November 7

Healthcare Supply Chain: When is the Right Time to Evaluate a Major Product or Service Category?


“The bottom line here is that for our industry to go to a new level of savings, we must put systems in place that will quickly help Healthcare Supply Chain and Value Analysis Leaders to pinpoint real savings that they will spend time and resources on to weed out.”

Timing is everything and it does apply to the cost/value/quality world in our healthcare supply chain. In a perfect world you would want to take the time and have your value analysis teams review all of their major product and/or service category spends and wring the towel dry on savings. But given that the average hospital purchases anywhere from 5K to 25K line items (major systems can be 25K to 85K in SKUs) with over 2,000 contracted categories, there just isn’t enough time in our teams’ agendas to undertake this. This is a tough challenge that you need to be prepared for.

More than likely, your CFO is looking for dramatic cost reductions/optimization due to major cost increases that have hit the healthcare supply chain. For those of you who have not experienced the full blown “Cost Management Mode” initiative, it can become quite overwhelming looking for those big savings that you are just not aware of. The last time our industry went through this was in 2008 when we had the financial crisis but even then, I do not believe it was as bad as we are experiencing right now.

The good news is that there are steps and systems you should put in place that will make the savings challenge much easier moving forward with proven savings opportunities to work on. This is beyond group purchasing organization savings which are still there but just not as much as they used to be. Here are some steps to work from for your next level of savings that your CFO is looking for.

Steps to Gaining Next Level Healthcare Supply Chain Savings

  • Benchmark with Key Performance Indicators Within Your Health System – You are a multi-hospital system; this should be a no brainer as you can compare your like-sized hospitals within your system to other like-sized hospitals and find out where your best performers are in all of your major categories and where are you low performers. The good news here is that you won’t have to waste your high performing hospitals’ time going through an IV set or suture VA review if they are already performing the best in your system cohort. Even better, you can delve further into why they are running so good and then apply those lessons learned and best practices to your poorly performing hospitals or hospitals that need improvement.
  • Year Over Year Reviews – This is simple, but most organizations don’t do this with patient volume centric metrics compared to your major supply and purchased service categories. An example of this would be comparing your Closure Device Cost Per Cath Lab Cases in FY23 to FY22 or even work with a three-year average. In essence, each hospital becomes their own best practice, and they can’t argue that they were busier or dramatically different because they are comparing to their own previous year. This will also be helpful in areas that you thought were high but when you look at year over year, you realize that you may be running 5%, 9%, or even 23% lower than the previous year. Move on then.
  • Cohort Best Practice Comparables – This is the gold standard for finding out exactly where all of your hospitals in your health system stand when it comes to cost per metric. You will need partner organizations to assist you (like SVAH) to help you lock in the best practice benchmarks that will power your savings moving forward. These are invaluable as your system’s best practice and your year over year may not show you that you are still running dramatically over where like-sized hospitals and health systems are in your industry buying off the same contracts and similar products. Right now, it is important to know this.

These are just some of the areas we have been using ourselves to help organizations go to the next level of savings beyond price which provides a dramatically different savings dynamic and should not affect your strategic sourcing contracting program at all. The savings could be as simple as waste or inefficient use patterns or that one or two of your hospitals picked the Rolls Royce of a product mix when the best practice hospitals are using the Chevy. There is power in knowing this right now and moving forward. You don’t need to make changes to your contracting portfolio to get this next level of savings.

Healthcare Supply Chain and Value Analysis Leaders Are Smarter Than That

The bottom line here is that for our industry to go to a new level of savings, we must put systems in place that will quickly help Healthcare Supply Chain and Value Analysis Leaders to pinpoint real savings that they will spend time and resources on to weed out. No longer can we go down a major savings opportunity only for it to turn into a dry hole. It’s 2023 and we are smarter than that!

Below are some similar articles that you may find interesting.

5 Biggest Mistakes Made by Healthcare Value Analysis Professionals and How to Avoid Them

Four Best Ways for You to Lead Your Healthcare Organization to the Next Generation of Cost Optimization

Podcast 84 – 4 Major Dynamics of Advanced Cost Optimization

Request Demo of SVAH’s Value Analysis and Utilization Tools


benchmark, benchmarking, best practices, healthcare supply chain, Healthcare Value Analysis, hospital supply chain, Hospital Value Analysis, key performance indicators

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