July 27

Why Savings Validation is Essential After Your GPO or Local Contracts Have Been Implemented


I believe I can make this statement without fear of contradiction: Most healthcare organizations never revisit their GPO or local contract savings estimates once they sign a contract. However, here are four reasons why savings validation is essential after your GPO or local contracts have been implemented:

1. The Past Doesn’t Predict the Future: A hospital, system, or IDN typically estimates their contract savings based on a commodity’s past 6 to 12 months’ purchase or usage history. Whereas this methodology appears on the surface to be a logical way to calculate your contract savings, we have found that it isn’t a reliable practice. This is because the past doesn’t predict the future in supply chain management. For example, just because you bought 450 EP mapping catheters in 2020, doesn’t mean your cardiologists will utilize 450 in 2021.

2. Things Change and People Change: Policies, people, and practices change in any given year; therefore, you can’t base your savings projections on a prior year’s purchases or usage. You need to base them on the cost per operating metric per year versus the cost per operating metric on the current year if you want to be accurate in your savings projections.

3. 26% to 46% of Reported Savings Never Happen: Our research has shown that healthcare organizations are either understating or overstating their contract savings projections by 26% to 46%. This is an enormous variance in contract savings projections that needs to be remedied if supply chain professionals’ savings reports are to be used for budget projections.

4. Unforeseen Consequences Are Real: When you change a product, service, or technology there is a give and take to the process as you now have to fit this new vendor into your current utilization. This means that products that were originally slated to compare to your existing products do not and thus you have to change them out shortly after the contract has been implemented.

These unforeseen issues could be in the form of a wound care dressing not creating the healing it was prescribed to deliver, or an instrument not meeting a surgeon’s touch and feel requirements. The list could be endless, and these are ongoing real events that whittle away at your original savings numbers over the years in your contract. Why not know the exact number so you can take possible action to mitigate the savings losses.

We have been seeing more and more of our healthcare supply chain community validating their GPO and local contract savings to ensure that the savings that are promised actually happen. This validation is mission critical especially if you are changing your GPO, since too often your GPO’s promised savings are an illusion, based on past history, faulty data, and clerical errors. As they say, “trust, but verify” if you want to be assured that you are getting the results you have been promised.

Below are some similar articles that you may find interesting.

The 3 Best Savings Beyond Price™ Strategies

Bridging The Supply Utilization Gap With Your Hospital Value Analysis Program

3 Things You Must Know About Your GPO’s Price Savings to Make Them Stick

Request Demo of SVAH’s Value Analysis and Utilization Tools


contract savings, GPO contracts, Healthcare Value Analysis, Hospital Value Analysis, savings validation, supply chain management

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