Many healthcare organizations are falling into challenging times where major budget shortfalls seem to be more of the norm, or perhaps you are going through a major expansion and/or building program and need to keep your profit margins in check for your bond holders. There could be a multitude of reasons why health systems today would engage in a system-wide Cost Reduction Program (CRP). These programs will get you the results you are looking for – if you do the right things. A core component of these programs is the involvement of Supply Chain and Value Analysis Professionals who are called upon to lead the savings elements of these programs. These experts manage substantial expenditures every day, overseeing the products, services, and technologies that drive major financial impact.
Interestingly, due to the high degree of specialization among Supply Chain and Value Analysis professionals — combined with significant turnover in Supply Chain leadership — many have not yet experienced a true system-wide Cost Reduction Program. This can be challenging for those now leading such initiatives, as a CRP involves many complex elements beyond contract pricing alone. Achieving the multi-million-dollar savings targets set for the next 12–18 months requires a broader, more integrated approach.
Below are a few steps (in no specific order) that I highly recommend that you implement if you are going to be leading your health system’s Cost Reduction Program.
- Strategically Plan for Savings, Then Work Your Plan – See the elements below.
- Break Down Your Major Savings Goals Into Strategic Elements – Your CFO will likely set an ambitious target — often in the millions — to be achieved over the next 12–18 months. While it’s valuable to have a clear overall goal, success depends on breaking that target down into specific areas across your organization. This allows for focused execution and measurable progress. Always plan for a buffer by estimating slightly above the goal, as some anticipated savings may not fully materialize within the expected timeframe.
- Cost Reduction Program Goal is $40 Million
- $8 million from GPO and Other Contracts Including Rebates
- $16 Million from Purchased Services
- $10 Million from Clinical Supply Utilization and Value Analysis
- $5 Million from Capital Reductions
- $1 Million from Inventory Optimization System-wide
- $1 Million from Postage/Courier/Freight
- Identify as Much Savings as You Can Up Front – Now that you’ve established your savings goals and identified where those savings are expected to come from, it’s time to translate them into specific, actionable initiatives. Focus on areas such as contracts, rebates, utilization, and purchased services — these should clearly indicate where to concentrate your efforts to achieve results. Avoid relying solely on total spend as a savings indicator. Instead, leverage benchmarking and clinical supply activity costing to validate that your projected savings are both realistic and sustainable.
- Form the Right Teams & Sub-Teams to Attack Savings – The purpose of defining your goals and identifying specific savings opportunities first is to ensure that the teams you form are both targeted and effective. There’s no value in creating a Respiratory Therapy Cost Reduction Team if no savings opportunities have been identified in respiratory products. Build teams that are meaningful and focused on clearly defined objectives. Once those teams achieve their goals, you can either disband them or retain them as standing teams if they continue to deliver both short- and long-term savings.
- Only Accept Real Savings from Projects – Only include real, verifiable savings in your CRP — those that can be implemented and realized within your defined timeframe. Be cautious of claims like, “We’ll save $200K in labor because our printers or copiers are faster.” Unless actual labor hours are reduced or work is completed more efficiently in measurable ways, those savings aren’t tangible or auditable. Stay disciplined and keep your program grounded in reality — even if that means challenging or rejecting some well-intentioned ideas from your own team.
- Educate Your Team Members in Advanced Savings Strategies – Don’t assume that simply gathering your department heads and managers and telling them to “go save money” will drive meaningful results. Your organization has likely already captured the more obvious savings over the years. To reach the next level, your teams will need new skills, advanced strategies, and possibly new tools or software to uncover and implement deeper, more sustainable savings opportunities.
- Cost Reduction Program Goal is $40 Million
Health system-wide Cost Reduction Programs sound great – until they start – and then the days start melting away very quickly, so it just makes sense to have a plan in place before you even start. You can keep updating that plan and fill in more of the blanks and savings achieved along the way. Remember, you cannot do something like this alone – you need everyone in your health system on board, and they need to know that you know what you are doing if you are leading this program. You will be unstoppable if you follow these steps.
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