December 16

Hospital Value Analysis Means More Than Price Shopping


Most value analysis practitioners equate value with price shopping, which isn’t what hospital value analysis is all about. Price is just one small component of the value equation and too often misleads project managers into believing that if they have found a good price for the commodity under investigation, then they have completed their value analysis study.

Nothing could be further from the truth. In fact, price isn’t even a consideration in the value equation. The total cost from acquisition to disposition is the only objective and measurable outcome in a value analysis study. Yet, thousands of hospitals are still hunting for best price on everything they buy, and are missing the meaning of value analysis altogether.

By definition, value analysis is the study of function and the search for lower cost alternatives that will meet those functions consistently, reliably, and effortlessly. Value analysis starts with a blank piece of paper to identify the functions (primary, secondary, and aesthetic) that your customers say they want, need, and desire in their products, services, or technologies. The operative words here are “say they need”, since most customers don’t need everything they think they want, need, or desire to get their work done. This is the essence of value analysis methodology; defining what your customers absolutely, positively require in the products, services, and technologies they are requesting.

For instance, if a department head requests a disposable trachea tube, it’s not the trachea tube they really want but the primary function of “clear airway.” Once you have defined the primary function of the trachea tube, you then can identify any secondary functions (does the trachea tube need to do something else?) along with its aesthetic functions (nice, desirable, and attractive), which are not always functionally required.

Now you are ready to search out lower cost alternatives to meet the functions you have just defined. Some of your targets of opportunity in this example could be the size, construction (silicon, latex, rubber, stainless steel, etc.) and features (cuffed, un-cuffed, double-lumen, reinforced, etc.). The goal here is to meet the functional requirements for the trachea tube – no more and no less.

The last step in the value analysis methodology is to determine the total lifecycle cost of the lower cost trachea tube alternatives you have chosen and then list them from the highest to lowest, including the original requester’s cost. With this data in hand, you can make a recommendation to the requester to lower their cost of acquisition in most value analysis studies.

The whole reason for this exercise, or any hospital value analysis study, is to define the specifications for the product, service, or technology that are really required, and not accept the assumptions of the requester, who usually just copied a product number and description from a manufacturer’s catalog.

By doing so, you can reduce your cost of acquisition to disposition by as much as 26% to 52% on each of your purchases. This is a much better savings yield than the 2%, 3%, or even 5% you are now saving on price on these same commodities.

So beware of price shopping to lower the cost of the commodities you are buying, since it isn’t the best route to take in reducing your cost of acquisition to disposition. Only by applying the techniques of value analysis can you actually have a giant leap forward in reducing your supply chain expenses vs. nibbling around the edges of your costs.

Articles you may like:

The Vital Importance of Controlling Your Hospital’s Supply Chain Expenses

Hospital Supply Chain: The Next Wave of Savings Opportunities

Hospital Supply Utilization Management: The Cold Hard Facts

Request Demo of SVAH’s Value Analysis and Utilization Tools


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