Declining reimbursements and the turbulent landscape of healthcare reform is forcing hospitals just like yours to scrutinize their spending and look for new ways to cut their hospital food service cost.
Most institutions address challenges to their bottom lines by targeting their cost-saving efforts at the top spend categories, such as utilities and medical services. Others are beginning to look to other departments – namely their food service programs.
Annual spending on food does not take up a large share of a hospital’s expenses; however, the rising cost of food will put an increasing burden on the hospital’s overall budget.
Many organizations do not appreciate the potential for significant losses through their food and nutritional services (FNS). Others do not reap the rewards possible through optimizing their food and nutrition departments.
Food and catering budgets are rarely under the knife, but it is always cost-effective to reduce net operating costs of the food and nutrition departments.
Hospital Food Service Programs – Then and Now
Early hospital cafeterias provided food primarily for employees.
Many institutions offered discounts for employee meals and snacks. In some cases, the discounts could be as much as 50 percent lower than normal retail pricing.
Today’s hospital cafeteria feed employees, patient visitors, visitors who come to the hospital for health-related events, and even the public.
The increase in customer base presents great risks for losses associated with waste and poor management, but also offers the potential for financial benefit.
In a survey by Food Service Director, 58% of hospitals said they run their own food service departments with an average meal count of 1.71 million annually. Raw food costs were about $6.09 per patient each day.
Of the hospitals participating in the survey, 84 percent offered vending services, with an average volume of $354,000; 90 percent offered catering with an average annual volume of $387,000. Including vending, retail sales averaged $3.45 million annually.
Modern cafeterias are under pressure to look like upscale restaurants and to serve a wide variety of popular food options.
Forty-two percent of the hospitals in the survey said they purchased some type of organic food, for example.
Despite the upgrades to the food and atmosphere of the hospital dining experience, and increased demand for food provided by hospitals, many institutions still offer old-fashioned below-market pricing or other strategies that ultimately challenge their bottom lines.
Fortunately, you can optimize the financial rewards of your hospital’s food service program.
Optimizing the Bottom Line of Your Hospital’s Food Service Program
A well-planned, methodical approach can help you determine if your food service program is challenging your bottom line. It can also help your hospital implement and optimize cost-cutting efforts.
The plan should focus on identifying and eliminating waste, benchmarking, cutting expenditures and generating revenue.
Identifying and eliminating waste
Identifying and eliminating waste is essential for cost reduction in food and nutrition services (FNS). There are a number of different measurement systems to help with FNS cost reduction.
Visual estimates provided by staff is the simplest and least expensive, albeit the least accurate, way to assess waste. For greater accuracy, staff can measure and track specific plate waste and untouched meals. Weighing food waste is more accurate in terms of weight but is less accurate in determining the specific foods being wasted.
Implementing dietary intake forms and patient food ordering can help hospitals meet the specific needs and desires of the patients and customers. Patient intake forms provide valuable insight into proper portion size and patient preference.
Hospitals may save on food costs by eliminating overspending.
Benchmarking can help administrators detect changes in food costs within the institution and determine if they pay more than other hospitals for the same food and services.
There are four main types of benchmarking in food industry analysis:
- Internal– involves the collection and analysis of information to compare an institution with itself
- Industry– evaluates the hospital’s food service performance relative to industry standards
- Competitive– compares the financial details of one hospital’s food service system to another’s
- Functional– compares internal functions of the best practitioner of those functions outside the hospital
For best results, determine which of these benchmarks you will use. Internal benchmarking is usually necessary and effective; it is relatively simple to gather data about your institution’s food service costs and the evaluation can impart valuable information directly related to your hospital’s bottom line.
Other types of benchmarking may be useful, but the data used for evaluation and comparison may be more difficult to gather.
Determine your baseline measurements for a number of categories, specifically your current spend, and then identify how you will measure success.
Communicate with employees in the food service department. Communication helps every employee work toward the common goal of reducing expenses.
A good line of communication can also help administrators learn about other possible cost-cutting measures directly from their employees.
Becker Hospital Review suggests the following target benchmarks for hospitals hoping to reduce food service costs:
- Meals per patient day should cost $3 or less
- Labor costs should be less than $40 per day
- Food costs per patient day should be less than $8.50
- Reported rebates based on agreements should be a minimum of 5 percent
- Revenue targets generated from vending and cafeteria – $30 per patient day
Cutting expenditures can have an immediate benefit on your hospital’s bottom line.
There are a number of ways to deliver high-quality meals to patients, employees, and visitors and still cut spending. In fact, implementing a few changes in the preparation, distribution and service of food can actually increase revenue.
- Reduce or eliminate below-market pricing and employee discounts
- Increasing the price to meet the market can help reduce losses in the hospital cafeteria; reducing or even removing the employee subsidy can offer more savings.
- Consider eliminating or limit free meals
- While “Lunch and Learns” are a popular way to encourage staff to attend meetings, giving away free food is not good for a bottom line.
- Implement rules regarding floor stock
- It is essential to keep some nourishment on patient units, as food is sometimes necessary to control blood sugar or deliver medications. Unfortunately, many of these patient foods become staff snacks. To reduce loss on patient units, hospitals may consider stocking only medically necessary items, such as applesauce, juice, gelatin and crackers, and then apply policies that restrict consumption of these foods to only patients.
- Invest in energy-efficient technology
- Procure new food service technology, such as energy-efficient equipment, to reduce overhead.
- Optimize staffing requirements
- Reduce staffing during off hours as needed.
Developing a food service program that actually generates revenue can lead to long-term reinvestment throughout the hospital.
Creating a catering service, for example, can be especially rewarding. Other healthcare food services might include implementing vending, patient room service, and retail initiatives.
Other ways to improve your bottom line include:
- Hiring and maintaining effective department leadership
- Reducing food stock and transfer costs
- Finding vendors that supply higher-quality ingredients at a lower cost
- Managing group purchasing organization (GPO) conversions
- Applying payroll reduction systems
- Assess request for proposal and request for information (RFP/RFI) processes when switching suppliers
- Add new food services or nutritional options for purchase by patrons
- Increase clinical dietician reimbursements to promote sales
Using experienced healthcare consultants is one of the best ways to improve your bottom line when it comes to food service programs.
Our healthcare consulting firm can find cost-saving solutions in the ever-changing environment of healthcare by identifying costly expenditures and pinpointing areas where your hospital can save thousands, from facilities costs to food services.
Food service is an ideal place for a facility to generate much-needed additional revenue, often savings can be $1 million plus, while providing a satisfactory healthcare and culinary experience.
Innovative food and nutrition solutions can help institutions thrive in a challenging economy. For more information on ways your food service program can optimize your bottom line, contact Soriant Solutions.