We can see that the landscape of expenses and revenues are going to dramatically change in 2026 and beyond which means we must be prepared for the next level of cost optimization for our healthcare organizations. The good news is that there are still opportunities out there for those that can strategically view their existing Cost Optimization Programs and take positive steps to enhance them. There is no perfect Value Analysis or Supply Chain Contracting/Procurement system in our industry, so you must assess where you are at and upgrade your Cost Optimization Program to new levels to meet your organizational cost challenges moving forward.
Take a Hard Look in the Mirror to See What You’re Missing with Cost Optimization
One of the most difficult things to do for any Supply Chain or Value Analysis Program is to admit that you could do better in certain areas, as you don’t want to feel like you have let your organization down, or worse, make you or your team look bad. I have always felt that it is better to identify areas where you can improve and then work on them than to waver on whether you want to go and fully optimize a particular area.
Taking the Next Logical Steps to Finally Wring the Savings Towel Dry
Supply Chain and Value Analysis Programs are systematic in nature and when challenges arise or new modalities get brought in, then new systems/processes are put in place to address these new challenges. Cost optimization should be treated the same and thus be enhanced with new or improved processes/systems that will attain new levels of sustainable savings. Below are a few key areas that we see are prime areas to address at most health systems to take your cost optimization to a new level.
- Get Savings Tracking Right Once and For All:
- Rebates Plus or Minus Annually – Rebates are often viewed at their full dollar amount each year, but in reality, many of those rebates were already earned in prior years on the same contracts. Therefore, the more accurate measure is the net increase or decrease year over year. For example, if you received $3.5 million in total rebates last year and $3.85 million this year, the true plus/minus impact is a net gain of $350,000 in new rebate value added to your savings.
- No More Annualized Savings Tracking – You should be tracking over the life of every contract exactly! This may sound like more work, but the reality is that savings fluctuate and you need to keep tracking to know exactly what your results are. The days of the projected savings based on price don’t work and aren’t accurate because they are all based on a snapshot in time which we annualize from. There is much more to the savings tracking process than this outdated methodology. It’s time to put yourself into 2026 and beyond with savings tracking.
- Incorporate Savings Validation Into Your Savings Tracking – Because of all the fluctuations in savings it is challenging to find a starting baseline and then actually track the savings, as hospitals are volume based and don’t know if increased spend is volume related or not. By incorporating Saving Validation into the mix, you can track your savings using patient volume centric measures as well as true baselines that you set up for each contract or savings implementation. Remember the previous bullet, with savings validation you can track the exact savings from each year of each contract automatically. With Savings Validation you will know exactly where you stand on every initiative.
- What More Can Your VA Program Do? – Most VA Programs are pigeonholed into just one, two, or three initiatives, and most of these things don’t have much impact on cost optimization overall. For example, with new product requests, even in a strong year you may only break even, while in most cases these requests result in increased spending rather than savings. Yes, you save with contract conversions, but you are not really harnessing the true power of your VA Teams to make savings happen. Think about setting up teams to review major spending categories that are increasing dramatically beyond price and perform retrospective VA studies on them. This alone will give you major cost optimization savings if done right.
- Leave Nothing to Chance – Track All Utilization for Supplies, Inventory, and Purchased Services – In the past, many healthcare organizations did not want to “get to that level of detail” in tracking their total cost upstream and downstream and thus focused on just the contract price. These days are now long gone, and we need to not only track the up-front price at the pump but also the mileage we get out of our precious dollars we spend. Think, utilization/consumption management, meets quality optimization, meets best practices, meets life cycle optimization for overall value. Throw a blanket over every major and minor spend category, including inventory by department, then sic your VA Teams on the variances to optimize everything!
Let Everyone in Your Health System Know You are Upping the Game
When you brand your initiative and then communicate exactly what you are doing to fully optimize costs at your health system, this will start to change the attitude of everyone from line staff to clinicians to department heads and managers as well as C-Suite. You will have those that oppose you but if communicated properly you will be winning 80% to 90% of the time with your new program and eventually start to win over and gain the trust of those remaining 10% over time. Make your next Cost Optimization Program your best and perhaps not have to go into this mode any longer as it will be sustained in your health system forever!
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