Are You Going in the Right Direction with Your Savings?

Robert T. Yokl, President/CEO, SVAH Solutions


Group purchasing organizations (GPOs) and consortiums have been a powerful force in controlling healthcare organizations’ labor and non-labor costs for decades. Yet, no one seems to question whether these cooperatives have really saved what they have claimed to save. However, this “trust level” is changing as many healthcare organizations have been challenging their GPOs and consortiums’ savings claims by verifying that their projected, promised, and guaranteed savings are actually realized. Here are four other reasons why you need to “trust but verify” your GPO’s savings projections (and any other savings projections):

1. Make certain budgeted savings are realized. It is our estimate that 57% or more of hospital, system, and IDNs’ finance departments are now including supply chain expense and value analysis projected or promised savings into their budget assumptions. This emerging best practice can become very unsettling for supply chain professionals if their savings projections given to your finance departments turn out to be wrong.

2. Verify your GPO’s (and other vendors’) savings projections. We have documented that GPO’s (and other vendors’) savings projections can be off by as much as 15% to 46% on most commodities and physician preference items. With this track record, you want to verify that your GPO’s (and other vendors’) promised savings really happened as planned.

3. Prove projected savings of any kind are real. As healthcare supply chain professionals, we owe it to our healthcare organization that when we project or promise a savings – it happens. No longer can we hope that our projected or promised savings were realized if we want to be taken seriously by our senior management.

4. Verify your GPO’s contract ROIs. GPOs also promise expected ROIs for their members on many of their contracts. Shouldn’t you know for certain how much your GPOs are really saving you?

This paradigm shift (trusting but verifying your projected, promised, and guaranteed savings) is mission critical for your healthcare organization to survive and thrive. This is especially true since your hospital, system, or IDN will be guaranteeing their pricing more often on their value-based contracts.