June 11

The Law Of Diminishing Returns in the Healthcare Supply Chain: What Does It Take To Move Beyond This Challenge?


A study published by the Healthcare Financial Management Magazine showed that while hospital FTEs are down nationally, hospital non-salary expenses have increased at a rate of 5.3% (expenses/discharges) over the last few years. What is the cause of the increase and what can we do about it? Over the last five years the savings from group purchasing, standardization, and prime vendor contracts have become almost invisible on a hospital’s bottom line. In fact, SVAH’s studies have documented the impact to be less than .005%. Non-salary expenses have risen over the last five years because the excess costs are now (and will continue to be) squeezed out of your healthcare suppliers’ supply chain. Vendors are screaming that they have no more price concessions to give to their healthcare customers! We call this THE LAW OF DIMINISHING RETURNS.

You are undoubtedly familiar with this challenge, but what can you do about it? 

By embracing the highly effective techniques of value analysis, you can cost effectively use methods that are so simple yet so powerful for your organization. Building a strong value analysis program will successfully eliminate your organization’s fixation on purchase price and refocus your non-salary expense management efforts towards your savings goals. With this practical approach you can determine your customers’ exact requirements – by building your specifications (best practices) using the value methodology. You will be pleasantly surprised with this powerful savings and quality improvement strategy. You will have nothing less than BIG savings obtained for your healthcare organization, thereby, eliminating waste and inefficiency in your products, services, and technologies’ supply/value chain. Value analysis is not complicated; anyone can perform these scientific value studies, if you know how! VA will give you the knowledge that will help you determine non-conforming feature-rich products, services, and technologies, wasteful methods and practices, and help maintain conformance to requirements.

Most healthcare organizations are “winging it” when it comes to value analysis (VA), which has high name recognition, however, very few healthcare organizations are practicing its classic tenets. Value analysis (also known as value management or value engineering) in its classic form is the most misunderstood and underutilized savings and quality improvement tool. VA is a simple, cost effective, and very powerful savings technique that your healthcare organization can employ to roll back the inflationary spiral that is negatively impacting your bottom line, but only if the concept of value analysis is applied with vision, your customers in mind, and most importantly, a cost effective process.


best practices, financial management, group purchasing, healthcare, hospital, non-salary expenses, price concessions, purchase price, savings, savings and quality improvement, standardization, supply chain, SVAH, value analysis, vendor contracts

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