How to Bend the Cost Curve

Doing the same things, even much better won’t bend your cost curve on supply chain expenses

Can your hospital, system or IDN maintain the same cost structure, as years past, in the new healthcare economy? The answer is absolutely, positively “no” if your healthcare organization wants to survive and thrive under the Patient Protection and Affordability Care Act mandates.

My observation is that too many healthcare organizations are stuck in their old ways and won’t change even as their financial strength is weakening right before their eyes. It’s just not enough to do the same things, even better, since this won’t bend your healthcare organization’s cost curve.

In particular, I see hospitals, systems and IDNs doing business as usual when it comes to approving new purchases. We see healthcare organizations adding as much as 25 percent in new commodity purchases each quarter. This is an unsustainable practice, which must be reversed if your hospital, system or IDN’s supply chain expense budget is to be effectively controlled in line with your revenue streams.

For starters, this means your old value analysis model needs to be realigned with these three best practices:

  • Only budgeted and vetted new requests will be considered for evaluation: No longer can you accept a new product, service or technology request for evaluation if it hasn’t already been pre-approved (by line item) in the requesting department’s budget. This is a powerful technique that will eliminate most of your new product, service and technology requests in any given year.
  • Quantify savings or quality improvements on each new product, service or technology evaluation: If a commodity has been approved in a department’s budget, then you must quantify the savings or quality improvement. If there isn’t at least a 5 percent savings or quality improvement, the product, service or technology should be rejected – out of hand. We aren’t in the business of buying products, services or technologies just because a department requests them. They must have an impact on your healthcare organization’s bottom line, or you are just adding unnecessary expenses to your healthcare organization’s cost structure.
  • Subtract all new purchases from your savings report: To put a spotlight on the impact of all new purchases, you need to deduct the annual cost of these purchases from your savings report which will than represent net savings – going forward. This will raise your consciousness on the impact of approving new purchases for your healthcare organization. Once you see that your savings are being quickly diluted by new purchases you won’t be so keen to approve new purchases.

These might seem like harsh practices at first glance, but they are the new reality in this era of healthcare reform we live and work in. No longer can we routinely approve new purchase requests and feel we have done our job. We must break this cycle of approving 80 percent of what is requested or we will see our healthcare organization’s bottom line shrink beyond repair. This way you bend the curve on your supply chain expenses, by being super vigilant, data driven and hyper procedural about what you are approving for purchase. In short, make it tougher than ever before to get a new requisition approved.

Robert T. Yokl About Robert T. Yokl

Robert T. Yokl is president and chief value strategist of Strategic Value Analysis® In Healthcare, which is the acknowledged healthcare authority in value analysis and utilization management. Yokl has nearly 38 years of experience as a healthcare materials manager and supply chain consultant, and also is the co-creator of the new Utilizer® Dashboard that moves beyond price for even deeper and broader utilization savings. For more information, visit www.strategicva.com. For questions or comments, e-mail Yokl at bobpres@strategicva.com.

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