How Non-Clinical Procurement Boosts Hospital Margins

We talk with David Kirshner about why healthcare CFOs are facing extreme margin pressure and why supply chain has become a strategic tool for survival. We map out how to find savings beyond clinical supplies by using better data, tighter contracting, and real cross-department partnerships. 
• health systems moving from thriving to barely surviving as margins compress 
• why CFO sponsorship matters when expanding supply chain influence 
• defining non-clinical and indirect procurement across IT, facilities, energy, marketing, corporate services, and legal 
• using accounts payable and spend analytics to uncover vendor sprawl and contract gaps 
• the “$1 saved equals $20 revenue” logic and why expense work wins fast 
• raising expectations with vendors through competitive sourcing and respectful collaboration 
• using a supply chain maturity model to move from good to great 
• mentoring the next generation of data-driven supply chain leaders 
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Got a topic you're fired up about, or maybe you want to be a guest on the show? Fred would love to hear from you. Just reach out at fcrans@stonge.com

Transcript

Welcome And Why CFOs Matter

SPEAKER_01 0:03

Welcome back to Taking the Supply Chain Pulse. I'm Megan with Saynodge Company and thank you for joining us. Today's episode features David Kirschner, the managing director at Logic Source and former CFO for several large healthcare systems. David brings deep financial leadership experience and a system-level view of how healthcare organizations operate. In this conversation, we explore the challenges that CFOs and healthcare organizations are navigating today, along with the opportunities that emerge when supply chain thinking extends beyond the clinical space. Now let's turn it over to your host, Fred Kranz.

SPEAKER_02 0:38

As we do this podcast, my goal is to bring people in from areas other than direct supply chain areas of responsibility. And whenever I can find somebody who has been a chief financial officer, that's like hitting the mother load. And today we are fortunate to have David Kirschner, who is a managing director at Logic Source and who has been a CFO at several large healthcare systems, with us to talk about challenges faced by CFOs, by uh healthcare organizations, and opportunities that are present if you take a look at things outside uh the clinical supply chain. Uh David, uh welcome.

SPEAKER_00 1:27

Great to be with you, Fred.

SPEAKER_02 1:29

Uh David works with my my friend Mark Van Summer, who uh uh I worked with at Cap Gemini, and and Mark is the uh de facto vice president of marketing and public relations for the University of Michigan. Uh, do you serve the same uh role for the Boston University?

SPEAKER_00 1:48

I have um I have uh learned working with Mark that the best thing to do is to root for the University of Michigan. So go blue.

David’s CFO Journey To Logic Source

SPEAKER_02 1:59

I know, isn't that something? Anyway, anyway, David, so why don't you tell us a little bit about yourself, your background, and your current role at Logic Source?

SPEAKER_00 2:09

Sure. So my career um began at EY, then Ernst and Winnie uh over almost 40 years ago, believe it or not. And um I uh ultimately uh was as you described, ultimately became the CFO at um some very iconic health systems, including Boston Children's and the University of Rochester. And um very, very fortunate to have seen the industry evolve the way it did, and um had some very successful performance, um team performance as well, um successes over the years. And uh one of the things I absolutely was fascinated by when I met Mark three years ago was that, and he has a common EY background, Fred, as you know, is that we we both felt that supply chain had never really been tapped into as the strategic opportunity that it really is. And during the pandemic, you just you just could see, you know, just how much more data we would need and how much more talent we would need. And so um, as the pressure grew um to sort of join Logic Source, I met with one of the original investors in the company. The company's like 15 years old. Um, it was originally a Bain Ventures uh company, and it had huge success in retail. Um, the thesis that we could actually do the same thing with healthcare, mostly, you know, mostly sort of advanced, sophisticated healthcare systems, um, really intrigued Mark and I. And so it's been about three years. Um, a lot of got a we've had some major successes now. So really, really excited to sort of take what I've learned over the last three years as a CFO and share that with you.

