Dialing It In: Keys to Supply Cost Optimization and Quality

Dialing It In: Keys to Supply Cost Optimization and Quality

“How do we achieve cost optimization and quality to save even more money? Dialing your products in within your existing contracts.”

We have been through the ringer with 99% of our contract categories and trying to reduce prices and standardize to gain that next tier percentage discount off what we are buying. This has been going on for the past 20 years. However, savings are just not what they used to be since hospitals and health systems as well as their GPOs have become very mature. Basically, you are doing everything they ask you to do to save money, but the savings aren’t what they used to be, thanks to inflation and market conditions. So, how do we further optimize costs and quality in our contracts to save even more money? We dial it in further!

There Are Still a Lot of Savings to Be Had

Believe it or not, there are still substantial savings on the table when organizations come to the realization that the next level of savings is not going to have anything to do with changing your contracted vendors or getting a better price. Instead, it is all about dialing your products in within your existing contracts.

Cost Optimization for Feature-Rich Products

Most product categories have their share of feature-rich products that were at one point deemed “must haves” by the end users. The more features you have in any medical device category, the more you are going to be paying for. For instance, if a nurse selects a feature-rich product such as a three port PICC line but only requires one port, then that will cost the organization 30% more for those extra port capabilities that they will never use. Or worse, all the nurse carts may only have the three port PICC to choose from and thus your PICC costs are going to be 30% higher across the board when perhaps you may have only needed the three port PICC 10% to 15% of the time. This is only one category to optimize – you have over 750 major categories that this could be happening in.

Realizing that You are Consuming Too Much

In a perfect world, healthcare organizations would only use exactly what they should use in order to optimally take care of patients; no more, no less. However, the reality is that about 73% of all product categories have some form of consumption issue in them. The good news is that about 40% to 50% of the consumption issues are minor and even if we fixed them all, it would not move the needle savings wise. What we are looking for are the 23% to 33% that are really out of line, some of which are going to be substantial dollars. This will require value analysis assistance to first realize that this is a real issue and then help to mitigate the issue(s) at hand on the over-consumption. You are going to find major dollars here!

Wasting Life Cycle

Every organization has some degree of waste and inefficient use going on with their major and minor product and service categories. If these were all cleaned up, substantial dollars would be added to the bottom line as well as quality improvements with the added focus on reducing waste and inefficient use. Inefficient use does not get talked about enough. Each product has a life cycle cost and if you are not getting all of the use out of a product that was intended in the original value analysis case review, then your costs are going to be too high. For example, say you have a patient with IV tubing and the patient has a four day stay. The IV tubing on that patient should last them the whole 96 hour stay per the manufacturer’s specifications and life cycle. But if your nursing team is changing the IV tubing every 36 hours, you will be using a higher percentage of IV set tubing per patient day. Another example is placing a 48-hour wound care dressing on a patient only to have it changed out in one day because the nurse at the time did not like the look of the dressing. Advanced wound care now requires those 48-hour dressings to stay on for 48 hours, so using too many dressings may show underlying quality issues with patient care. It is not good to expose a wound when you don’t have to.

You Must Know Where You Stand

I saved this one for last because it is probably the most important key that will save you the biggest bucks. Whenever I sit in on a value analysis team meeting for one of our clients and they are discussing a new product request, contract conversion, or VA review, I am on our KPI/utilization reporting to find out where they stand with this product or service category. Why is this important? Because sometimes you don’t know what you don’t know and think that you are doing everything that our industry and your GPO espouses only to find out that there are major dollars on the table. Just recently, we did some benchmarking for a large system and found over $1 million of savings opportunities in just two categories that had everything under the sun going on. They did not realize how much more they were spending than their peers in the industry, to which we helped them understand and shared just how the other organizations were performing so well in these areas. This is not rocket science. It is more “trust but verify.” If you think your cost per adjusted day, surgical case, or cath lab case is good, go that next step and do some peer benchmarking.

You Can Make a Huge Impact on Your Organization’s Bottom Line

The fundamental theme here is that we are not talking about price, standardization, or even changing vendors, but instead are looking for savings beyond price to find the next level of major savings. Plus, it is a lot easier to optimize within an already existing contract framework than it is to go through the time-consuming process and challenges of changing vendors for a questionable outcome.

About Robert W. Yokl, Sr. VP of Value Analysis & Supply Chain Solutions
Robert is the Program Leader for SVAH Solutions that provides value analysis, clinical supply utilization, and savings validation tools to help organizations to gain the next level of savings beyond price and standardization.

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