Why Validation of Your Savings is Now Mission Critical for All Healthcare Organizations

Robert T. Yokl, President/CEO, SVAH Solutions

The Healthcare Financial Management Association tells us that that your free-standing hospital, multi-hospital system, or IDN’s payment systems are evolving from fee-for-performance to value-based purchasing, readmission restrictions, and bundled payments. This prediction should also mean a paradigm shift for your supply chain expense management strategies, tactics and techniques.

State of Supply Chain Expense Management

To understand the reason there is a need for change in how a healthcare supply chain department  gages, measures, and monitors the financial results of their GPO and custom contracts, you need to understand the state of supply chain contract expenses savings reporting today. Our studies show that 100% of the savings from these contracts are reported to senior management, but less than 28% are ever verified. Thus, we have discovered that as much as 64% is lost due to not monitoring, tracking, or verifying these savings. Yet, 36% of this reported savings does hit the mark, but just by        happenstance.

Just imagine if 100% of the savings that were reported were actually saved. We estimate that 64% more savings would hit your healthcare organization’s bottom line. Isn’t that what we are all striving for – bigger and more sustainable savings yields?

Little or No Accountability for Your Vendors

When was the last time you checked to see if the savings improvements that were promised by a vendor occurred? Not often enough, according to our own extensive multi-year research. Almost  daily, our automated supply expense savings auditor* uncovers that a savings that was promised by a vendor and then reported to a hospital, system, or IDN’s senior management either didn’t happen or increased a hospital, system, or IDN’s supply chain expenses.

Promises Are No Longer Good Enough

It is rare that a vendor takes responsibility for missing a savings or quality target they have estimated in their proposals because they aren’t held accountable by anybody to do so. However, more and more of your hospital, system, or IDN’s contracts with third parties will be “at risk” agreements. Meaning, if your healthcare organization misses their financial and quality targets in these contracts, they will be held accountable and could lose money on these deals. Isn’t it time we, too, hold our vendors to these same standards?

Creating a Culture of Accountability

The first order of business in creating a culture of accountability is to know your reimbursement formulas from your third-parties’ agreements for your cases, procedures, and tests. This way, you can determine if your vendors are in the ball park with their offers.

Next, memorialize your suppliers’ offers, promises, and guarantees into your vendor agreements. For instance, if a vendor is guaranteeing a savings of $222,000 within twelve months in their proposal, show it as a guarantee and list the penalty for missing their promised savings goals. 

Finally, track, trend, and analyze the in-use cost of the product, service or technology, at least quarterly, under your new contract to determine if the supplier has met their guarantee. Without this last step, you have no basis for holding your vendors accountable for their offers, promises, and  guarantees. This paradigm shift is mission critical for your healthcare organization to survive and thrive in the 21st century.

Are You Ready to Ensure Your Savings Hits the Bottom Line 100% of the Time?

Every supply chain professional loses sleep over where to find more price, standardization, and supply utilization savings for their healthcare organization’s survival. Yet, what these same individuals don’t realize is that there are hundreds of thousands or even millions of dollars being lost annually because of not validating savings after implementation. When are we going to plug the holes on these mission critical supply chain expenses?