The Financial Squeeze On Health Systems

SPEAKER_02 3:55

Well, it's good to have you here. You know, um we talked earlier before we uh started the countdown on this episode about the fact that I think there are probably I think four categories of healthcare organizations uh operating today today. And um those four groups are those that are failing, those that are struggling, those that are barely surviving, and those that are thriving. And yesterday I was thinking about all the places that I'd run supply chains and where they fall into those categories. And I have run um small, medium, and large supply chains, and with the exception of one, which is Baptist Health of South Florida, every one of the ones I have run at one point or another has been acquired by someone else and is no longer operating in the form it was when I worked there. So it's a it is a real difficult market out there. How do you feel about that?

SPEAKER_00 4:56

Oh, I totally agree. You know, I think as a CFO walking into uh a new health system today, and like I like your taxonomy. I think you take a job, you try to get a job at a place, obviously, that has you know a real fighting chance of succeeding longer term. You know, I always like to describe them as haves versus have nots, but we have a lot of health systems today who are really well, well branded, well you know, well recognized reputationally, but are truly struggling financially and realize that even if they're a have, um and I think most of our clients that it's panned out is that most of our our clients at Logic Source, and I see the most advanced supply chain people in the country, um, and continue to talk to people who aspire to that, they are the name brand health, the name brand health systems, like you know. Um, and they are oftentimes already very well recognized. Some of these are the best health, the best supply chains that we have in healthcare, and they know that in order to be great at something like non-clinical, you can't you can't do that all by yourself. And in order to get that coaching and expertise and data, um the ego they have seems to have been overcome about being the best. They know they're the best. The issue is can they even be better? And so that's really Fred, that when I think about sort of how this has gone, the most advanced systems um that we have as clients, and there are at least now half a dozen of them, are all of that character. They believe in their ability to be amongst the leaders in health system supply chain management. They're strategic. They have also somehow check that ego at the door, and they're just moving to higher ground, learning from other industries. Yeah, let's talk about uh uh two things.

SPEAKER_02 6:56

Number one, who is your primary source of contact when you when you're looking at an organization to want to help? Is is it the supply chain or is it the C-suite above the supply chain?

SPEAKER_00 7:07

It it it it it ideally almost has to start with the supply chain only because from our experience, and I have many CFO relationships where the first thing they want to do, of course, is bring their supply chain person and nobody wants to you know go over the top of someone that you either have reporting directly to you or indirectly through the COO or the CAO. So you want to be you want to deal with that, but it really helps to have the supply chain person much more curious about this, much more at least interested in learning about it. Um that sets the CFO up for sponsorship because I think you know, we're all ready to sponsor, but you don't want to fight the organization. And this really is an executive, you know, decision. At the end of the day, we need the CFO there to ultimately give it give it the Impermature that the data's reliable and the opportunities in the which are often in the multi-millions, uh, are realistic and achievable.

The Case For Non-Clinical Procurement

SPEAKER_02 8:07

Okay, so well let's do this little scenario. I'm a supply chain guy. I'm running uh I'm running a mid-size uh IDN and I'm doing a great job with my uh with my med surge supplies, and I've even made friends with my pharmacy guys, and I'm I'm helping them. So I've got maybe maybe between the the two of them 50% of the of the uh of stuff under some kind of contract. Uh how how would you approach me to tell me about non-clinical supply chain opportunities? Could you define that and tell me, say, Fred, this is where we think we could help you more? Because then and this is the other thing that we haven't the reason I ask you the first question is this uh strategic leadership is a difficult thing when you have to lead up because I have been in many places where I've had great ideas and I have been stifled by leadership in the C-suite that just A didn't get it, B didn't want to get it, or C didn't think they had to get it, which is a very difficult thing. So leading up, introducing the ideas and concepts to the people at the highest, uh, highest level of the organization becomes a challenge too. So so tell us about the opportunities that you see in non-clinical supply chain.

