I was having a conversation with my COO, Robert W. Yokl, some time ago about a thought-provoking discussion he had with a system supply chain executive. This discussion was about how this supply chain leader was targeting his supply utilization misalignments (i.e., wasteful and inefficient consumption, misuse, misapplication and value mismatches) in his supply stream because of a new savings initiative he had proposed to achieve double-digit savings for his healthcare system.
Clearly, this supply chain professional knew what we know; that supply utilization management is the next big savings strategy that will take supply chain leaders to a new level of supply chain savings – beyond price and standardization. So, why don’t more healthcare supply chain leaders believe or care about supply utilization management? Maybe it’s because they don’t believe the savings are real or realizable because they can’t see it with the naked eye. Or, it could be for two other reasons I will talk about now.
Supply Chain Lives in a “Price Focused World”
Let’s face it, we in supply chain live in a “price focused world’ where the preferred tactic for savings is still all about price and standardization. There is, however, more to the cost equation than price and standardization alone. But first, you must be willing to venture outside the healthcare supply chain conventional savings model. This will enable you to understand that price and standardization will not solve the challenge of your clinical and operational staff wasting many of the products, services or technologies that they are employing in their day-to-day operations. In fact, our utilization studies have shown that between 48% and 78% of all products, services, and technologies that hospitals, systems, and IDNs are buying are utilized inappropriately. This means that no matter how good your price or standardization program is, you can still have higher per patient day supply costs because your healthcare organization is consuming too much of the products, services, or technologies that you are buying.
Supply Utilization Has Been an Age-Old Problem
You might be surprised to learn that supply utilization has always been an age-old problem for healthcare organizations. However, until the era of “big data” and value analysis analytics it was almost impossible to have a systematic way to identify your utilization misalignments. So, utilization isn’t a new concept after all! That’s why we can no longer think that we can uncover all of our supply chain expense savings with our GPO and local contracts or even with value analysis.
We, as a company, once thought that value analysis was the ultimate savings technique, beyond price and standardization, for a healthcare organization’s supply chain department’s savings toolbox. However, we discovered about 15 years ago that value analysis teams are only as good as the projects they have on their full agendas. If you expect your value analysis team(s) to uncover where your utilization misalignments reside – think again! The reality is, if your value analysis coordinator, manager or director doesn’t have a system to alert them to their utilization misalignment savings opportunities, they will never be placed on their agendas and thereby will never be saved.
This statement in no way discounts the value of value analysis teams but highlights the fact that they need systems to give them the evidence they need to prove or disprove their utilization misalignments as well as alert them to utilization savings opportunities that show up on their radar screens.
The Savings Game is Changing – Don’t Be Left Behind
The awareness that utilization savings reside, by the millions, in our healthcare organization’s supply streams is now a proven fact. Your only challenge then will be to see how fast you can implement systems to achieve these new and better savings results (7% to 15%) we have talked about for years.
Imagine if you had ignored your price and standardization savings opportunities for the last 10 or 20 years. Would this represent millions of dollars of lost savings for your healthcare organization? You know it would! Now insert the word “utilization” into this same sentence and you will see the magnitude of the savings opportunity available to your hospital, system or IDN. Our message to you then is that the savings game is changing, so don’t be left behind by ignoring your utilization misalignments. They could be the difference in making your supply savings budget in any given year.