This article was written by Lisa Miller.
By 2020, supply chain costs are expected to overtake labor expenses as the #1 cost in US healthcare, making it vital to invest in your supply chain in 2019.
A 2018 report also suggests that each healthcare institution could potentially save around $11 million per year if it transformed its supply chain. At VIE Healthcare® Consulting we see the following four obstacles that prevent healthcare systems from maximizing their savings in supply chain management.
Each healthcare institution could potentially save $11 million per year if it transformed its supply chain. Click To Tweet
1. Overreliance on GPOs
The first reason to invest in your supply chain in 2019 is a potential overreliance on GPOs (Group Purchasing Organizations). In my previous blog, I highlighted concerns over the practice of kickbacks and increasing financial power of GPOs, which often don’t select the best products for their customers and patients.
Hospitals do have the ability to make their own purchases outside of GPO contracts but negotiation in isolation is difficult. Having said that, a growing number of healthcare organizations are now moving towards bypassing GPOs to gain the best value contracts – and yet more are ‘owning and controlling’ their own supply chain destinies.
With VIE Healthcare® Consulting, that is possible through line item analysis of your purchased services spend and strengthening negotiations with vendors, which I will discuss in more detail below.
Purchased services spend is one of the most overlooked opportunities to drive margin improvement, reduce spending and take control of your supply chain. The challenge for the majority of hospitals is the struggle to monitor and manage the volumes of supplier contracts, much less evaluate or analyze them.
The extensive frontline expertise of VIE Healthcare® has enabled us to develop and utilize a proven automated process to identify, analyze and deliver significant cost savings in hospital purchased services.
Our automated Invoice ROI™ process offers invoice reconciliation, contract optimization, business intelligence and an analytics platform with real-time contract reconciliation and benchmarking performance provided on a monthly basis for your outsourced services.
2. Building a comprehensive team that can provide analytics, strategy and negotiation
Most supply chains are regarded as transactional models, but I recommend a shift to a strategic model, which requires a corresponding shift in how your supply chain department is structured and staffed. To be successful, that in turn requires corporate buy-in from within your hospital.
Supply chain is a major expense for healthcare organizations, accounting for up to 45% of your hospital’s total costs. From the moment a product or service is required, a complex series of decisions and processes are instigated.
This means that everyone involved—from your purchasing team down to your frontline staff – must understand their role in the supply chain. Building an in-house team to effectively act on your behalf in terms of analytics, strategy and negotiation strengthens your hospital’s position in supply chain management.
The healthcare landscape is constantly changing, and providers seek improved processes and treatments to improve patient care. Technology is also a key component of this change and digital health care innovation is emerging at a rapid pace. A ‘smart’ approach to health helps to improve quality and reduce costs. But to gain the maximum benefit from your data requires investment in equipping staff with the skills to analyze its insights.
When used effectively, technology can provide innovation, meet and improve quality standards and incorporate your clinical data. Actionable data can help your hospital reduce costs within your supply chains by accounting costs to patient outcomes.
The most successful in-house supply chain teams are always looking for ways to bring new capabilities into their processes. At VIE Healthcare® we carry out training to educate staff and leadership on every aspect of supply chain. We call this our Supply Chain A to Z. Our process begins with analysis and ends with zero-based budgeting, covering 26 key supply chain concepts.
3. Return on investment for building a team is 20 to 1 if not more
Healthcare systems have traditionally cut back on their resources and people in supply chain departments, when the focus must be on strengthening that function. Hospitals cannot raise their prices so their focus must be on reducing costs, with a resilient, innovative supply chain department treated as a priority rather than an afterthought.
At VIE Healthcare® we have witnessed the gradual depletion of this function over the years. Hospitals need to focus on resources, training and hiring of new talent in order to rebuild and properly utilize this vital department.
Innovative healthcare organizations are creating new staffing models to support the impact of digitization and address challenges facing the sector. Creating a new talent model in this area requires commitment, a streamlined hiring process, ongoing employee engagement and effective investment in training.
When resources are allocated, the rewards are significant and I would suggest that it is not an area any healthcare provider can continue to overlook.
According to the National Healthcare Retention & RN Staffing Report, the average hospital employee turnover rate in 2017 (the most recent data available) was 18.2%, which is the highest recorded turnover in the industry for almost a decade. Only the hospitality sector has higher levels of attrition.
Employee turnover in healthcare is 18.2% - the highest recorded in the industry for almost a decade. Click To Tweet
Engaged staff are more motivated, deliver better patient care and stay with your organization longer.
4. Having a frontline strategy to combat vendor pricing
Supply chain leadership must adopt a frontline strategic approach to effectively manage vendor pricing. Negotiating with vendors should focus on cost-effective improvements that achieve significant cost savings and enable better patient outcomes.
At VIE Healthcare®, we often see the following common issues:
- Within the same hospital, the same vendor may have different contracts with individual departments, all at different prices.
- Too frequently, price fluctuations are either ignored or overlooked due to the pressures of running the hospital and delivering quality patient care.
- Annual renewals on many vendor contracts automatically update without review.
Invoice ROI™ from VIE Healthcare® empowers your organization to analyze your purchased services trends and track these costs in real time to deliver actionable intelligence.
That information can be used to negotiate cost savings and drive margin improvement on a monthly basis. But many hospitals lack the knowledge or expertise to negotiate effectively with suppliers.
The team at VIE Healthcare® is experienced at negotiating with suppliers to achieve the most competitive market prices for our clients while preserving relationships between your hospital and supply chain.
As margins continue to deteriorate the long-term viability of your hospital may depend on investment within your supply chain.
For a complimentary consultation, call our office today at 1-888-484-3332, Ext 500 or email us at [email protected].