Most of your new saving opportunities are below the water line.
We like to equate supply chain expense savings to an iceberg! Above the waterline are your price and standardization savings, which are easily identified. However, your robust savings opportunities (67% to 79%) are below the water line where they are hidden from your view. More importantly, these hidden utilization savings can and will hurt your healthcare organization’s bottom line if not eliminated, rectified, and controlled.
Scientific Approach
That’s why a more scientific approach is called for to root out your utilization misalignments, before they damage your healthcare organization’s bottom line. This approach is called value analysis analytics or the new science of savings. With this said, I’m sure you realize that your hospital, system or IDN’s senior management is looking to its supply chain professionals for even more savings to help them meet this unprecedented and unanticipated challenge we are facing in the healthcare marketplace; lower revenues, demand of higher quality, and more patients.
Unfortunately, these new supply chain savings won’t be achieved with price and standardization alone. New sources of savings must be discovered to bridge the savings gap that you will experience with the erosion (if you haven’t already) of your price and standardization savings in the very near future. This is because most healthcare organizations aren’t employing a scientific approach to identifying the best value analysis target, beyond price.
Value Analysis Analytics
That’s where value analysis analytics comes into play. It’s the art and science of measuring trends, patterns, anomalies, and variations in your supply chain spend to quickly uncover savings opportunities. For example, we identified with our Utilizer® Dashboard (which does all the value analysis analytics work for our clients), that one of our clients’ transcription service utilization cost was $1.64 per CMI adjusted patient day higher than their peers, or $211,888 based on annualized savings.
When our client investigated this anomaly in their supply spend, they not only discovered that they were spending too much on their fragmented and decentralized outsourced transcription services, but also decided, after a thorough analysis, to outsource all of their transcription functions for an additional savings of $66,999 annually (or $278,887 in total).
It’s not an accident that we uncovered this big transcription savings, and 76 other utilization misalignments, for this client. It’s because we employed value analysis analytics to do the difficult work for us, which never would have been uncovered by the naked eye.
Measuring Over Time
Because some of our clients have employed value analysis analytics for several years, we are able to trend their purchases over a two or three-year period to quickly identify additional saving opportunities that they weren’t aware of until the value analysis analytics led the way to these savings.
Since “things change and people change”, this always brings about new savings opportunities when you look at your data retrospectively. This was the case with a 98-bed hospital we worked with which reduced its contrast media cost by $43,632 the first year, after it identified this utilization misalignment. Then, the hospital had to revisit this same commodity two consecutive years thereafter when its contrast media utilization cost spiked repeatedly. The reason for these lapses in protocol was that the radiology staff members kept falling back to their old habits and had to be re-educated about the best practices that were keeping costs in line in the first place.
It is a worthwhile effort for you to refresh all of your purchasing data on a quarterly basis to ensure that your utilization trends, patterns, and variations are within acceptable limits and have not spun out of control. A reversal in your supply chain expense performance metrics can easily happen, especially when your hospital’s census has a large variance.
Up Your Value Analysis Game
It should be understood that since your value analysis team members have limited time for value analysis studies, their energies can’t be needlessly wasted on dry holes. Your value analysis candidates must be real, quantifiable, and irrefutable before you even consider them as targeted savings opportunities. This precision in identifying your value analysis candidates can only happen if you are assisted in this effort by the new discipline of value analysis analytics. It will give you the process, metrics, and competitive intelligence you need to uncover the high-value savings that have eluded you for years. If you are looking to up your value analysis game, value analysis analytics is the correct path to follow to repeatable savings.
