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Patricia A. Yokl
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When I’m giving a seminar, workshop, or masterclass, I am often asked, “What happens if you run out of price savings?”. Some of the typical answers that I hear from supply chain professionals in attendance is that they would squeeze their vendors even harder, change their group purchasing organization, or take early retirement.
Well friends, this question isn’t a hypothetical one any longer. We are now hearing from our supply chain and value analysis community that they are running out of price savings. In fact, their vendors (even if under a GPO contract) are stating that they are going to raise their prices immediately to cover their shortfalls brought about by the pandemic. However, this doesn’t mean the savings game is over.
Your healthcare organization still needs supply chain expense savings each year just to keep pace with inflation which is running 8.5% as I write this article. So where are these new savings going to come from? The answer to this dilemma is savings beyond price, specifically, value analysis and supply utilization savings!
A little known secret is that value analysis practitioners have only achieved savings at the tip of the iceberg. There are millions of dollars in achievable savings below the water line with a VA technique known as functional analysis (or analyzing what a product, service, or technology does). This is accomplished by value justifying the functions (primary, secondary, and aesthetic) of the products, services, and technologies you are buying. You will be amazed at what is absolutely, positively required vs. what has actually been specified over the years. When you get inside your contracts, you will find that there are lower cost alternatives all over the place that will dramatically reduce your costs and be GPO friendly.
In addition to value analysis savings, supply utilization management is the strategy to opening up a whole new area of huge supply expense savings for your healthcare organization in the range of 7% to 15% of your supply budget. Your utilization misalignments (or wasteful and inefficient consumption, misuse, misapplication, and value mismatches) are also eating into all of the price savings you have achieved over the years. So, when you think you are running out of price and standardization savings, don’t forget that savings beyond price savings are there for the taking.
By Robert W. Yokl, Sr. VP, Supply Chain & Value Analysis SVAH Solutions
Saving money is now back in as a priority at healthcare organizations whose bottom lines are taking a beating due to inflation (over 8.5% as of the writing of this article) and continued fallout from the Covid 19 Pandemic. Those who have been through this in the past know that the key to being a strategic asset to your CFO is to be organized to save which is the hallmark for making big savings happen. I have outlined below strategies that I highly recommend you consider when you engage in your savings program.
1. Look for Big Savings on the Road Less Traveled (Biggest Bang for Your Buck). Let’s face it, the only road less traveled in the healthcare supply chain for major savings that is left is in clinical supply utilization management. This has been left virtually untouched until now. Most healthcare organizations have no formal methods, reporting, or KPIs to go after this major area of savings that our 15 year studies and trending show to be between 7% and 15% of total supply budgets. The good news is that you can start to put a CSUM program in place today. Remember, you need to have solid patient centric volume based cohort benchmarking, KPIs, and other reporting beyond just what you spend on a product category to ensure that you efficiently make savings happen on every CSUM project.
2. Make Sure You Have Fully Realized and Sustained the Savings You Already Have. The worst thing that could happen to any savings program is to have savings in the bucket but then have it leak out, or worse, never materialize at all. All the work that goes into negotiations and value analysis for your contracting and standardization programs should not be for naught because you did not follow up and validate the savings. There are also major advantages to validating savings after the fact. Most importantly, you will find in many categories that the savings have far exceeded the savings projection from implementation. Why not take credit for it, right?
The major factor here is that when you enact changes to your supply chain and with your end customers (clinicians, support staff, etc.) there will be unintended consequences that can occur and inevitably will affect your savings results. Why not first validate that your savings are real but then also ensure that these savings are sustained. The best part about performing savings validation so soon
after implementation is that if you find it is off, you can refer right back to the original implementation steps for your solutions.
3. Back Off New Product Requests. Any way you look at this, new products equal increased costs in the categories that you are adding them to. Traditionally, 10% to 17% increase in costs can occur in these new categories. While you are working on your savings program, you will need to put a pause on new products that will increase your costs. This may not be a wholesale shutdown of new product requests as there may be some that could be lower cost alternatives or offer added reimbursement that you would want to consider. Anything that increases costs must be put on hold or not reviewed until your CFO gives you the all clear to address these new products.
4. Start Strategically Planning Your Savings Opportunities. We had a large university teaching organization that set a one year goal of saving $40 million in non salary savings. What was their secret sauce in this endeavor? They dived into their savings goals with a plan and they made it happen! Just like planning for a new inventory system or ERP Purchasing System, you should have planning in place for your savings opportunities. Most organizations have to look out for what is coming down the road with their contracting, but most times don’t really know what the net result is going to be until much closer to the new contract engagement or RFP process. This does not mean you cannot try to project where your savings are coming from in these areas.
Let’s not forget that there are other areas for savings, like clinical supply utilization management mentioned above, but also areas that you may not know about but need to. One area is all of the individual departments that still handle some of their contracting and may have savings that they know are coming up in the future. Poll, survey, or just plain ask them what their new savings opportunities are. If it is non salary related, you should start trending it.