SPEAKER_00 9:26

Sure. I'll tell you, I'll tell you a true story. Um, this is three years ago. I'm the CFO, and uh the supply chain person who I who I just really respected and thought she she was doing an amazing job, had come from other organizations, and she's in my office, and we're talking about the whole transformation uh project, the performance improvement initiatives and supply chain, of which there are many. And she says, you know, David, she says, if I just could help the information systems department, the IT department, with their procurement, their contracting, um, because I'm not even allowed to touch that. I could, I can tell you the impact I'll have is enormous. Um, so talk about leading from you know, to the CFO. I will never forget that. And when I saw Logic Source, I was like, yep, she was right. The opportunities in areas like corporate services, facilities, maintenance operations, um marketing, corporate services, financial things that even we as CFOs do. What what I what I now know, Fred, is based on the analytics I've done, you know, and oftentimes this starts with just looking at a at a dump of the accounts payable disbursement over the past year, is that I may have several hundred vendors. And oftentimes what we'll find is the contracts in areas that are like um dietary, energy, facilities, marketing, you know, our social media placements, um, obviously all things information technology, which today are huge expenditures on the average of about 22% of the whole budget. If I'm going to approach the budget process in 2026 or 2027 with any level of additional rigor, I need you and I to partner on the idea that you would be active in all the purchasing, all the sourcing, with a very tight partnership with each one of these chief, you know, the chief executives uh overseeing IT facilities uh and uh finance, corporate services, legal, for example, is another one. These are all areas where I would have normally gone as the CFO directly to the executive running that group. What I'm gonna do is add the suggestion that they work with you because I want you to be able to give them the skills and talent you have to actually think through what might be going on outside of healthcare in retail or other industries. And I also want you to be part of the contracting. Um, I feel like that's the key point of opportunity for the CFO is really to lead into that. Uh, ask you to just stay curious about it, be open to I know, I know it's those areas are areas they have expertise in, but you will learn, as we all have had to, that there's expertise out there, you know, people that are doing, you know, way more in, you know, whether it be you know, in information technology is one of my favorites because it's one of those areas where you would think it's all epic, but it's not, or it's or it's all Oracle, even Oracle and Wor and Workday alone have many support structures, um, as you know, that have to be procured. And uh there's huge opportunities there.

SPEAKER_02 13:06

Yeah, there's two things about uh what you're saying here is number one, um historically uh healthcare has been sort of there's there's been um adversarial relationships among departments. So if you were in food service, for example, I know everything about for food service, you know nothing, so I'm gonna take care of all my stuff. Uh and and and it's to the detriment of those folks. Uh so the challenge becomes, and it sounds to me like part of your challenge, it would be to tell the food service person, look, uh, you we have some real opportunities that we've uh been able to show people over time, and in order to do that, you have to bring in the expertise of your supply chain folks in in sourcing, contracting, and purchasing uh to be able to optimize that. So you sort of broker that relationship.

SPEAKER_00 14:01

Is that fair? That's very fair. And uh, you know, I can only tell you funny stories about uh during my logic source tenure now, talking to people I mean, we're talking about the people that run supply chain at HCA, or you know, you name it, big big health systems uh in the top 10 in this country that tell me that the number one area they save money in was Pepsi pores, you know, dietary related, food-related, or or or IT-related savings, because those are the ones that we don't have the time and the expertise to really look at. And so I think when you go to represent, and this is true of finance too, Fred, just to be honest. I mean, I've had IT departments, many, who have their own finance person. And I don't necessarily deny them that, but I also know that if they don't have the expertise that we need for capital budgeting or whatever, you know, we need them to really partner. That that is my mantra for almost all of these departments, that they all need to know that finance is there to be enabling and supportive. Same thing with supply chain. Um, so that's that's how I think the emotion works best is have them know, have the supply chain people know. You don't expect that they'll do everything by themselves. They're gonna work with the department and they're gonna learn a lot, and it's challenging, but it it it's it's a very fulfilling thing to know that you're covering, you know, the entire waterfront, the non-clinical, as much as you possibly can.

SPEAKER_02 15:32

Yeah, and my experience has been that most supply chain folks would be eager to have the opportunity to help their peers.

SPEAKER_00 15:40

I think so. Absolutely. Because every dime we spend, right, Fred, every dime we spend on non-clinical can go to support the margin that then can get reinvested in the clinical. And these days that that's such a big deal.

SPEAKER_02 15:55

Oh, yeah, and I'll try my math problem, I'll try my math analysis out on you and tell me if you think my logic is off. I've always told people that we're everyone's always concerned about um about revenue and reimbursement optimization. But I tell people, look, if you're running a five percent margin, which means you're doing pretty well actually for my compared to most people, uh you have to get twenty dollars worth of revenue to get uh one dollar worth of profit. So the impact of saving one dollar in operations is the same as receiving twenty dollars worth of revenue. And and people don't look at it that way. They just they always focus on revenue optimization versus really getting into operational optimization and and reducing costs. Is that fair?

