Let’s face it, healthcare systems need to continually reduce costs every budget year but 2025 is even more challenging as we have inflationary increases as well as tariff increases that will quite frankly test the bottom lines of all healthcare organizations throughout the country. As Healthcare Supply Chain and Value Analysis Leaders, CFOs are going to look to you to up your game and bring a whole new level of savings that they desperately need to keep their bottom lines in the black. Below is my ranking for 2025 and beyond as to where you will find the next level of major savings.
Top Savings Areas for Healthcare Supply Chain and Value Analysis
1. Consumption/Utilization Management (the Road Less Traveled) – I have been working in this area for the past 15 years, and we still find major savings from 5% to 12% of total supply chain budget. That savings alone is nothing to waive your hat at and ignore, plus it can be proven with the right reporting. Let’s face it, this is the road less traveled and that means there are still major savings opportunities here because few organizations want to break away from their pricing world. Remember, you can have the best pricing on every single product and service, yet you can still have consumption/utilization cost overruns because price only affects maybe 20% of the total cost of a product. Utilization is the total cost of a product or service and thus factors in price but also the quantity of product consumed. If you are consuming more of a product than you were last year (most organizations have many of these areas) then you need to address this and reduce costs accordingly. Lastly, these savings opportunities aren’t as difficult to deal with once you know where they are and why they are occurring.
2. Benchmarking for Optimized Value (5% to 8% in Savings Beyond Price) – Most health systems don’t have any sort of active supply benchmarking program in place to let them know where they stand on each supply category they purchase and where they stand as compared to cohort peers, internally within their health system, and nationally. Basically, most health systems are flying blind, so how could they save any dollars with benchmarking when they are not currently performing any benchmarking functions? Start by throwing a blanket over all of your major and minor supply chain product categories and find out where you are at with all of your hospitals in your health system. This is a gold mine for new savings, but you have to be benchmarking things like your Suture Cost Per Surgery Case or your IV Set Cost Per Adjusted Patient Day and 800+ more categories. This way you will find a multitude of savings with some of these being major wins for you and your Supply Chain Team.
3. Value Analysis Retrospective Reviews (3% to 5% in Savings Beyond Price) – There is still high value in redirecting your value analysis program into cost optimization mode and performing retrospective value analysis reviews of major product categories. Value analysis is built on the functional approach to finding the lowest cost alternatives to what you are buying or using now with equal or better quality/reliability. Make some room on your VA Team agenda and start reviewing major high dollar categories and you will be surprised at the big savings your teams will attain.
4. Price Savings are Still There but….(1% to 3% Overall) – One of the reasons we need to look to areas beyond price is that our healthcare supply chain pricing and contracting programs have greatly matured to the point of not finding as much savings as we used to. This is not necessarily a bad thing, but it is important to realize that price savings are suffering from the law of diminishing returns. You still need to save on price wherever possible, but it is just not going to move the needle in a big way.
5. Rebates and Administrative Fees (2% to 4%) – Unfortunately, price increases due to inflation and tariff increases will automatically affect rebates and administrative fee share backs based on gross spend increasing. This is not a good thing as you are paying more and getting a very low percentage back. Plus, rebates and admin fees are recurring so if you made $5 million last year and this year you have $5.2 million, you only really increased your true savings by $200K or 4%. I know you get checks every quarter but because of the recurring nature of these payments it is really a plus or minus game you are playing every year.
Paradigm Shift in Healthcare Supply Chain
The good news is that there are still major saving to be had in our healthcare supply chains, but you do need to make a paradigm shift and add more modalities to your program that will start generating a new and different type of savings. This may sound like a daunting task, but it really isn’t once you start to build these new capabilities and reports that will go along with these. Go get the next level of savings!
Below are some similar articles that you may find interesting.
Cost Optimization Training is More Important Than Finding Major Savings Opportunities
Top Savings Beyond Price Strategies to Combat Tariff Price Increases
How to Enlist Your Department Heads and Managers into the Cost Optimization Process