative to patient volume, acuity, and service utilization,” she said.
Thomas Lubotsky, supply chain vice president and chief supply chain officer of Allina Health in Minneapolis, pushed the definition further, expanding to non-labor spend as a percentage of net operating revenues to capture drugs, purchased services and other indirect spend that supply cost alone misses.
Don Barton, chief technical officer and director of supply chain management at Shelbyville, Ind.-based Major Health Partners, said tracking the metric helps CEOs identify cost pressures early and ensure supply expenses are growing in line with revenue.
Where leaders diverge is on how to account for clinical complexity. Michael Brown, vice president of supply chain at Texas Children’s Hospital in Houston, made the case for supply expense per case-mix index-adjusted discharge, saying the metric is particularly important in pediatric settings where patient populations run higher acuity and care paths are more complex than in adult systems. “This metric will measure your supply chain’s efficiency against the complexity of patient acuity and clinical variation,” he said.
Michael Alfaro, director of materials management at Ventura, Calif.-based Community Memorial Healthcare, argued that physician-level cost-per-case variance is where preference card friction and supply standardization opportunities actually live, calling it a metric that “seamlessly aligns clinical excellence with supply spend.”
Jonathan Alexander, CEO of HealthTrust supply chain’s Gulf Coast division, framed the challenge around medical device, implant and new technology spend specifically.
“The goal is not simply to lower expenses, but to ensure every product and technology adopted delivers measurable clinical, operational, and financial value,” he said.
A handful of leaders pointed to operational and governance signals that rarely make it to the boardroom. Fill rates — from distributors and internally — are a leading indicator of clinician pain that often goes untracked at the executive level, and lost linen and freight leakage can drain $25,000 to $100,000 or more annually without triggering an alert, said Les Feka, director of supply chain at Birmingham, Ala.-based Baptist Health Princeton Hospital.
Mark Campbell, senior vice president of supply chain at Tampa General Hospital in Florida, called fill rates “a key indicator of service delivery to clinicians” and said they open the door to understanding what is actually frustrating clinical staff.
On the governance side, Joe Wilson, vice president of supply chain services and chief procurement officer at Montefiore Health System in New York City, said the share of spend under contract signals whether appropriate vendor and pricing due diligence has taken place.
Luke Martin, administrative director of supply chain management at San Angelo, Texas-based Shannon Health, described an active effort to consolidate siloed supplier service agreements into coterminous enterprise agreements, targeting a 10% cost reduction.
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