7 Critical Mistakes of Supply Utilization Management

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Don’t let these challenges hold back your healthcare organization’s big savings!

Hospital-Value-Analysis-UtilizationThere was a time when utilization wasn’t even in the healthcare supply chain management’s lexicon. Utilization was something that hospitals focused on to reduce their patient’s length of stay, and not how effectively, efficiently, and judiciously the products, services or technologies were employed to get the patient well.

Well, times are changing!

Supply utilization is now the biggest cost driver (67% or more) related to a healthcare organization’s supply chain expenses. It is becoming even more important as price and standardization savings slowly but surely disappear. Yet, most healthcare organizations are still just nibbling around the edges of utilization management because of these seven deadly mistakes:

1. BENIGN NEGLECT:  Ignoring utilization opportunities

It is not unusual to discover that a hospital, system or IDN is devoting no time or resources to uncovering their utilization misalignments (i.e. wasteful and inefficient consumption, misuse, misapplication, misappropriation or value mismatches in their supply streams), because it’s not on their radar screen. They aren’t thinking about, concerned about, or considering it a priority. This thinking will eventually effect these organizations’ bottom line. No savings should ever be ignored!

2. UN-BELIEVABIITY: Dollars look too big to be believable

I just reviewed a utilization savings opportunity report for one of our clients and the average projected savings per line item was 41% (high 75%, low 22%) on 49 targeted commodities. The total projected savings for these products and services was over $5.4 million annualized. When you think about it, don’t these numbers look too big to be believable? Well, that’s because you have been fixated on price savings for years that appear meager alongside the in-use cost of the products, services and technologies you have been buying. That’s why your focus should be on the total lifecycle cost of the commodities you buy, and then you will realize the price is just the tip of the iceberg.

3. PLATE TOO FULL: Too busy to save more money

We all have priorities in our business life that require ranking of our responsibilities, tasks and duties to organize our jobs. Yet, beyond operational concerns, a supply chain professional’s highest priority should be to save money. That’s the ticket to success, promotions and bonuses. More importantly, supply chain managers should be concentrating their efforts on the areas that can give them the biggest savings yields, not just nibbling around the edges of savings. As stated previously, utilization is your biggest cost driver and can provide your healthcare organization with the highest savings yields (41% on average). Why wouldn’t you want to fit these savings opportunities into your busy schedule?

4. SATISFIED WITH SAVINGS:  I’m making my budget every year

Who can ever be satisfied with their savings, when there is always more to be saved? In most situations, healthcare organization savings’ budgets are too low; just budgeting for the minimum savings – not the maximum. As opposed to having three major categories of savings: Price/Contract, utilization and cost avoidance. This is how to squeeze the towel dry

5. DON’T KNOW WHERE TO LOOK: It might take some investigation

Utilization misalignments are everywhere in your healthcare organization, but it requires value analysis analytics (the extensive use of data, statistical and quantitative analysis to identify value analysis savings opportunities ) to uncover them. Some healthcare organizations stumble over these savings but these are accidents, not a strategy to uncover all of their wasteful and inefficient practices all at one time. Maybe it’s time you invest in or develop utilization tools that can do all this hard work for you. A small investment could bring your healthcare organization big dividends!

6. IT COULD BE RISKY BUSINESS: Staff might not like what I uncover

There is no such thing as rewards (i.e., savings, quality and safety improve  ments) without risks in utilization management! Yes, you will need to step out of your comfort zone to discuss with your hospital staff why their products, services or technologies are out of alignment with their peers. However, you will have the security that the data you present is timely, irrefutable and actionable to make your case that a change is needed in their methods and practices. This data driven process will lower your staff’s resistance to change to a manageable level. Making it a less risky business than you might think!

7. TOO TIME CONSUMING:  I like quick savings that stick

You might think that utilization management is a big undertaking and too time consuming, but this is a fallacy that needs to be debunked. Utilization management should be a natural extension of your value analysis program. You are already targeting price and standardization, now you need to go one step further and attack your utilization misalignments. For example, if you are evaluating a new I.V. catheter, you would logically look at its price, how it fits into your standardization protocol, and investigate your current utilization of this family of products.  Do you see how quickly you can up your value analysis game?

Now that you know the seven mistakes of utilization management and why they are holding you back from saving big time, isn’t it time for you to unleash the power of value analysis analytics to uncover and eliminate all of your utilization misalignments? All it takes to do so is to incorporate utilization management into your current value analysis program. This way, you will be attacking all of your cost drivers (i.e., price, standardization and utilization) in your supply streams with a comprehensive approach to supply expense management. Don’t miss this opportunity to rein in all of your costs!

Filed Under: Utilization Management

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