Tag Archives: cost reduction

Why Standardization and Commitment in the Supply Chain Makes Sense

Brent-Johnson-Intalere-President-and-CEOby Brent Johnson, Intalere President and CEO

Today’s healthcare supply chain professionals are eager for frameworks that can assist them in analyzing and improving their supply chain for maximum effectiveness. One of the most direct and effective ways to streamline processes and reduce costs is through standardization and volume commitment.

Identifying and eliminating duplication, in some cases helping or guiding providers to use less of something or eliminating its usage entirely, is very important. By eliminating redundancies in supplies, facilities are better able to commit to, and contract with, suppliers to negotiate improved rates. Supply chain data analysis can also provide opportunities for the use of comparable products that can drive costs down dramatically. In many situations, similar products from different manufacturers can be reviewed and declared comparable. The best price then becomes a leading differentiator. Also, in some cases, the same product by different distributors can be found at different costs.

As you begin to work through a standardization strategy, early on, it is generally smart to stay focused primarily on med-surg categories where price is the primary differentiator, and aggregation is the correct strategy. Further, leveraging a standardization strategy for these types of categories can help your organization deploy internal resources to other value-added areas.

In addition to direct cost reduction through better pricing, standardization will also bring down the number of SKUs present within your system. Each SKU stocked within a system adds inventory and maintenance costs. Reduction in SKUs helps reduce the overall expense of inventory management activities, and helps increase supply chain effectiveness.

Finally, product standardization is a platform upon which practice standardization can be built. Less product variation can aid clinicians in improving clinical efficacy through increased familiarity with a single product. It also decreases the need for cross training across different product lines at different system facilities.

Personal preference on certain items does not assist in reducing costs or necessarily ensure a better patient experience or better outcomes. While some exceptions are valid in individual cases, the reasons why individuals or departments deviate from standardized purchasing practices are usually subjective and not grounded in evidence. According to Intermountain Healthcare’s Dr. Brent James and several other nationally-recognized experts on variation, inappropriate variation is a known cause of poor quality and outcomes.

For an in-depth look at how a standardization and commitment program can bring cost reduction and better clinical results, read this success story on how Intalere collaborated with owner Intermountain Healthcare to bring nearly $3 million in savings, process improvement and enhanced clinical outcomes.

Member Best Practice Spotlight: Intermountain Healthcare – Category Captainship Provides Strategic Relationship and Benefits for Provider and Supplier

The Intalere Member Best Practice Spotlight continues its focus on the supply chain this month. Next up is Intermountain Healthcare’s Category Captainship program.

Issue:

In today’s dynamic reality of healthcare reform, hospitals are charged more than ever to reduce costs, while simultaneously increasing value and improving patient outcomes and satisfaction. Because every child has individual needs, there is a variety of infant and pediatric formulas from which to choose. Intermountain Healthcare was purchasing various pediatric formulas from three different suppliers and wanted to look at consolidating the purchasing process.

Solution:

Intermountain had an opportunity to adopt their suppliers as a collaborative extension of their own staff, ultimately sourcing them not only for product offerings and price, but also for cost reduction opportunities and value propositions. Thus, in addition to conducting a review of the various types of formulas and their indications for use, Intermountain also introduced the concept of Category Captainship. Abbott Nutrition was selected as Category Captain for infant nutrition. As Category Captain, Abbott ensures Intermountain always has the correct product for the need of the patient, even if the product is not made by the company itself. If there is a disease-specific or specialty product that is only made by a company that is not the Category Captain, they are required to permit the use of that product when needed. In addition, by primarily offering only one formula brand, Intermountain staff will remain focused on their commitment to breastfeeding initiatives and not feel a need to discuss various formula options with patients.

Outcome:

Selecting one company to be the infant nutrition Category Captain, and therefore standardizing to their product line, has reduced the number of products and costs the distributor, facility store rooms and floor locations, carry and manage. Previously, Intermountain’s annual spend for infant formulary items formula and ancillaries was $1.6 million. After program implementation, Intermountain saved over $400,000 (25 percent savings) due to item consolidation, price negotiation and new formulary protocols.

About Intermountain Healthcare

Intermountain Healthcare, headquartered in Salt Lake City, Utah, is an integrated delivery network (IDN) of 22 hospitals, 186 clinics, a health insurance arm and home health care operating in Utah and Idaho. It was founded in 1975 and now leads, endorses and sets leading practices by using evidence-based medicine to deliver outstanding patient care that earns recognition from business, healthcare, finance and political sources.

Read more Intalere member success stories now!

Cost Reduction – Deeper Value Beyond a Portfolio

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By Dale Wright, Senior Vice President of Contracting, Intalere and President, Intalere Choice

A healthy and sustainable operating margin is vital for every healthcare provider. In maintaining that margin, optimizing the supply chain is of critical importance, not simply through cost of products, but through identifying new revenue streams and identifying all opportunities to improve efficiency and achieve savings by prioritizing opportunities and matching initiatives to the organization’s strategic plan.

What are some of the keys to cost reduction in the healthcare supply chain to consider?

Access to a comprehensive, competitive portfolio of product and service contracts – Whether you work with a group purchasing organization (GPO) or not, the depth and breadth of contract portfolio you have access to can offer a clear advantage. Without a contract for coverage, you may be forced to:

  • Negotiate directly with suppliers – given the limitations of resources in many materials management departments, this can be a huge drain on efficiency and resources.
  • Use a different product/manufacturer, if clinically acceptable this would require time-consuming evaluations and assumes a different product/manufacturer is readily available.
  • Pay a higher price

 Not just on the clinical side, with things like:

  • Diagnostic Imaging ​
  • Laboratory
  • Medical/Surgical
  • Physician Preference
  • Pharmacy

 But also on the non-clinical side:

  • Office  
  • Environmental Services
  • Executive
  • Facility Management  
  • Financial Management
  • Foodservice
  • Information Technology (IT)
  • Telecommunications Services and Equipment

Standardization, Utilization and Volume Commitment – Identifying and eliminating duplication, in some cases helping or guiding members to use less of something or eliminating its usage entirely, is very important. Supply chain data analysis can also provide opportunities for the use of comparable products that can drive costs down dramatically. In many situations, similar products from different manufacturers can be reviewed and declared comparable. The best price then becomes a leading differentiator. Also, in some cases, the same product by different distributors can be found at different costs.

To take it a step further, if providers are willing to standardize and also commit a high volume to a supplier or distributor, they can drive further savings.

  • Custom Contracting – Health systems, integrated delivery networks (IDNs) and regional health alliances can also take advantage of custom contracting to maximize savings in high-impact areas. You can engage your GPO to handle the RFP, office and back-office activities, assist with identifying target projects, help evaluate suppliers and monitor contract compliance. Each custom contract represents a unique savings agreement that gives your organization a competitive advantage.
  • Physician Preference Items – Even more significant to the overall success of the supply chain is the effective management of clinical preference items, with their significant cost and impact to the quality of services delivered to the patient. Efficient value analysis processes will ensure that all bases are covered with regard to high tech and high touch healthcare products, including reimbursement, safety, education and clinical credentialing, product standardization, appropriate utilization, and finally, and most importantly to the organization’s cost structure, compliance with negotiated contracts and agreements. 
  • Data and Business Intelligence – Any successful supply chain initiative must be based on good data and tools that can help you  analyze daily spend and provide workable and actionable information to effectively manage costs. This can encompass every supply chain function, including the basics such as contracting and price integrity, e-procurement, inventory control and distribution efficiency that will ensure high quality and cost effective product availability and delivery.

For more insight on the importance of reaching beyond the portfolio to enhance cost reduction, view this video.