Everyone involved in saving money in healthcare supply chain management likes to brag about how much they are saving on their regional and national GPO contracts. But are these contracts really saving money, or just generating a lot of activity with meager results? That’s why your GPO won’t tell you these three things about savings validation:
What You Should Know About Savings Validation
1. 26% to 46% of Your Projected GPO Savings Never Happen. Based on our extensive empirical data, we can substantiate that every dollar saved by your GPO contracts doesn’t necessarily trickle down to your bottom line. This is because things change and people change during the term of the GPO contract, causing your initial contract savings projections to go sideways. For instance, we had a client that projected a GPO savings on a three-year ablation products contract to be $190,545. However, because of an operational issue this hospital not only did not save the money they were anticipating but this contract was actually costing them $53,235 more annually based on a savings validation audit. Specifically, this was an increase in cost of $343K over the three-year contract. However, since this client was validating their savings on a quarterly basis, they were able to resolve the problem and not only achieve their original savings goal of $190K but added an extra $103K for a total savings for the next two years of $293K. Can you see how your GPO savings can go sideways?
2. 37% of Your New GPO Savings Go Unreported Each Year. On the flip side, we have documented that 37% of the time your GPO savings are underestimated. For example, a health system client’s new GPO contract only estimated a 12% or $45K annual savings. However, because of the value analysis team’s skill in implementing this new contract, this system was able to achieve an additional $329K in this product category. Yet, the health system didn’t report this additional $329K savings because they thought they had only saved $45K a year. That’s how huge savings go unreported to your senior management.
3. Most New GPO Projected Conversion Savings Are Flawed. Time and time again, we see hospitals, systems, or IDNs change their primary GPO provider because they have been promised new savings (5%, 10%, or more), only to discover, through a savings validation audit, that their estimated savings never occurred. Sometimes, it requires a lawsuit to reimburse the healthcare organization for their savings shortfall. But, too often, hospitals, systems, and IDNs don’t even know they haven’t saved the money their new GPO has promised them. Don’t make this same mistake!
Don’t Estimate Your GPO Savings Without Proof
GPOs are extremely important to your healthcare organization’s financial health; however, we need to honestly evaluate their effectiveness. That’s why savings validation audits of your GPO contracts is mission critical for the credibility of your supply chain operations. This is because estimating your GPO savings, without actual proof of their value, is delusional and counterproductive.
P.S. If you would like to learn more about a quick, efficient, and foolproof way to evaluate your own GPO savings yields, go to www.savingsvalidator.com for details.
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