The Big Beautiful Bill is here, which means that there are going to be major reductions in revenues for your health system. The natural reaction will be to find new sources of revenue as well as cut back on costs. If you are a Value Analysis Professional, you are going to be called upon to find big savings and drive them out – whether you like it or not. Once upon a time, Value Analysis’s primary function at hospitals was a cost reduction mechanism. Although this remains true today, most VA Programs are geared more towards cost avoidance and looking for lower cost alternatives rather than true cost management. How do you align, adjust, and succeed in value analysis/cost optimization in the short and long term? You need to have a plan.
Why Does Cost Optimization Mode Give VA and Supply Chain Professionals Pause?
Cost optimization initiatives are tough. You are on your customers’ side, yet you must press on and point out areas they can do better in. It is important when you start to go into the cost optimization mode that you let your end customers and stakeholders know that this is not about cheapening their products but instead it is about operational efficiency. The goal is to eliminate all waste and inefficient use, gain the highest value of the dollars spent, and dial in the exact product features used every time. In VA, the customers’ functional requirements are paramount and by using those requirements we can find lower cost alternatives that will meet their requirements reliably with equal or better quality. Remember, value analysis begins and ends with the customers, even in full on cost optimization mode!
Value Analysis is the Perfect Solution to Meet Major Cost Optimization Goals and Objectives
Countless times, we have worked with clients and have been given their annual savings goals and objectives that are in the millions of dollars. Plus, none of the existing savings that they already had lined up were on the table nor were their rebates. They were looking for new and fresh savings that could be implemented and sustained to aid their bottom line. This is the scenario that Value Analysis is perfect for, and you can make this happen, but you need to plan to succeed and not shoot from the hip.
Strategic Cost Optimization Planning Wins Every Time
When your healthcare organization sets a large savings goal, you have to work backward to determine how new initiatives will add up to that number. It sounds simple, but each opportunity needs solid estimates, and not everything can be implemented right away. In reality, you may only be able to pursue around 80% of the savings opportunities you identify during the current fiscal year.
- Create a Data Funnel – Define the data inputs required to build robust cost optimization reporting that funnels toward true savings opportunities. Rather than relying solely on high-spend categories that don’t always lead to true savings opportunities, align spend data with patient volume centric metrics to reveal where optimization efforts will have the greatest impact.
- Find Your Savings – Even though you have a data funnel, you must be able to select the right cost optimization projects that will help you meet your goals. Granted, your reporting will provide you with viable savings opportunities, especially if you use benchmarking or clinical supply utilization/consumption volume-based reporting. Some opportunities will be challenging and that is where you need to be selective. I recommend creating your initial list of savings opportunities and continuing to update these throughout the initiative. You also want to put yourself in the shoes of each category owner(s) to try to envision their reaction to this.
- Configure Your Strategies Based on Where Your Savings Opportunities Are – Too often, the first thing a health system does when they go into cost optimization mode is to create or expand their VA teams to cover anything and everything. That is counterproductive as there may not be saving opportunities in, say, Respiratory Therapy, so why create a team to go after something that is not there? Wait until the first draft of your savings opportunity reports are completed, then configure your teaming strategy to engage the projects. Don’t be one of those Cost Optimization Leaders that pride themselves on having every team under the sun but then comes up short with viable savings projects for your teams. Savings first, then team structure.
- Track Everything Before, During, and After – You must have a baseline of where you started, what is changing while you are going through your cost optimization process, and of course what the result is in the short to long term.
- Educate Everyone Involved in the Cost Optimization Process – If you and your leaders expect your VA teams to suddenly pull a rabbit out of their hats with new robust savings in the multi-millions of dollars, think again. They will need new and more advanced training. Develop, borrow, or buy advanced training that will align with your goals and objectives and put everyone on the same advanced page!
A Savings Initiative with No Plan is a Plan for No Savings
Health systems are a large enterprise focused on everything under the sun to take care of patients and run mission-critical operations at all levels of the organization. Major savings initiatives are not always considered mission-critical, but they should be worked into everyday planning and operations to continually wring the towel dry wherever possible. Don’t leave any dollars on the table as these are becoming increasingly important to your organization’s bottom line. Think big with planning for your savings for today and the future!
| About Robert W. Yokl, President of SVAH Solutions |
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| Robert is the President of SVAH Solutions which provides value analysis, clinical supply utilization, and savings validation tools to help healthcare organizations gain the next level of savings beyond price and standardization. https://www.SVAH-Solutions.com https://www.SavingsValidation.com |
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