SPEAKER_00 16:48

That's absolutely fair. I mean, think about the amount of money we spend on growth and marketing and expanding revenue. Um, and then think about the amount of money we spend looking at the things we're already buying. And you know, it's it's sort of like that's a truism. Most CFOs will share with you that it's the claim you already generated that you need to collect. That's where your bottom line margin comes from. Same on the expense side. And where it's non-labor, you know, you're really mostly looking at the margins that some of the vendors are able to get without us really pushing back very much.

SPEAKER_01 17:25

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SPEAKER_02 17:52

Yeah, and what what is the um the sort of real operating margin that most people are working with these days?

SPEAKER_00 18:00

Oh, we're down to we're down to uh half a percent to a percent. And so, you know, if you're if you're really cooking, you know, you're really moving, you might be up around four, three, four, five percent. Obviously, ideally we'd be at five. That's what you would need for cash flow to replace CapEx and do everything you need. So most of us are bumping around a point where capital, you know, is starting to really get pinched, and you just don't have the margin uh to be able to support the kind of you know debt insurances per perhaps that you ultimately want to undertake for new for new buildings. Um it all sort of starts back with the operating margin as the board's most powerful tool, you know, to right-size, no matter what your balance sheet looks like, you still need to run an operating margin of something. So, you know, I think the last several people I've spoken to in our in our world, you know, really looking at this as a way of achieving, you know, maybe uh an extra, you know, point a point of margin, is really looking at supply chain and really understanding strategically how valuable it is. It was such a back office function, Fred. You know, you know you and I have talked about this. I just don't even think I paid much attention to it. Um much, much before Boston Children's, where my colleagues there, many of them are still there, really put some spend analytics in. We never really even talked about, you know, supply chain is this sort of really important sourcing capability. You know, everybody just jumps to buying. And it's like, no, way up in the front is this whole question of who do we want to partner with. And when you're, you know, when you're sort of thinking about what we what we really can do going forward, and I think this is really where you know you see the the the really advanced systems going, it's really in getting a supply chain leader right to the to the executive table. They're part of how we make our major decisions. Yeah, you know, you just brought up uh two things.

SPEAKER_02 20:07

Number one, you talked about Boston Children's, and uh I'm very familiar with uh Boston Children's with Henry Thomas Wellow and uh and um and Andrew Singer. Um and they've done things right. They they have uh they have taken um an orderly per uh approach to uh optimizing their operations over time. They've they have built they have built competence and then they build confidence with uh with the C-suite. And when those two things happen, you have uh you have an opportunity to uh to uh achieve something. Um and how difficult is that to get that message across uh when you're going in and defining do you do you do like a quick assessment of well, these guys want to get something done, but they're they're short of uh leadership skills in this area and that area? And how how do you approach uh a potential client and how do you uh make a case that will be acceptable by them without offending them?

SPEAKER_01 21:18

Hmm.

SPEAKER_00 21:19

Yeah, and I think everybody's a little bit different. You know, people people like to be approached differently. Timing's a big issue. Uh, Fred, I would say for most of the health systems we talk to, where we do a what we call mutual value analysis, um, it's almost a no-brainer. But the real question is collecting that data, or you know, I'll just say this, you know, part of it is having the data and making it available in uh a relatively efficient time frame. Um then we get about, you know, say say it takes three or four weeks to do that, and then you get another month to actually start looking at the data, and all of a sudden you start to see things you do. Even know we're there. And I can tell you that's exciting on the one hand. On the other hand, it's sort of like, is that real? Do we really believe it? And so ultimately, what I think we know is that a lot of people have been chipping away at non-clinical, but they they don't necessarily know how to get it all. You know, there's still a lot of juice to squeeze. And so part of what I think has been helpful is to look at the data, let the data drive the decisions with your supply chain executives and your C-suite, and realize that you've got so many things to do. Something like logic source, I don't even think would have existed in healthcare. I you know, I mentioned this to you the other day, that we really feel that within the last year, the health systems are finally getting to this point where they know they can't achieve these margins without some outside help. And there's absolutely an opportunity now to improve from good to great on non-clinical. And so from my point of view, it takes the supply chain person to sort of recognize that it's absolutely fine and in fact appropriate and helpful for them to participate with some sort of outside um information, other than just you know, sort of looking at some benchmarks within healthcare.

