When is a savings really a savings? When it is reported to your senior management or when it actually shows up on your hospital’s bottom line? This is a question you must ask yourself when you are reporting savings of any kind to your senior management. This is because most hospital supply chain professionals are deceiving themselves if they think every savings they are reporting is indeed hitting their healthcare organization’s bottom line. This is rarely, if ever, the case!
Case in point! We see hospitals reporting savings on stents, pacemakers, and other medical devices to the tune of hundreds of thousands of dollars, but when they track their actual savings on their supply dashboard they soon realize that only 23%, 26%, or 37% of the projected savings actually hit their hospital’s bottom line.
Track Your Hospital’s Supply Chain Savings
How could this happen? Typically, assumptions were made on their previous year’s purchases that may or may not materialize. We have seen hospitals make huge strides by capitating their pacemakers and orthopedic implants believing that this would drive down their costs by double-digits. However, an interesting trend we are seeing in hospitals who are tracking these savings with their supply dashboard was that their surgeons saw this change in pricing as a license to start inserting the highest price pacemakers and/or hip and knee implants in their hospital’s formulary. Naturally, this skewed their savings projections that had been estimated at the beginning and end of their initiative.
Another example is when a hospital’s implementation (e.g. communications, training, and follow up) of a lower cost alternative product, service, or technology is so disjointed that their cost actually goes up, not down. This doesn’t even take into account the always present “unintended consequences” of any change that you make in your supply streams. One of our clients experienced this when they uncovered that their emergency department was using neonatal oxisensors instead of adult oxisensors. This unknowingly occurred when they changed manufacturers and increased their emergency department’s budget unnecessarily by $19,454 annually, when this hospital only spent $49K annually on oxisensors to begin with!
We also see many reported savings that are understated. Meaning, your hospital’s supply chain department has saved more than you projected and didn’t receive credit for this windfall since you aren’t tracking the savings you have reported. Don’t let this happen to you!
As you can see, savings aren’t savings until they hit your healthcare organization’s bottom line. You are deceiving yourself to believe otherwise. There can be a myriad of reasons why savings that you have projected just don’t happen as planned. That’s why it is undeniably important for your supply chain department’s credibility, integrity, and trustworthiness for you to report your savings on a monthly, quarterly, and annual basis and then make adjustments (up or down) for each period as your savings actually shows up on your supply dashboard.
Ignore this advice at your own peril, since your senior management will sooner or later figure out that the savings you have been reporting to them for years isn’t really hitting their bottom line. You don’t want to have this conversation with them, because you will lose your standing and trust with them!
Articles you may like: