How to Defend Against Growing Inflation

If you haven’t noticed, inflation is rearing its ugly head again. In 2010, the inflation rate was 3.4 percent, and it is predicted to jump five-tenths of a percent to 3.9 percent in 2011. This is a big jump from the negative two-percent inflation rate we experienced in 2009 with no end in sight. More importantly, how do you defend against growing inflation when your healthcare organization isn’t receiving these kinds of bumps in your reimbursement rates that can lag behind inflation by 12 to 18 months? Worse yet, your hospital, system or IDN might never be reimbursed at the current rate of inflation by your third-parties in any given year.

What is important to understand in these inflationary times is that you are not going to find the answer to this challenge by squeezing your suppliers for bigger discounts because their manufacturing costs are increasing at an accelerated rate due to the high cost of energy and raw materials. Your GPOs are hoping to bend the curve on inflation in 2012, but this doesn’t impact everything you buy or purchase under local contracts. These facts might seem like a zero-sum game, but it doesn’t need to be for your healthcare organization if you look for lower-cost functional alternatives to what you are buying or change your practices to defend and actually pushback against growing inflation.

For example, a client of ours just told us about a procedure at his hospital that he just discovered only requires one sterile glove to perform, but since a single-glove sterile package hadn’t been available his clinical staff opened a two-glove sterile package and threw one glove in the trash. Our client quickly solved this wasteful practice and saved hundreds of dollars a year for his hospital by buying a one-sterile glove package for this department’s use.

Another client of ours has a pilot program in progress to determine if going back to reusable packs and gowns, reprocessed by a national supplier, will save his hospital hundreds of thousands of dollars a year as projected. A third client is doubling efforts to reprocess even more physician preference items to lower their total cost of acquisition to disposition.

My point here is that even though inflation is cutting into your hospital’s profits, there are almost always hundreds of small, incremental and even substantial ways to substitute your current products with lower-cost functional alternatives or changing your practices to be leaner and more efficient. This should be a supply chain expense management priority today and in the future, since inflation is back with a vengeance and your hospital’s reimbursement won’t be going up any time soon.

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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