We seem to be having a lot of interest from hospitals, systems, and IDNs to help them validate the savings that are being projected by their GPOs and vendors for the products, services, and technologies they are buying. The reason for this uptick in interest in savings validation is that the formulas for savings (i.e., rebates, shared savings, cash backs, etc.) are getting more complicated and not easy to verify. Here are a few benefits of savings validation that can greatly improve your healthcare organization’s bottom line:
Benefits of Savings Validation to Your Healthcare Organization
1. Uncover All Understated Savings: It’s our estimate that hospitals, systems, and IDNs are understating or minimizing their reported supply chain savings by as much as 37% on their GPO or local contracts in any given fiscal year. This is a universal truth to all healthcare organizations. That doesn’t make it an acceptable practice! Further, we estimate that, on average, acute care hospitals are losing $1,000 per occupied bed in lost reported savings annually for this reason. However, if supply chain professionals verified their contract savings they could retrieve hundreds of thousands of dollars, even millions, annually that can be reported to their CFO as real dollar savings. Why shortchange yourself of these new reported savings?
2. Curb Losses From Non-Verified Savings: A large university teaching hospital booked an $820,000 commodity savings opportunity in their savings tracking system for their current fiscal year, only to find out through a compliance audit that the savings never happened. After some procedural adjustments, the savings did materialize in year two of their contract. Just think how embarrassed this supply chain manager would have been if his department didn’t catch this anomaly before it was questioned by their CFO (who budgeted for this savings).
3. Create a Culture of Accountability: Now that value-based payments (i.e., fixed cost contracts for an entire patient event with a focus on quality and outcomes) are more prevalent than ever before in healthcare, your vendors need skin in the game! Otherwise, your healthcare organization assumes all risks with these value-based contracts without any accountability from your vendors. This is accomplished by having your vendors guarantee in writing their savings projections over the lifecycle of their contract with a 1% to 3% margin of error. If they miss their targeted savings objective, then your vendor is responsible for a rebate in cash or credit to meet their guarantee. This one paradigm shift in your purchasing protocols will provide an ROI greater than ever before!
Savings Validation to Increase Supply Savings
We all know it is getting harder and harder to obtain new price savings from your GPOs and local contracts; therefore, to book even more savings you must first make sure that you are properly validating the supply chain savings that you are actually achieving. This procedure alone will increase your supply savings as previously stated by as much as 37% without making any changes to your contracting practices. Why wouldn’t you want to be accurate with your supply savings projects to grow your savings as opposed to presuming the results?
P.S. If you would like more information about this topic, just email me at [email protected] for a FREE copy of The Closed-Loop Savings Validation Guidebook. It could change the way you do business.
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