5. Give Your People Training in the Latest Methods of Saving Money. It would be silly to think that every person in your supply chain organization, as well as those department heads who sit on your value analysis teams, know everything there is to know about next level advanced cost optimization. If we want new and better results, we have to make sure that our teams are trained with a strategic focus on the areas that we believe we are going to get the biggest savings opportunities from.
Case in point, in a conversation with a well respected AHVAP Leader, she mentioned that value analysis professionals do not focus on true utilization other than projecting the spend and how much they are going to save for implementation. So, if your VA people are telling you that they can handle next level advanced cost optimization, think again. They may need to have more training to not leave any money on the table for your organization.
The most important takeaway that you should keep in mind is that in order to take your organization to a whole new level of cost optimization, you need to have multiple strategies and methods to reach a new level of savings. The option to just grind on price and standardization is not the same ROI as it used to be. You now need to add more Ace’s up your sleeve to ensure that you meet your savings goals for the next 3 5 years.
value analysis throughout all those years along the way.
HVAUM: Tell us about your experience and how you got involved in the healthcare supply chain and value analysis world.
WB: I'm relatively new to the healthcare world but I was originally on a healthcare path which started when I was in college, having completed my undergraduate degree in genetic cell developmental biology. I was then pre med and was later accepted to medical school. I was intending to go through with it but then made a very strict left hand turn that led me into the supply chain world. It was kind of by accident. I originally started with food supply chains, working with organizations like Starbucks and Trader Joes, and then moved over to Kraft Heinz. My supply experience was all on the food side but then progressed into healthcare. There were a lot of similarities with all of the restrictions, rules, and regulations that you have to follow because food and healthcare supply chains are all regulated by the FDA. I've been in the supply chain for about 10 years now and performing
A good example of working in the value stream or value analysis is with Heinz. At Heinz you have teams of people in which value analysis is their entire thing. If you're producing ketchup at Heinz, it is at their Ohio plant. Like value analysis teams at hospitals, you have supply chain optimization teams at Heinz. Their purpose is working towards how we optimize our supply chain so that we have the tomatoes planted when they need to be planted so that they're picked when they need to be picked, then processed into paste at the optimal time, and transported to arrive on time. That's where they are working the value stream of that entire process so that everything works when it has to work which is most important.
HVAUM: How do you envision supply distributors like Caresfield and value analysis teams work together to bring more value and quality to healthcare organizations? Could you give us some examples of value analysis successes that help formedthis vision?
WB: There is huge value in Caresfield working and facilitating projects with value analysis teams. For example, one hospital system we work with has their primary and secondary hospitals but also a huge network of clinics and outpatient centers. Case in point, this health system’ s hospitals are going to have their primary lab
specimen labels for each one of those major facilities, as well as a few labels for their outpatient facilities. We work with value analysis teams to help them take all four, five, or even six labels that are performing the same lab function down to just one direct thermal label with adhesive from a preferred manufacturer. You would be amazed at the price discount your manufacturer would give you just because you've reduced the complexity. We’ve helped them to now order their primary lab label products in bulk. They can set up one press and just run the press once to specifications. We help the label manufacturer eliminate waste. Every time they set up a small wet press, you get anywhere from four feet to 2,000 feet of waste just to start up the press. By helping them reduce those setup and production costs, our health system reduces their end pricing in this process as the savings are passed along the value stream.
HVAUM: Do you see more supply chain distributors working side by side with Value Analysis Professionals and their teams as a strategic partner versus “Just the Distributor?”
WB: It depends on the hospital system you're working with as well as the product you're working with. If you're dealing with a tourniquet, a needle, or a specimen cup versus a simple print label, then it clearly is patient related and falls to value analysis. Though, a lot of the labels will go through IT because they'll just claim that is IT’ s realm and that's it. On the Value Practitioner side of it, they'll claim anything patient related as well as patient safety. We then work with the value analysis teams and nurse leaders for the health system on the patient related product project as well as IT.
In most patient related cases it's always different
who we end up working with in a health system or hospital. It ranges from a floor nurse to your Chief Nursing Officer that we are dealing with. They've got patients to actually care for, and let’ s face it, they don't want to talk to me about how we manufacture a better label for them. They just want the better label for their staff and patients. We go to all levels to meet our customers’ requirements.
HVAUM: Do you train (or if not plan to train) your account executives in value analysis strategies and techniques to better serve your customers and their value initiatives?
WB: We have different models depending upon the maturity of a health system’s value analysis teams and approach to value analysis. Yes, we kick things off with our sales rep who leads the account management process for our client health systems and hospitals. We tend to not have as much involvement in hospitals with very good value analysis teams, as they tend to dictate the requirements of the product offerings to the account rep who works to meet those at the lowest cost and good quality. For hospitals that require more assistance, we will then engage further in the value analysis process with them and help them better understand their requirements and develop cost effective options. I actually prefer us becoming more engaged in the value analysis process. It makes the most sense for us because we employ supply chain optimization best practices and keep ours and our customers’ costs low.
We go to all levels to meet our customers’ requirements.
