“With this synergy you will open an untapped major savings engine that will not only offset any tariff increases but greatly aid your health system’s bottom line.”
The healthcare supply chain world just got a big reality check with the new tariffs that have been put into place in all the countries that provide important medical devices, parts, or resources that power our healthcare supply chain. Most were expecting this to be like the Covid sourcing challenges as well as the inflationary price increases that our marketplace saw. It may be much worse, at least in the short-term to follow. Group purchasing organizations are all letting their members know what to expect and let’s face it, it is only pointing to price increases happening in a very short period.
The good news is that there are still hundreds of thousands or even millions of dollars more in savings opportunities that do not entail price. With further optimization you can reduce costs on waste, inefficient use, feature-rich products, and value mismatches. This is savings beyond price cost optimization.
Savings Beyond Price Strategies to Combat Tariff Price Increases
1. Switch on Clinical Supply Utilization and Establish Your Baseline Now! – Most healthcare organizations have yet to embrace Clinical Supply Utilization Management which can instantly tell them exactly where savings opportunities are in their entire supply chain. This is perfect because your CFOs are going to be looking for any and all savings that could be put on the board in order to offset the price increases from tariffs. Keep in mind, the effect that price discounts have on savings is maybe 20% of total cost of procurement but this may be going the other way with tariff increases. With Clinical Supply Utilization, you can go further and reduce total cost by up to 90% in some cases.
Remember, spend is not a true indicator of an increase or decrease in any product or service category. Why? Because a hospital’s spend is in direct proportion to the patient volume that goes through it. If you have more patient volume, you will likely (but not always) consume more products and can optimize further especially as you get busier. The key is to take the patient volume indicators such as patient days, lab tests, cath lab cases, surgical cases, etc. into effect with the spend and you will have irrefutable savings evidence. With these measures in place, you can then compare historically within your system and with cohorts to determine savings opportunities quickly.
2. Change the Focus on Your Value Analysis Teams to Cost Optimization – Most value analysis teams today are focused on new product requests, contract conversions, and recall management. Once upon a time (10-15 years ago), value analysis had up to 60% to 80% of their agenda focused on cost optimization It is time to refocus VA teams and set savings goals for them to go after big savings within your contracts. If you implement step one, you will find many savings opportunities for them to work through and implement to attain the next level of savings beyond price.
3. Poll Your Department Heads and Managers for Savings Opportunities – Department heads and managers all have that vendor rep or initiative that was proposed for one change or another that would net big savings, but of course it required many hoops to jump through. Inevitably, they likely would have turned these down but now may be a good time to find out from those department heads/managers if any of these are still valid and whether you can implement them quickly. You will be surprised what you may uncover with this process.
4. Know Where You Stand with Savings Beyond Price Benchmarking – Most healthcare organizations know where they stand with their pricing because it is all spelled out in their contracting. But what about where you stand in all of the over 700 major categories of supply purchases? Where do you stand in your cost per surgical mesh per hernia case? Or average cost per CRM device? Or IV set cost per adjusted patient day? These could all spell big savings, but you have to benchmark with a cohort partner or partner like SVAH who can provide these valuable benchmarks and KPIs. There are big savings to uncover with this benchmarking process.
Open an Untapped Savings Engine that Will Offset Any Tariff Increases
Let’s face it, the healthcare supply chain is very much a “price is King” type of industry and that may never change. But savings beyond price is an area where not much time has been spent, if any, and can provide that next level of major savings that you never thought possible before. As you see above, there are many ways to go about this. I would highly recommend you implement all four of the options that are highlighted in this article because they have a synergistic benefit to one another. With this synergy you will open an untapped major savings engine that will not only offset any tariff increases but greatly aid your health system’s bottom line.
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How to Enlist Your Department Heads and Managers into the Cost Optimization Process
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