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
- Physician Preference
But also on the non-clinical side:
- Environmental Services
- Facility Management
- Financial Management
- 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.