By Robert W. Yokl, Sr. VP, Supply Chain & Value Analysis — SVAH Solutions
I was recently interviewed on a new podcast called Power Supply Chain Podcast on which we talked about the future of healthcare value analysis and the potential moving forward. The discussion included how value analysis has been focused on new product requests, recalls, and GPO contract conversions for the past ten to fifteen years. There is nothing wrong with this focus of your value analysis program, but I emphasized that there is much more potential in what value analysis teams could do for healthcare organizations altogether.
History Tells Us We Can Save Big Again
The history of value analysis in healthcare dates back to the early 1980s when it was solely utilized as a cost management methodology using a functional approach which parallels the origins of value analysis going back to the mid-1940s. Healthcare organizations were very successful when their value analysis teams’ agendas were totally focused on reducing costs and performing functional analysis reviews of existing major cost product lines. This went on into the 1990s and into the 2000s with value analysis being a primary cost management tool for hospitals and health systems.
Healthcare Value Analysis is Versatile
Entering the 2000s and beyond, which highlighted the maturity of the group purchasing organization (GPO) and organizational strategic sourcing contracting, VA teams experienced a paradigm shift where health system VA teams needed to focus their attention on implementing and vetting the products that needed to be converted in the system to save the big dollars. This was high value work and was well worth the shift in focus as the power of group purchasing came into its own. These major GPO savings started happening in the early 2000s and would normally be in the 10% to 20% savings per contract range. Over the past 20 years, this savings has fallen off to the smaller percentages or worse, no savings at all. This has nothing to do with the effectiveness of GPOs and more to do with the fact that they have reached a high level of maturity and have wrung the towel dry on many categories of supplies. But at some point, every major savings strategy, if followed year after year, will fall into the law of diminishing returns which GPO contracts have.
Cost Optimization is the Name of the Game
Let’s follow the cost optimization roots of value analysis in healthcare. The obvious strategy is to adjust your value analysis agenda to allow for cost optimization reviews of major categories after the contract is already in place. These have netted significant savings in the past and will for your value analysis team if they focus their attention on them. The cost optimization reviews will focus on high dollar categories of purchase and identify lower cost product alternatives that meet functional requirements with equal or improved quality. No different than what was done in the past.
A Simple Adjustment to Value Analysis Team Strategy Can Go a Long Way
Right now, VA teams’ agendas are about 60% new product requests and about 40% product conversions/recall fixes. It is time to reset and rethink your agendas to allow for value analysis reviews of your major spend categories. The new model would look like this: 40% new product requests, 30% contract conversions, and now 30% major category cost optimization reviews. From my 29 years of value analysis experience, I know that the key to value analysis success is what goes on the agenda week in and week out. If your value analysis teams only focus on contract conversions and new product requests, then those are the only results you can expect. If you add agenda items for cost optimization, then you will gain major savings results from cost optimization. Let’s take a page out of a successful period in healthcare and reapply it today!
|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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