Maximizing Your Healthcare Food Budget

Kitchen workers with paperwork reviewing ingredients

From purchasing to tracking, there’s plenty you can do to not only control, but maximize, your healthcare foodservice budget.

As hospitals, skilled nursing centres, senior living communities and other healthcare organizations continue to emphasize cost reduction, food and nutrition services directors are being asked to wring savings out of every aspect of their operation. The first place these directors look to cut costs tends to be the food budget.

But they may not be looking closely enough, says Gordon Food Service Healthcare Segment Manager Dana Fillmore, RD. “The true cost of food is more than the price shown on your invoice,” she says. “It’s everything that goes into getting a meal onto the plate and in front of the client.”

That includes labour costs, prep costs, equipment costs, serving costs, waste costs and more. It all adds up to a plate cost, the best measure of what you’re actually spending to deliver your product—and the bottom-line dollar amount you need to dissect as you’re looking for savings.

Controlling your food budget requires measuring and analyzing every aspect of your operational costs. You will use the data you collect to identify potential savings opportunities and point the way toward improvements.

Smart purchasing

The first step in optimizing your plate cost is to maximize compliance with your food purchasing contract. If you’re a member of a group purchasing organization (GPO), know your contract incentives and strive to achieve them. For example, if your goal is to have 85% of purchases on contract and you are below that number, start digging to find out why. Moving up to the next tier can bring valuable rebates and rewards. 

“If you have an incentive to purchase a certain brand of chicken or a larger volume of private-label goods, take advantage of it,” Fillmore recommends. Analyze your purchases monthly. Look at your highest spends off contract. Are there appropriate on-contract alternatives you could buy instead? The more you comply with your contract, the higher the savings.

You also should rationalize your product sourcing and purchasing to increase efficiency and drive out waste.  Look at distributor spend share. How many vendors do you buy from and how much time does it take to juggle multiple orders, invoices and shipments. And consider whether those third-party purchases detract from your contract compliance goals. The same for products—are you buying the same chicken from two different brands?

Cross-utilization can be another money-saver. “Plan your menu so you can utilize products you buy in multiple applications,” Fillmore suggests. “The spinach purchased for a salad might also be used instead of spring mix as a bed for a salmon dish.” Stretching products across different parts of the menu can really add savings across a menu.

The revenue picture

Creating additional revenue streams can help lower your overall costs. Catering, grab-and-go selections, coffee/snack kiosks and C-store concepts generate dollars that can be used to offset costs. 

It’s also important to factor in forgone revenue when analyzing your total food budget. “It’s services you supply that you don’t get reimbursed for,” Fillmore says. That can include complimentary guest meals, free snacks, meals for meetings and activities and employee discounts.

You need to track foregone revenues because they’re part of your costs and you are held responsible for them. Tracking them allows you to separate them out in your budget and make their impact on your bottom line clear to administration.

Revenue data also can drive process and policy changes that reduce costs. For example, if the dollar amount or monthly variance of floor stock is revealed as an issue, consider ways to make this expense more manageable and predictable—like reinforcing usage guidelines with floor staff. 

Operational levers

Waste reduction is an operational fix that can positively impact your food budget. The less food that gets thrown out before it gets to the customer, the lower your plate cost will be. Focus staff attention on reducing food waste, and consider new equipment and policies that will lower energy and water costs.

You should also consider using a cycle menu, which saves time and money by, among other things, creating menus, production recipes and orders for you. You also can utilize GFS Connect to help you realize savings by managing day-to-day tasks, such as minimizing inventory waste, spoilage, theft and overstocking.

The biggest opportunity for savings may lie in your largest operational expense—staffing. Labour typically accounts for 50% or more of a healthcare foodservice budget, so managing labour costs is critical to maximizing your bottom line. 

Tracking and managing your budget

You can’t manage what you don’t measure—so it’s essential to document and track the factors outlined above as well as costs such as food, non-food and supplement per resident day (in skilled nursing) and net cost per day, as well as average retail transaction.

That may seem overwhelming, so start by documenting a few costs and processes at a time. You (or someone in your organization) may already be collecting some of this data, you just need to develop a system to get your arms around it.

Amy Buehrle Light, RD, developed such a system in her role as Food & Nutrition Technology Specialist for Genesis HealthCare, one of the largest acute healthcare providers in the United States. (In 2017, Genesis aligned with healthcare contract management firm Healthcare Services Group, where Light currently serves as a Corporate Dietitian.)

Light and her team gathered food purchasing data from 15 Genesis skilled nursing facilities and created a spreadsheet that compared their data to regional and companywide data. Consolidating the data in one place enabled managers to identify anomalies and make targeted operational changes to achieve food budgets and improve adherence to program standards. 

Data drives improvement

“After four months of using the tool, the first group of 15 facilities realized a 2.7% reduction in food cost per patient day,” reports Light, who says the tool could easily be expanded to include other expense categories, including labour, supplies and supplements. 

You can create your own system for measuring and tracking data, whether via a spreadsheet or some other format. You can make it as simple or as complex as you like. The important thing is to start now to get a better handle on your budget.

The process Genesis used is an example of benchmarking—comparing the business processes and performance metrics of an operation to itself and others. Benchmarking tells you how you’re doing relative to your peers and your own past work. 

Use the data you collect, monitor and benchmark to make decisions on where and how to cut costs. The data should serve as a springboard to action—spurring you to develop and implement best practices that will lower plate costs, and maximize your understanding and control of the total food budget.

4 basic data rules

  1. Do it: If you don’t already collect data, start now.
  2. Analyze it: Don’t just collect it, examine it.
  3. Act on it: Use insights from data to make a change.
  4. Repeat it: Make this an ongoing process for continuous improvement.