Healthcare Supply Chain Leaders: It’s Important to Figure Out Which Way the Wind is Blowing

Healthcare Supply Chain Leaders: It’s Important to Figure Out Which Way the Wind is Blowing

“Eighty-five percent of Healthcare Supply Chain Leaders believe that savings are going to come from the almighty price, but think again.”

This may sound cliché, but “figuring out which way the wind is blowing” is an important aspect of supply chain and value analysis in this day of contracting maturity in our healthcare world. What I mean by this is that you are doing well on a good number of your product and service categories but need help ASAP on others. The problem here is that other than spend reports that don’t accurately gauge where you stand on any category because they are not patient volume centric, there really is nothing that can tell you which way the wind is blowing on your product and service categories.

Why is Knowing Which Way the Wind is Blowing So Important?

If I am sitting in a Supply Chain Leader’s chair right now, I would feel good about my contracting as we know we are doing the best given the market conditions and are starting to see GPOs chip away at savings again. The challenge is that the savings are still not as big as what we saw five to ten years ago. You are highly aware of your situation as it relates to pricing and tier levels, which is good, but it does not tell you where you actually stand on any product or service category. Gut feel just does not cut it in this hyper data rich world.  We must verify what we think is happening as well as uncover what we don’t know is happening.

How Do You See What You Previously Couldn’t See?

With the wealth of experience and know-how of Supply Chain Leaders today, it is almost preposterous for me to say that there are big dollars that you can achieve in savings that you just don’t know about. Plus, there are major percentage needle moving opportunities that have been hidden from your view. How can this be? You don’t have any type of reporting systems or KPIs/benchmarks to tell you where you stand on Cost Per Adjusted Patient Day on IV sets, Average Cost Per Implantable Defibrillator, on out to wound care dressings and everything in-between. It’s the same for your purchased services which in some cases are even bigger savings categories like Biomed, Laundry Linen Processing, Reference Lab, and many more that have savings beyond contract price. You can’t do anything about these with a hope and a prayer. You need to have solid proof that you need to investigate these further with your contracting or VA Teams.

The First Step in a 12-Step Program Is…

The first step in a 12-step program, or any program, is to have the individual realize that they have a problem and admit it. (I’m tongue-in-cheek here but the point is real.) That is really the challenge with our “price only” world in the healthcare supply chain. Eighty-five percent of Supply Chain Leaders believe that savings are going to come from the almighty price. Keep in mind though, the most you can save on any product or service category currently would be 10% to 25% but things you have on GPO contract or that you have been contracting on forever may even be holding the line on pricing at 5% to 10% on that same category. Think about looking beyond contract price and look at the total spend of a category such as IV Set Cost Per Adjusted Patient Day. This will reveal much more than you think.

Price is Not Everything

I have signed non-disclosure agreement after non-disclosure agreement with clients, GPOs, and alike that states that we are not going to reveal their prices or publish their prices anywhere. I have no problem signing off on these because we do nothing with price except include it back for our clients to see when they drill into savings opportunity reporting. So, what does this mean to you? Because you are not limited to tiered pricing when you work beyond price, you can delve into areas like departments that are specifying feature-rich products that cost 52% more than what their peers are using. Take, for example, a nursing department using a feature-rich product. I am not going to pick on the specific product or vendor by naming it, but it is something used every day at health systems. One hospital thought that by letting nursing choose this product and by getting a rebate back on it that it would solve all their problems. They had no idea their costs were running high. They thought with the rebate they were doing fine but overall, their costs were running too high. This is just one product category that was used house wide.

Does 5% to 15% in Additional Savings Beyond Price Get Your Attention? 

The real point of this article is to highlight to you as a Supply Chain and/or Value Analysis Leader that we are leaving major dollars on the table because you don’t know what you should know with regards to the overall health of every one of your 2,000+ major and minor product/purchased service categories. Imagine if you knew everything – you could be unstoppable further driving costs down and aiding your organization’s bottom line which becomes more challenging every year. It is time that you engage in a savings beyond price initiative to drive out feature-rich product/service elements while eliminating waste and inefficient use of these products and services. You will reap a major win for you and your Supply/Value Chain Team while achieving savings you never thought were possible before.

Steps to Start Your Own Savings Beyond Price Program

  • Sell Your Bosses on this Concept
  • Put Reporting in Place to Marry Your PO/AP Histories with Patient Volume Centric Measures/KPIs
  • Have Your People Trained to Find the Next Level of Savings Beyond Price – It Is Different
About Robert T. Yokl, Founder & Chief Value Strategist for SVAH Solutions
Robert T. Yokl is President and Chief Value Strategist at SVAH Solutions. He has four decades of experience as a healthcare supply chain manager and consultant, and also is the co-creator of the Clinitrack Value Analysis Software and Utilizer Clinical Utilization Management Dashboard that moves beyond price for even deeper and broader clinical supply utilization savings. Yokl is a member of Bellwether League’s Bellwether Class of 2018.

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