We often talk about hospital supply utilization management in these terms: If not now, when? We can make this statement because utilization management is the only savings area left in your vineyard. Not only has your low-hanging fruit been picked and standardization been substantially achieved, but now your price savings are disappearing. This isn’t conjecture any longer; it is a cold hard fact.
Huge Savings with Supply Utilization Management
Every hospital, system, and IDN that we have talked to over the last several years has experienced this phenomenon. The progressive ones have embraced the concept of supply utilization management and are now experiencing new savings in the range of 7% to 15%, or $2 million dollars per 100 occupied beds.
They understand that this problem is insidious and that it can cost them, on average, 26% on one-third of the products, services, and technologies they are buying. For instance, one of our clients has reduced the usage of their isolation gowns by $112,326 annually by reining in the wasteful consumption on this product. If left unmanaged, this product alone would have done considerable damage to their healthcare organization’s bottom line.
Price Savings is a Short-Term Tactic
We realize that many healthcare organizations have joined regional GPOs and are experiencing 3% to 5% in new savings on selected product lines. However, this cost reduction strategy isn’t enough to bend your hospital, system, or IDN’s cost curve. It is also a short-term tactic that, in our opinion, has about a five year life.
Trust us when we say that your price strategies are losing momentum and you will need to find other sources of savings to fill the gaps left by this void. This is where supply utilization management comes in. Yes, there are always a few more dollars to save on price, and it is mission critical for you to hold the line on inflation. Yet, these are all short-term strategies that will just keep your boat afloat, not raise it in high tide.
These are the cold hard facts about utilization management. You can either ignore them at your peril or embrace them as the new reality in supply chain management. When you consider that your healthcare organization needs to dig deeper and broader for new and better savings, to save as much as 11% to 20% over the next few years, just ask yourself if your current price strategies will meet this test. Our guess is that they won’t, unless you, too, embrace hospital supply utilization management as your new path to supply chain expense management success.
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