Hospital Supply Chain Best Practices
Supply chain management is becoming an even more complex and ever-changing discipline, since it is at the forefront of cost management efforts in any and all healthcare organizations today. If hospitals, systems and IDNs can’t hold the line on their supply expenses to below the annual inflation rate, for any given year, they won’t be able to eke out a profit. This is because third-party reimbursement always lags behind the true inflation rate by 12 to 18 months — if you are lucky.
Although price tweaking is still a prime cost cutting tactic for most healthcare organizations, this is tantamount to just shaving the top of the iceberg which can actually limit your overall savings yield. When you consider that 79% of all new supply chain expense savings (i.e., waste and inefficiencies) are under the iceberg, isn’t it about time we reduce waste and cut these hidden costs too? To assist you with this challenge here are the top three ways we have discovered to do just that:
I can’t tell you how many times physicians and department heads have “pushed back” on the comparative data that we have presented them to improve their supply chain expense management performance. They will assert that their hospital is different, that our metrics must be wrong, or we have missed some nuance in their operations that is making their KPI appear too high. This is a challenge we all face with our customers if we want to employ comparative data to improve our supply chain expense management.
We are all looking for the best tools and latest techniques to help our supply chain team and our executive management focus on our common goals and objectives. In so doing, we would greatly strengthen our resolve, mission, and communications and thus have ultimate success.
Savings Beyond Price
The Law of Diminishing Returns in the Healthcare Supply Chain – What Does It Take to Move Beyond This Challenge?
A new study published by the Healthcare Financial Management Magazine showed that while hospital FTEs are down nationally, hospital non-salary expenses have increased at a rate of 5.3% (expenses/discharges) over the last two years. What is the cause of the increase and what can we do about it? Over the last five years the savings from group purchasing, standardization and prime vendor contracts have become almost invisible on a hospital’s bottom line. In fact, HCP’s studies have documented the impact to be less than .005%. Non-salary expenses have risen over the last five years, because the excess costs are now and will continue to be squeezed out of your healthcare suppliers’ supply chain. Vendors are screaming that they have no more price concessions to give to their healthcare customers! We call this "THE LAW OF DIMINISHING RETURNS”
No matter the size of your healthcare organization or the extent of your supply chain staff you can rethink and refine what you have been doing to unleash your supply chain potential if and when you focus your supply chain efforts on minimizing waste, improving efficiency and increasing your savings — beyond price.
Clinical Value Analysis
Push or pull clinicians in the direction of change, and they’ll probably resist. Embrace them instead and you’ll increase your opportunity for their acceptance of your ideas and recommendations for changes in their methods and practices. The concept is to build clinicians’ respect and confidence in you. This sets the stage for effective value analysis. We recommend an approach we call the “circle of confluence,” which incorporates four C’s: contact, champions, communications and cooperation.
Your first reaction to this article’s title might be, “I didn’t know that physicians had a role in saving money”, since too often my healthcare organization’s financial goals are at cross purposes with theirs. If that is your take on this symbiotic relationship, then you would be mistaken, since in today’s new healthcare economy your physicians are in the same life boat as you are, if they want to stay afloat in these turbulent times.
We are all searching for the best practices (benchmarks) in value analysis in order to obtain greater savings yields and quality gains, but where and how can we find them? To speed up your search I am offering you 10 BEST STRATEGIC VALUE ANALYSIS™BEST PRACTICES that we have observed or initiated at healthcare organizations throughout the U.S. to move your VA program to the next level of savings and quality gains:
I have been using the term Value Analytics as shorthand for Value Analysis Analytics for some time now, but I was reminded recently by my Vice President of Operations that Value Analytics is really all about value analysis, so why do I insist on still calling what we do Value Analytics.
How Do We Save Money On High Dollar Technology Purchases with Value Analysis? Example: Purchase of MMIS Software
Let’s Start with The Budget and Purchase Processes. Today and for many years to come, the first line of defense in healthcare organizations to control their spending is the Budget Process. This is a vital process that allows organizations to evaluate their purchase of technologies from the highest level of the organization to the requesting department. In most cases the organization has already submitted Request for Quotation to Ballpark the price of the technology for the budget process. This is necessary and recommended.
One of the missteps I’m observing with supply value analysis programs is that healthcare organizations aren’t leveraging value across the entire healthcare organization, thereby leaving millions of dollars of purchases annually not value-justified. It’s almost like there is a sign posted on thousands of dollars of non-clinical products and services that reads “off limits” It shouldn’t be that way!
Most healthcare organizations are employing value analysis (VA) committees to reduce their product, service and technology costs and maintain their quality, but are these committees truly adding “value” to value analysis? And are they even practicing value analysis? Numerous VA committees that we have observed over the years have as many as 35 department heads and managers meeting monthly to review and approve new product, service and technology offerings. Occasionally, these committees will investigate product, service or technology failures that have been reported to them in some formal or informal fashion. But mostly, these committee members listen to the committee chair-person, who is usually the hospital’s material manager, for an hour or more report on new or renewal contracts from their GPO. The hospital material manager usually handle the cost analysis (applying classic accounting principles) then the members are asked to vote (yea or nay) on these new or renewal contracts or to send the product up to a department for a trial to see if they like it. Committee members will then move on to their next meeting or appointment feeling good about their value analysis skills and how they added value to the VA process. NOTHING COULD BE FURTHER FROM REALITY!
Have you ever asked yourself what is the ideal management system that my organization should be employing to manage our limited resources in the New Millennium and beyond? What techniques, tools and philosophy should we be adopting to insure that we are staying ahead of our competition and always meeting our customers’ requirements precisely? The answer is, to go back to the basics, rather than being seduced by the latest management fads and trends that promise quick and easy answers. The only precise measurement of success for any organization in the New Millennium that is as reliable or results oriented is HEALTHCARE VALUE MANAGEMENT.
Why using a team approach can actually save you money…
There is much debate over whether Value Analysis programs should be a team approach or an individual process. I often hear, "if our hospital is trying to save money, why should we waste it on the expenses (salary of those on the team and others, operational expenses, etc) of the program?