When the Going Get’s Tough — Don’t Fixate on Price
If you are a regular reader of my blog, then you know that I’m predicting a bumpy road ahead for healthcare organizations due to the unintended consequences of the new healthcare reform bill.
If you don’t believe my prediction then you only need to look at Massachusetts’ decision last week to place price controls on all but a few healthcare insurance companies operating in their state — after only three years — of enacting its own statewide healthcare reform legislation.
To me this decision means that these insurance companies will be cutting their reimbursement to their hospital customers almost overnight, because they have no other option if they want to stay in business. I see this same scenario in the other 49 states too in just a few years.
What can we do about this? First off, don’t fixate on price savings if you want to continue to have double-digit savings to counterbalance your hospital’s lost reimbursement that will be coming your way in a few years. This is because if you do fixate on price, it won’t generate enough savings to stem the tide of red ink on your hospital’s financial statements.
On the other hand, progressive healthcare organizations throughout the country are finding another answer to the conundrum. They are maintaining their price stability (i.e. holding their price increases to below the annual rate of inflation) with the help of their national and regional GPOs and their own custom contracts. But instead of stopping their expense management efforts here, they are now seriously focusing on eliminating their utilization misalignments (in use cost) of the millions of dollars of products, services and technologies they are buying annually.
We call this evolution the “Supply Expense Savings Triangle” or the price, standardization, utilization continuum. Once you have attacked your price and standardization savings, there is no where else for you to go but to focus on your utilization misalignments. In doing so, you can save an additional 7% to 15% (overall) in your supply chain expenses to build your cash reserves.
If you would like to read more about this new emerging best practice, I would suggest that you order our new “Healthcare Supply Utilization Revolution” book that we are providing to our “Savings Beyond Price™” blog subscribers at no cost.
In closing, while price savings are important to the competiveness of your healthcare organization, unfortunately they aren’t limitless. In fact, price savings are slowly disappearing at most healthcare organizations today. So if you want to keep your savings humming over the next few belt tightening years you will need new strategies, tactics and techniques beyond price just to stay in place. Utilization management is the answer to this challenge and will generate the next level of savings that you will be looking for when the going gets tough at your hospital, system or IDN. There is no where else to go…
Filed Under: savingsblog • Utilization Management