SPEAKER_02 23:24

Uh you know that that that's that's uh it's sort of a mess when you think about it. Uh but it's a mess of opportunities, too. I mean, if if if you show up today in New York City, you're gonna have uh you're gonna have three of the major hospital systems uh with all the nurses out on strike, and you gotta figure out how to do about something about that. So labor issues is a big thing, reimbursement's a big thing, political impact's a big thing, and and and you're talking about a proactive uh approach in a totally disruptive time. That's a heck of a challenge.

SPEAKER_00 24:04

It really it really is, and and it takes it takes some real focus and some real expertise. And I think as we've been looking at, you know, what data, for example, is available to some of the uh health systems, there's so there's so many limits on what you can get out of your own ERP system or the GPO, that starting to unearth and look at this data differently and having the judgment of your own supply chain leaders looking at this with our experts at Logic Source. We've got you know close to 400 people doing this every day, that you're you're starting to educate everybody about the markets and they're all moving so fast. The tariffs really, Fred, the tariffs I think really accelerated everyone's concerns about, you know, what am I paying? You know, how do I know that I'm that I'm that you know, some of these prices are just crazy. And obviously, when we look at how we want to target cost savings over what we spent last year, um, yeah, you really almost can't sit still. So whether it's uh getting data from organizations like Logic Source or doing things together and here and talk, I mean, I I know this is true of the supply chain leaders because we talk, you know, Ed Hiscock is a dear friend. Uh, there are a number of supply chain leaders that I've gotten to know as a CFO who I really like to listen to. And what Ed has always said to me over time, and just recently at a meeting we were at together, is the data itself is illuminating. What you do with it, and these are all relationships, these vendor relationships are all important, they're very impactful, um, is you treat the vendor with utmost respect. And by doing better contracting, by doing better sourcing and competitive analysis, you're a better, you're a much better customer. And I feel like that's a big part of what we just didn't do. We just accept there's two or three vendors, this is what it is, and there you go. And that's just not that's just not the way it needs to be. I think there are expectations as CFOs and supply chain leaders together, I think, should be much higher now. They have to be higher.

SPEAKER_02 26:25

Yeah, and and I would have to say that what I've observed over time is we have more from a totally transactional and adversarial approach to uh a much more collaborative approach. And we are we we have always we always used to talk about partnering, and I used to define partnering as I'll partner with you with you as long as I win and you lose. Uh, and now we uh now we are starting to understand the value of true collaboration with the suppliers. And I would also say that you talked about Ed, uh Ed just retired, but I would say that the the new group of supply chain leaders are much more sophisticated and better prepared to be able to lead collaboratively upward. And I I say lead upward because you gotta have good supply chain people to properly inform the C-suite, which has which has different capabilities, different specialties. I mean, you're a finance person, so I would have to inform you about things that you that would fit into your value structure that would make you want to support the building of a collaborative approach. I think what you guys are doing out there is sort of creating a template for uh for a new way of leading organizations. Is that fair?

Maturity Models And The Next Generation

SPEAKER_00 27:46

That's very fair. And I think that's part of you know, when when you ask the question of what what you do when you're a new CFO in an organization, and and I think a lot of people listening may relate to this, but usually like like Mark and I would do a maturity model for supply chain. If if I you were lucky enough to know Mark uh Van Summeren, and you you were a new CFO, and Mark were to walk in with a maturity model, you would decide with your team where you were, how sophisticated are we? And I think you know, what may people may not know this, but most organizations do have things that are very mature and very sophisticated and things that are not. You know, nobody does everything perfectly. And so when you start to unpack the maturity model, I think it's a little less threatening to everybody. You can't build Rome in a day. And when I feel like what I feel like Logic Source does is it accelerates you through that maturity model in indirect in a way that's probably taking you within three years, what might have taken 10. Because you know, you could hire a lot of people, and people do, but you won't know what we know. You won't know what's possible to know from other industries just because you know, all that data and history over the last 15 years is there. Uh so I find that to be remarkable, and very much what I think about when I'm thinking about, you know, what do you do now? You know, what opportunities do we still have? You're right, it is a little messy, but boy, are there a lot of opportunities that we can pinpoint and execute pretty quickly.

