Most healthcare organizations don’t think about enterprise-wide strategies that would funnel all their savings opportunities to them in one place. I often wonder why this has to be the case — it really doesn’t. With sufficient data, organizations can funnel and filter their available information through a supply utilization engine that clearly reveals where savings opportunities exist. This is not spend management because you need to go by more than spend as hospitals consume their products and services all based around patient volume. In other words, how much you consume should be relative to the patient volume in all your patient areas (and non-patient as well) from Cath Lab to Lab to Imaging to Surgery to Nursing Units and every department in your hospital.
Can We Measure/Track Savings with Patient Volume Centric Measures?
Remember, we are not looking to get a better price, which spend management is perfect at. We are looking to identify savings opportunities that price and standardization cannot help with. We are talking about waste, inefficient use, lower or higher use cycle to dollars spent, feature-rich products, etc. To find these, you need to incorporate patient volume centric metrics and compare them to what you spend in each of the product categories. EP Lab Ultrasound Catheter Cost per EP Lab Case or Suture Cost per Surgical Case are perfect examples. Then, look historically within your cohorts (if you can set them up), within your system, and at the overall averages.
There is Always a Better Way!
Most health systems handle their respective non-salary expenses in separate manners, but it does not have to be that way. Why not track everything in a congruent, proven system that can not only identify savings opportunities but also assist you in drilling down to the right data to make it happen? But first, what do I mean by tracking everything, what should be tracked, and why?
- Supplies – The average health system has over 25K SKUs and over 850 major and 1,200 minor categories of supplies to track after. It is a daunting task to track after all of those on a spreadsheet or even just a spend management report, let alone actually find viable savings. We need to become more systematic in how we find savings, especially in large systems where every missed step is a waste of valuable human resources, not to mention credibility with end customers. What other method can effectively track a constantly moving target when an entire department is already focused on price? The real opportunity lies in analyzing utilization and consumption, identifying waste, inefficient use, unnecessarily feature-rich products, and life-cycle gaps — areas that can deliver an additional 5% to 10% in supply budget savings.
- Pharmacy Drug Purchases – Pharmacy has their P&T Committees that manage the formulary and they do a great job, but there are still many savings opportunities to be found. Why? Because they only look at total spending and don’t break down each drug by their respective patient volume centric measure. There lies an extra 5% to 7% in savings beyond price in drugs!
- Laundry Linen – For as long as I have been in Supply Chain, laundry linen expense has primarily been tracked by cost per pound which is essentially a price metric. While securing the best price per pound is important, the biggest X-factor with linen is the total volume being used. Very few healthcare organizations track price and utilization together, let alone align linen usage with patient volume centric measures such as unit patient days, ED volume, or surgical volume. This presents a significant opportunity for automation. No AI is required — just strong systems and better data alignment — which can drive 10% to 30% savings in linen expenses.
- Purchased Services – Our industry has made meaningful progress in tracking purchased services, and many GPO contracts now provide solid pricing coverage. However, additional savings opportunities remain. While pricing may be addressed, overall utilization is often not evaluated alongside patient volume centric metrics. By looking beyond price and examining utilization relative to patient days, organizations can still uncover an additional 5% to 7% in total savings.
Throw a Blanket Over All Your Non-Salary Expenses and Track Them All!
Where is your next generation of major savings going to come from? Well, you are not going to find it doing the same things repeatedly. It is going to require having systems in place. These new systems will allow you to track everything from supplies to purchased services total costs in direct proportion to your patient volumes. This is the next level of savings beyond price, and it is one major funnel that you need to have in place that will power your savings engine in the short and long term. Track it all now – you will wonder why you didn’t do this sooner!
Below are some similar articles that you may find interesting.
The Missing Piece of the Healthcare Supply Chain Equation for Continuous Cost Optimization
How Do You See What’s Invisible When It Comes to Savings Beyond Price?
4 Best Practices for Navigating the Cost and Quality Balance in Healthcare Value Analysis