Uncovering Savings In Healthcare Practices

It’s a critical part of doing business. Gloves, wound dressings, bed linen, intravenous solutions, medication carts, cleaning supplies, cafeteria food, high-cost implantable devices — hospitals use supplies like these. The supply chain represents the second largest expense for health care providers, ranking second only to labor costs.
       
Although hospitals routinely look to supply costs as a way to help manage expenses, today’s health care reform efforts and reimbursement cuts call for hospital leaders to examine non-labor expenses more carefully than ever before.

Do untapped savings opportunities exist?  

In response to declining reimbursements, many hospitals are anticipating reductions of 20 to 30 percent in operating costs, leading to a renewed emphasis on decreasing non-labor expenses, according to Paul Kreder, a principal with Deloitte Consulting in Modern Healthcare. “In the last two years, with all of the dialogue around reform, we are seeing a change in how folks look at supply chain, and I would broaden that to include not just supplies, but supplies, drugs and purchased services,” he said.
       
When studying expenses within a health network, executives may only be considering about half of their total supply chain spend if they focus only on supplies. Expenses related to outside service contractors, commonly known as “purchased services” such as elevator maintenance, laundry and landscaping, are often overlooked, said Rick Grodin, senior vice president of product management for MedAssets in a recent article in Healthcare Finance News. “Most providers don’t write purchase orders for those services,” according to Grodin, and many hospitals don’t commonly use requests for proposals to hire local contractors. Also, tracking metrics may not be in place to quantify whether providers are getting the price points they were promised, he added.
       
Pharmaceutical shortage management may be another opportunity for hospitals to maximize supply chain costs. Pharmacy represents approximately 25 percent of supply chain materials and supplies, or about 6 to 7 percent of the total cost structure, stated John Barickman, executive pharmacist consultant for Pittsburgh-based Aesynt, a company offering integrated pharmacy automation solutions to hospitals. Centralizing pharmaceutical supply is a recommended strategy for larger integrated delivery networks, allowing supplies to be consolidated and distributed efficiently.
       
With bundled payments coming down the line, CFOs need to take out millions in costs and the supply chain is the logical place to start, according to John Cunningham, senior vice president of client operations for MedAssets. “The role of supply chain management is actually getting higher visibility within healthcare organizations,” he said.
       
Hospitals can achieve cost reductions through best practice supply chain and procurement processes. Placing a health care organization’s total supply chain spend under the microscope — examining the data that could lead to savings opportunities — is the first step to take. 

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