I was just made aware by my staff last week that they are now seeing annualized price savings for even the most contract compliant hospitals, systems, and IDNs that have shrunk to 1% to 2% from 2% to 4% of overall budget over the last decade. This is a startling change in supply chain economics that I would credit to the positive impact of national and regional GPO contracts over the last ten years. However, these price reductions (1% to 2% annually) aren’t nearly robust enough to move the needle on supply expenses in today’s unstable healthcare economy. That’s why it is mission critical for healthcare organizations to formalize, operationalize, and institutionalize (see explanation video) their supply utilization programs (SUM) to close their price gap. To sell this concept to your senior management, here are four reasons why supply utilization savings are better than price savings in our ever-changing healthcare marketplace:
1. Generate new and better savings consistently in the range of 7% to 15%: First off, there is no comparison between price savings of 1% to 2% and supply utilization savings of 7% to 15%. In fact, our studies have shown that there is nowhere else to go for double-digit savings any longer, which is required to keep the pace or exceed inflation.
2. Gain insight into clinical products, services, and technologies’ volume fluctuations: You might have the best price with maximum contract compliance on a commodity, but when the consumption volume of this same commodity jumps 26% unexpectedly, or $38,233 annually, you need to take action. This is the time-sensitive intelligence you will receive when you have a SUM program. Otherwise, this out-of-control commodity could be costing your healthcare organization tens of thousands of dollars unnecessarily for many years.
3. Uncover quality issues with products, services, and technologies: An unfavorable volume to caseload ratio could be the tip off that there might be a harmful quality issue with a product, service, or technology you are buying. For example, you are using 36% more IV sets per patient day than your peers, or you could be changing them more often than is medically required. This then could cause quality issues because your patients could be more susceptible to infections due to more frequent IV set changes.
4. Make better decisions with better evidence using your own data: We are all looking for more evidence to make better buying decisions. What better evidence could you have than your own data that tells a story of waste and inefficiency in your supply streams. A SUM program can take the guesswork out of your supply chain expense decisions because you will have the data to back up your assumptions or conclusions for all to see.
For decades, healthcare organizations were able to ignore their supply utilization misalignments (i.e. wasteful and inefficient consumption, misuse, misapplication, and value mismatches) in their supply streams with better pricing. However, we believe that those days of putting a band-aid on supply utilization misalignments are gone. As professionals, supply chain leaders have a responsibility to address this price gap with vigorous SUM programs to offset the meager savings they will be obtaining on their GPO contracts going forward. To ignore this reality could be dangerous to your healthcare organization’s financial health.
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