The genesis of the savings validation concept came up on our radar screen when SVAH’s staff repeatedly observed hospitals, systems, and IDNs booking GPO and locally negotiated or initiative savings that failed to materialize. We are talking about multi-million-dollar year-over-year cumulative losses for hospitals, systems, and IDNs annually. This fact should be important to you for the following reasons:
Why Savings Validation is Important
1. Vendor, GPO, or Initiative Savings Fall Short of Target: When was the last time you checked to see if the savings improvement that was promised by a vendor, GPO, or value analysis team actually occurred? Not often enough, according to our extensive multi-year research. Almost daily, our automated savings auditor software uncovers savings that were reported to a hospital, system, or IDN’s senior management but didn’t happen because things, people, or situation changed over the course of a savings timeline.
2. New Contracts or Initiatives Can Increase Expenses: Because of the lack of training, poor communication, misuse, or misapplication of a product, service, or technology, we have repeatedly seen initiatives to save money actually cost more. For example, a value analysis team selects new exam gloves with optimal costs and high-quality features but fails to realize that the reason their costs were too high were their outdated glove box holders. Instead of saving 30% on exam gloves annually with their new contract, they were barely saving 9% and never realized that they were losing over $30K annually when they booked over $130K over the next three years.
3. Reported Savings Actually Exceeds Original Projection: On the flip side of the coin, we regularly see savings projections that actually exceed original estimated savings by 5%, 8%, 10% or more since the initial savings estimate was either very conservative, census or procedure changed, etc. Why not take credit for these savings windfalls that you earned through your hard work?
All of the above consequences of not validating your savings can be quickly corrected by instituting a savings audit, at least quarterly, on all of your savings (price, standardization, value analysis, etc.) initiatives. This way you can self-correct most savings that have gone off track or update your savings projections either up or down as they reveal themselves. Lastly, it would be much better for your initial savings projection to be reported as a range of savings rather than a fixed number from a credibility standpoint. Then, updated quarterly as your actual savings hit your healthcare organization’s bottom line. Don’t ignore this important responsibility!
P.S. If you would like to know more about this topic, just email me at [email protected] for your copy of “The Ultimate ‘Closed-Loop’ Savings Validations Guidebook.” It can make a big difference on how you count your savings!
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