The other day I completed a new SMART Success Value Analysis Model for a major product group for one of our large IDN customers. This new SMART Model is intended to highlight all of the areas of opportunity to reduce costs within this product category along with guiding protocols. The next day I went back over my SMART model and started counting the amount of major and minor savings opportunities that were possible in this product group and found that there were 18 areas of savings opportunities. Interestingly, only 3 of the savings opportunities entailed enhancing the price or standardization. That means that only 17% of the savings opportunities available on this product group’s savings was related to price and the remaining 83% was beyond price.
17% Price Savings Opportunities Versus 83% Beyond Price
After my quick review I sent this off to my customer so they could answer a few questions on some of the price-related areas. They quickly responded, stating that they had in fact already knocked out the 3 areas of pricing opportunities that we had highlighted in my SMART Success VA Model. In the past, we may have felt certain that everything was taken care of pricewise and that our job was done there. But, because we had been brought in to not only track the costs but also benchmark them with other like-sized organizations, we could clearly see that there were still some major savings opportunities hiding within this major category of purchase.
Everything We Have Been Saying About Utilization is Happening Now!
As most healthcare organizations around the country are experiencing, price savings are dwindling away due to maturity of contracting and standardization by your GPO and/or supply chain department. Most importantly, price is significantly affected by vendors who are no longer willing or able to give the discounts that they provided previously. What is left after price? The answer is simple, utilization and life cycle cost management.
Paradigm Shift – Stagnant Price – Burgeoning Utilization
The product group I highlighted for one of our customers had many areas of opportunity that were virtually being left untouched because their efforts were focused on getting the best price and rebates available. But when I focused their efforts and changed their paradigm toward utilization and life cycle value management, they saw that there were so many more opportunities that were ripe for the picking. The best part is that this won’t need to affect their contracting or standardization programs that are already in place.
Ignoring Utilization and Life Cycle Cost Management Will be Detrimental to Your Healthcare Organization’s Bottom Line
Another customer of ours has areas that will generate more revenues/profitability, will better utilize staffing, and bring more awareness and better quality towards the use of products for their patients, visitors, and employees. The alternative to moving to utilization and life cycle cost management is to do nothing or hope that you find a savings opportunity in your ongoing business of contracting and value analysis. Why not better your chances by stacking the deck in your favor by putting a utilization and life cycle cost management program in place today so that like price, you can feel rest assured that you are doing all you can do about utilization and life cycle cost management. The well-being of your healthcare organization’s bottom line may very well depend on your efforts!