By Erin Cristales, Vizient
Inflationary pressures may be just about everywhere these days, but nowhere are they more evident than at the grocery store. Supermarket prices have shot up at the fastest rate in decades — according to a recent New York Times article, overall food prices were up 8.5% over the past year as consumers paid more for staples like eggs, fruit and meat.
But it's not just individual shoppers who are experiencing pain in the pocketbook. Healthcare organizations too are struggling to stay in the black while also meeting the dietary needs and wants of their patients, employees and the larger communities they serve.
Luckily, there are in fact ways to mitigate supply and price challenges. Here, Rob Hamilton, Vizient associate principal in indirect spend, and Jordan Bergloff, senior category manager in food, discuss the biggest pain points providers are facing in the food realm — and some quick wins they can potentially put into action.
What would you consider to be providers' biggest pain points when it comes to food and foodservice?
Hamilton: Staffing. A lot of foodservice positions are entry level, and providers are competing with the Amazons and such of the world, right? Revenue generation is also big. Foodservice is not a profit-making center for a hospital. It usually runs in a deficit, and hospitals try to minimize that deficit on the patient care side through the retail venue side. If they can get to a breakeven point, they're really doing great. The other issue is commodities — getting supplies and food, and accounting for different shortages that happen in the marketplace — although that's starting to calm down a little.
Because of staffing shortages, hospitals have had to move away from "room service," where you basically have a restaurant-style menu that the patient orders from 45 minutes in advance and then the meal is delivered. So, between the cost of goods, their availability and labor shortages, they've gone back to a directed-selection menu where patients pick their meals as far as two meals in advance or closing/reducing operating hours of retail venues. If they're like, "Now I don't feel like eating that," it definitely has an impact on patient satisfaction.
Bergloff: To Rob's point, what we're hearing right now centers on labor and doing more with less, whether in terms of staffing or food purchasing — it really is about how providers can make their money stretch further and provide the same service levels with a lot less. Many providers are hearing from above, "Hey, this requisition for an FTE has been open for six months, and your operation's been fine for three months. We're going to eliminate the position."
It's also important to note that healthcare often has higher minimum hiring requirements compared to other organizations in competing for labor. For example, at all the acute-care facilities where I have worked, a tuberculosis skin test or chest x-ray was required, and healthcare organizations may also require certain vaccinations prior to starting or yearly. Employers outside of healthcare don't have the same.
What are some of the best solutions providers could put in place to tackle some of these pain points? And are there quick-win areas they could focus on?
Bergloff: Regardless of whether a provider is self-operated or outsourced, they are likely using a food procurement program. If not, then they should look into using one — otherwise, they're likely paying street pricing, which would be the same as restaurants. There are many programs out there, and it's important for providers to maximize the value of that program. I can only speak for Vizient's food program, and our program has not seen the same inflation as people are seeing at the grocery store or through other food procurement programs. However, no matter the program, there are contracts and terms in place that will help mitigate price challenges.
To maximize the program, look at buying the food that is on contract — there's immediate savings in buying contracted products. Providers should ask the representative from their procurement program if there are any other incentives, especially distributor incentives. One that is fairly common across self-operated is order size incentive. If you're going to get four delivery trucks a week when you could instead get two with a larger order size, that's two trips using less diesel fuel, fewer labor hours, and it decreases wear and tear on the trucks. Those savings to the distributor can be passed along to the provider. Prompt pay discounts are another incentive. Many people are familiar with payment terms of net 30, but if you instead pay within 3, 10 or 15 days there can be discounts associated with the faster payment.
Are there some specific examples of success you've seen when it comes to providers addressing those pain points in food?
Hamilton: One success I've seen is around retail pricing enhancement, which involves looking at the cost of goods and what the price point is over the course of several years. It's about understanding what the markup structure should be. It involves thinking about seasonality, taking advantage of products that come in line, and then looking at the check averages to ensure that they're competitive with the local marketplace. For employees, leaving the hospital to go to a local restaurant or even a fast-food place down the street isn't realistic — by the time they get there, their half hour lunch is gone. So, it's about making sure there's variety as well as a proper markup structure in the retail space. That's another quick win that involves pricing and securing the right products but doesn't require additional labor.
Bergloff: A provider member in late 2022 changed their soup spoon to a contracted product and experienced a 46% savings. That same member changed to a brand of 4-ounce juice cups on contract and realized immediate 61% upfront savings. As you can see, assessing off-contract products and making a plan to change to contracted products (where the specifications are appropriate to your organization) will benefit financially and in other aspects such as contract pricing protection, distributor compliance incentives and procurement program standardization incentives.
Shopping seasonal can be a successful strategy too. Certain produce is much cheaper at different times of the year. Bell peppers are a great example — red and yellow bell peppers are in season in the summer, so they're much cheaper. Tweak your menu slightly, depending on if it's retail or catering, to buy fewer products that are out of season. Contact your produce provider and ask for seasonality carts for your area of the country. They also likely offer produce market updates, which can help you plan when it comes to fresh produce.
There's also automation. One of our provider members recently employed a coffee robot called "Robojo." Robotics will be something that people are looking into more and more. You definitely have to figure out the return on investment because there is a significant startup cost there. But Robojo is available 24/7, you don't have to pay overtime and robots don't call in sick. Our Vizient Food Program has suppliers with automation offerings.
What is the value for providers in engaging with advisory groups who can help in these areas?
Bergloff: It's definitely helpful for operators — the advisory assessment process focuses on understanding the key drivers of expenses, drilling down on the relationships between maintenance demands and staffing needs. Advisory facilitates the achievement and sustainability of cost reduction through a highly disciplined, proactive use of lean project management process. The process includes the following:
- Project plan development: Partnering with key stakeholders in identifying tasks to achieve savings and measurable milestones.
- Implementation: Implementing the project plan, providing best practice resources (inclusive of interim leadership), and delivering expertise and hands-on support to achieve project goals.
- Measure: Measuring savings and quality and assisting in implementing corrective actions if discrepancies exist.
Hamilton: With our Indirect Spend advisory group, everyone on the team has at least 10-plus years of experience as an operator within acute care, and even to some extent within the non-acute space. So, we've probably seen just about everything related to the challenges in the market. It allows us to keep track of what the trends are in the marketplace from menu preferences to technological innovations to accounts payable tools. Providers don't always have time to really delve in and look for the latest and greatest ideas out there. So, advisory groups can help with that. The Vizient Food Council provides insight around the challenges faced in healthcare foodservice as well as solutions for managing budgets, addressing labor shortages, achieving high patient satisfaction, and supporting initiatives around sustainability and health equity.
Learn more about Vizient Food Solutions.