Assuming you are in tip top shape can be dangerous to your hospital’s financial health.
By Robert T. Yokl, Chief Value Strategist, Strategic Value Analysis in Healthcare, www.strategicva.com
A medical checkup, including diagnostic tests, is recommended annually in the hope to keep you in tip top shape. Similarly, a supply chain expense management checkup is recommended annually to ensure that you are optimizing and then realizing your supply expense savings potential.
The operative word here is “potential,” meaning “what is possible,” since too often supply chain managers only save just enough annually to keep their boss happy. Unfortunately, this practice won’t fly any longer in the new healthcare economy we live and work in. We need to save every dollar possible just to stay in the healthcare game.
There will be no room for half-hearted efforts!
Your supply chain expense management checkup should start with these diagnostic tests:
1: Total price saving dollars that are available in my total spend categories (products, services and technologies): This test can be accomplished by employing a spend manager or outsourcing this task once a year. It has been our experience that there is only 1%, 2% or 3%, at most, left in this supply expense reduction category.
2: Total standardization saving dollars that are available in my total spend categories (products, services and technologies): This calculation can usually be an internal measurement based on benchmarking or bidding of the commodities in question. For example, what would the savings be if you standardized on one or two pacemaker manufacturers?
3: Total inventory savings dollars that are available in my official inventories: This calculation can be determined by benchmarking peer hospitals with the same or similar characteristics as your hospital. For instance, you could ask a peer for their operating room inventory value per procedure annualized that you can compare to your own metric.
4: Total utilization savings dollars that are available in my supply spend: You can either hire a third-party to estimate these savings or use $15,666 per occupied bed as your metric. Example: If you have 105 occupied beds (on average) x $15,666 = $1.6 million (your savings potential).
Once you have calculated your overall potential savings (Figure #1), based on the aforementioned diagnostic tests, it is then just as important to determine the time, labor and cost of making these savings happen, by line item. This will give you an estimate of the timing, staging and implementation of your potential savings (Figure #2).
As rudimentary as these exercises seem, it will give your hospital, system or IDN the ultimate potential supply chain savings opportunities available to your healthcare organization over the next five years. No more mystery, guessing or prognostication. You will be on solid ground when your boss asks you how much can you save on supply chain expenses this year, next year, or multiple years for your organization. That’s what a checkup can do for you!
Figure #1: Hospital 5-Year Plan For Potential Saving Opportunities (105 OB)
| Category of Savings | Potential Savings |
| Price | $ 75,276.00 |
| Standardization | $ 86,982.00 |
| Inventory | $ 73,296.00 |
| Utilization | $ 1,600,000 |
| Total: | $ 1,835,554 |
Figure #2: Hospital 5-Year Timing/Implementation Savings Plan (105 OB)
| Categories of Savings | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Price | $ 75,276 | $10,000* | $10,000* | $10,000* | $10,000* |
| Standardization | $ 53,289 | $33,693 | -0- | -0- | -0- |
| Inventory | $ 53,296 | $20,000 | -0- | -0- | -0- |
| Utilization | $ 320,000 | $320,000 | $320,000 | $320,000 | $320,000 |
| Total: | $501,186 | $373,693 | $330,000 | $330,000 | $330,000 |