Most weeks we see at least one news release announcing that a healthcare organization has changed their GPO and is touting the benefits of doing so. However, from our viewpoint, hospitals, systems, and IDNs change their GPO for one primary reason – they are running out of price savings. Yet, here’s a little-known secret you need to know: You don’t need to change your GPO to generate new substantial supply chain expense savings, especially since these new GPO savings take as long as six to eight months to materialize, not to mention the cost to convert contracts. With this said, here are the three main sources of hospital supply chain expense savings we recommend to our clients to achieve new savings without changing their GPO:
3 Main Sources of Hospital Supply Chain Expense Savings
1. Supply Utilization Management: We have been preaching for many years that price savings only amounts to one, two, or three percent savings (annual savings/supply chain expense budget) annually in the current healthcare marketplace. Whereas supply utilization savings can generate 7% to 15% of your annual supply expense budget. That’s why it makes sense to eliminate your utilization misalignments (or wasteful and inefficient consumption, misuse, misapplication, and value mismatches in your supply streams) before you ever consider changing your group purchasing organization(s).
2. Purchased Services Management: We are still seeing upwards of 11% to 18% savings (beyond price and standardization) for a fully deployed purchased services management program. This is because without a fully deployed purchased services program, your department heads and managers will continue to renew or recommend new costly contracts bought from the sales representatives that they like best. It’s much better to have supply chain professionals handle this contract administration to avoid fraud and abuse, costly legal errors, and runaway purchased service contract cost.
3. Standardization Optimization: Standardization is more than normalizing your commodities by brand name or manufacturer. To optimize your standardization to generate new savings by as much as five, eight, or twelve percent, you need to standardize based on your “best value” products, services, and technologies currently in your supply streams. By “best value” we mean the commodity being standardized has the lowest in-use cost vs. purchase price. As you know, purchase price is only the tip of the iceberg in your total cost equation.
We are all searching for better sources of savings for our healthcare organizations, but what we need to remember is that these new savings are often right in your own back yard. May we suggest that you optimize your savings with these three main sources of hospital supply chain savings before you even consider changing your GPO, since you can generate these new savings almost overnight! And it’s much easier than a GPO conversion!
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