Too often, the practice of estimating supply expenses’ projected savings is confused with true documented savings that hit your healthcare organization’s bottom line, which can vary in its timing, size, and scope. To prevent this from happening at your healthcare organization, we recommend four ways to ensure your supply expenses’ reported savings actually hit your hospital, system, or IDN’s bottom line every year as follows:
Ensure that Your Reported Savings Hit Your Bottom Line
1. Track, Trend, and Validate All Projected Reported Savings: To do so, you will need to start with a historical baseline activity-based cost of the previous product, service, or technology before the change, then compute the running activity-based cost once the product, service, or technology has been introduced into your healthcare organization. The difference in these two numbers is your actual documented savings (Historical Baseline Activity-Based Cost – Current Activity-Based Cost = Documented Savings) for the period that generally takes one quarter to be considered accurate.
2. Analyze All Supply Utilization Outliers On a Quarterly Basis: Since things change and people change, you will need to continue to track, trend, and validate (using the above formula) the supply utilization costs of all products, services, and technologies on a quarterly basis. Any outliers found to be above or below their historical baseline need to be investigated, especially if you had projected a savings for these outliers in the current fiscal year. Therefore, your savings are always a measure over time, not constant.
3. Observe That The New Product, Service, or Technology is Working As Planned: Another way to ensure your product, service, or technology is working as planned is to observe (i.e., get out from behind your desk) and watch the new commodity in action. If it is performing as planned, there is a good chance it is saving you money. However, don’t forget the two other protocols (above) to make sure it is really saving you money.
4. Analyze All Supply Utilization Outliers Quarterly: One tip-off that your projected savings on a product, service, or technology is askew is to report quarterly on all commodities in which their utilization cost is beyond acceptable limits. You will generally find a number of these utilization misalignments are from contracts or value analysis initiatives that have gone sideways.
To summarize, saving money is an art and science, but making sure that your savings is hitting your healthcare organization’s bottom line is all about measurement before, during, and after the purchase. Then, and only then, can you count your savings as verified!
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