SPEAKER_02 29:25

Yeah, and the value that you folks bring, and this is this is uh part of uh I'm gonna be talking with Mark again soon, and he's got his new book about their strategic leadership and the time of AI. Yes. Um the the real value that an organization like you can bring to someone is knowing what questions to ask and how to shape the conversation. Because many times the leadership, you know, they can they have an idea about what they want to do, and they oftentimes they have they also have an idea about how to do it, but they really need to be led through a process that uh that gets them to the correct answers for them. And I think that's what what your expertise uh brings.

SPEAKER_00 30:08

Absolutely. And and and you you know, you mentioned Mark's book, and I think we all know this, but one of the things Mark points out is the quality of the questions you ask is everything. So the more precise and the more experience you have at understanding how a contract should look for landscaping or whatever the case may be, you know, the better you're gonna do. And I think that's probably um one of the greatest values that we can bring.

SPEAKER_02 30:36

Yep. So uh what have I not asked that you'd like to talk about uh as we wrap this up? What issue is out there that you'd like to spend two or three minutes on that I haven't asked about?

SPEAKER_00 30:50

Well, um, I you know, I I I was just gonna give you a sense of just what it's been like from you know the 80s and walking into community hospitals as a brand new young CFO, you know, you might see a back room, a loading dock, a purchasing, you know, function, you know, might be coupled with you know central supply or something to the kind of things that we're getting to see now, Fred, that you've lived through that many of us through the Bellwether League, where you see some of the best and brightest, you know, I didn't even know there was a bellwether league. And I I what I guess I feel like I want to just make sure people understand is there really are incredibly bright young people that want to get into healthcare, are in our healthcare systems today, who I really think are really worth mentoring. So if you're a CFO or you're a supply chain leader, or you're an up-and-coming person in supply chain, I'm really impressed with the young talent that's coming because they're very facile with the data and very open to sort of looking at things differently. Um, but boy, has the industry evolved in the last, you know, 30 years. I mean, it is night and day what supply chain's about. And um, I think it's a fun, it's a very fun but very challenging time. But if you're you know, if you're up for it, I think it's I think it's a great time to be in supply chain. I really do.

SPEAKER_02 32:20

Yeah, remember I start I started before you did, and uh the the seminal year in healthcare uh cost management was 1984 with the uh tax equity and fiscal responsibility act, which uh uh brought in TEFRA and DRGs and the idea of uh prospective reimbursement. In the old days, before you would have you wouldn't have minded being a CFO back in the 60s and the early 70s, because I would be called in and they would say, Fred, how much do we need to increase our charges this year? That's right. That was that was the question I had to answer. Not not could you please contain costs, but how much do we need to increase our charges? Uh and uh you know things are way, way different, and the people that we have now are very bright. I I think one of the things the Bellweather Bring League brings, and I think uh one thing that's very important in any organization is the presence of multiple generations of experience, multiple generational viewpoints, because we old folks are not as bright as the young folks on the technology, but we know how things work over time, and I think that the sharing of that knowledge and expertise across those generations is what will produce the really excellent places. Agreed, totally agree. Okay, David. Well, hey, thanks so much for taking time out to be uh on the podcast with us, and uh it's a pleasure. I hope to talk to you again soon.

SPEAKER_00 33:52

Look forward to it, Fred, and good luck with the Miami hurricanes.

SPEAKER_02 33:56

Hey, the Miami hurricanes are uh I hope they uh you know, I hope they win, but it's been a great season no matter what. So thanks. Thanks again, David, and uh talk to you soon. Take care. Take care. Bye. You too.

SPEAKER_01 34:11

Well, that's all for today. Thanks so much for joining us. And don't forget to hit that subscribe button and connect with us online so you'll never miss an episode and can catch up on all the ones you might have missed. Got a topic you're fired up about, or maybe you want to be a guest on the show? Fred would love to hear from you. Just reach out at F C R A N S at S T O N G E.com. We'll see you next time.