February 5

Hospital Supply Chain: Is It Time To Get Back To Saving Money Again?


We are all in a new world of mitigation, PPE, social distancing, etc., that has been a laser focus for over two years now. The goal was to stop the coronavirus pandemic from spreading and prevent the overwhelming of our healthcare systems. Now that we see a light at the end of the tunnel, we need to start thinking about refocusing our hospital supply chain efforts on cost optimization to ease the budget pressures of our healthcare organizations.

Don’t Look For Price Concessions From Your Vendors

In our opinion, it will be almost impossible to obtain price concessions from your vendors as you open for business since they are in a cash crunch themselves due to the effects of the pandemic. Therefore, savings beyond price (i.e., value analysis, lifecycle cost analysis, utilization management, etc.) should be the focus of your cost optimization. This can save your healthcare organization 7% to 15% almost overnight, or a minimum of one million dollars per 100 occupied beds.

Prior to Covid-19, hospitals, systems, and IDNs had reached a high level of maturity with their price and standardization efforts. However, this only represents one-percent savings for a healthcare organization’s total annualized supply budget. Considering that 87% of all hospitals, systems, and IDNs have not engaged in a cost optimization program or even had an annual non-salary cost assessment, we see a whole new world of savings opening up for you.

Urgent budget pressure for all healthcare organizations is real. It is therefore necessary for you to be strategic vs. making shoot-from-the-hip decisions about your cost optimization initiatives to avoid jeopardizing your healthcare organization’s short and long-term financial health. Our non-salary expense assessment can show you the way. As we see it, this is a rational approach to cost management that you should champion at your healthcare organization.

Avoid Deep Arbitrary Cuts in Cost, Service, or Quality

Too often, your senior management will want to cut 5%, 7%, or even 10% across the board on supply expenses. This decision is dangerous since it penalizes the attentive supply expense stewards and really does not tame wasteful managers. A much better way, we have found, is to target your savings with volume centric Rapid Cost Optimization Analytics. This will show you where to make intelligent and strategic decisions to aid your hospital system’s supply budget. One of our clients saved 40 million dollars annually on her supply expenses by employing this strategy. They even wrote a book about it that was published by Magnet!

It’s Time for Your Hospital Supply Chain Department to Double Down on Savings

Cost optimization has not changed in healthcare, it has just become more urgent due to the effects of the coronavirus. We believe non-salary cost management initiatives will now shift from price alone to savings beyond price. Further, the financial effect of the pandemic requires you to dig down even deeper to uncover new supply chain savings. This could be a challenge since your price savings are slowly disappearing and your standardization is substantially completed. Yet, your savings beyond price are ripe to be harvested in the range of 7% to 15% of your total supply budget. Don’t let this opportunity pass you by to double down on your supply chain expense savings.

P.S. If you would be interested in learning more about our Rapid Cost Optimization solutions, please visit www.FastTargetSavings.com.

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