When managing medical device notices and recalls for a healthcare organization, it can seem like a daunting task. According to Sedgewick’s Recall Index, Edition 2 for 2022, recall events in Q2 increased 34% from the previous quarter, with safety concerns ranking as the leading cause of recalls, twice as many as compared to Q1. The number of recalls generated each year has been consistently increasing and this trend is expected to continue. Depending on the type and size of the organization, the number of recall notices received can vary from less than 10 to over 5,000 a year, many of them repeat notifications.
The purpose of any recall, voluntary or mandatory, is to “protect the public health and well being from products that present a risk of injury or gross deception or are otherwise defective” (FDA 21CFR 7). The number of Class I recalls in Q2 was the highest it has been in over 15 years and increased 23.5% from Q1. Yet, with so many other pressing issues, like supply chain disruptions and staffing shortages, recall management may not rise to the top of an organization’s priority list. But what could be more important than patient safety? Healthcare accrediting agencies recognize the important role that proper recall management plays in providing a safe patient care environment and acknowledge its importance by incorporating it into their standards (i.e., The Joint Commission Standard EC020101, EP11 for all healthcare settings).
’t Know Can Hurt You - and Your
While some organizations have a fairly robust process, others have no defined process at all. And the consequences of not complying with a recall can be severe, including sanctions, loss of accreditation, financial liability, or damage to an organization’s reputation. An effective recall management process is a necessary patient safety initiative for any healthcare organization. What components are essential to developing a comprehensive and successful recall management process?
First, an organization must have the support of leadership to guarantee that a recall management process is properly defined, implemented, and sustained. This will also ensure that the required resources will be allocated to this process and an environment of awareness and accountability is promoted when it comes to addressing recalls.
Another important attribute of an effective recall management process is just that having a defined policy and process that starts from the time the alert is received to the final handling/disposal of the affected products. The policy needs to define who has responsibility for the oversight of the process and for each of the steps along the way; the structure of the process (centralized or decentralized); a standardized workflow that will be followed in responding to notifications; the required documentation of the process; and the auditing for compliance, including metrics. The training plan for employees should also be outlined in the policy. This policy should be reviewed and updated regularly to incorporate new regulations and feedback from key stakeholders.
Like anything else in healthcare, if it wasn’t documented, it wasn’t done. Another essential component of recall management is the maintenance of accurate and accessible documentation, stored in a central repository to allow for reporting to internal committees and external regulatory agencies such as The Joint Commission. A spreadsheet or scanned copies saved to a shared drive is not adequate to show compliance to a defined process.
Metrics are necessary to determine the efficacy of any process and recall management is no exception. Timeliness of response, completion rate, and number of patients or patient care practices affected could provide valuable insights into how efficient and effective the process is and where improvements can be made. Metrics also allow for the opportunity to celebrate successes for the work being done by the team.
Effective recall management involves many disciplines and departments within an organization along with the requisite diligence and oversight of the leadership team. Any delays in the process can put patients at an increased risk of being adversely affected by recalled devices. Recall alert management should be embraced as an essential patient safety initiative regardless of an organization’s size or scope. Healthcare organizations need to be strategic and innovative, gaining collaboration from all stakeholders to tackle the challenges of recall management. Stay tuned for future articles where I will continue to discuss additional medical device recall management strategies.
Tracey Chadwell
Tracey Chadwell has 30 years of clinical and supply chain experience driving clinical and operational performance improvement, demonstrating significant returns on investment through clinical utilization management of resources and operational cost savings. Her experience covers aspects of supply chain including data analytics, operational efficiencies, internal and external customer relations, GPOs and contracting, and consulting in these areas. Her experience in value analysis includes leading a program, developing or refining existing programs, and implementing millions of dollars in savings through various healthcare organizations. This included operational and clinical process improvement programs which contributed to cost savings in both labor and non labor expenses.
This year, Tracey started her own consulting enterprise, TACH Consulting. Prior to joining that, she worked as a senior director of the clinical advisory specialists for Intalere, serving as an SME and trusted advisor to their members, as well as providing consulting services in supply chain and value analysis. In addition to her 10 plus years as a bedside nurse and manager, she has also worked as a consultant for value analysis and service line analytics for two large GPOs.
Tracey has also been active with state healthcare organizations in all classes of trade, providing educational presentations and advisory services. She has appeared on several podcasts, such as Power Supply and The ASC Podcast as well as several industry blogs. She is a member of the Association for Healthcare Resource and Materials Management (AHRMM) and the Association of Value Analysis Professionals (AHVAP).
Life cycle cost (LCC) can be defined as the sum of the total cost of a product, service, or technology over its lifetime. For example, think of a car with an average life of eight years or 150,000 miles. The price quoted is only the initial cost of the car, not its running cost over eight years. To obtain this calculation you must add your car’s insurance, interest, gas, oil changes, preventive maintenance, and service over eight years, less its estimated trade in value to get the full picture of any car’s LCC.
Similar to my car example, you add the initial and running costs (see figure 1) of the product, service, or technology under investigation over the estimated life of the commodity, then subtract the value left after its useful life.
Figure
Robert T. YoklYou will note after examining this calculation that the in use cost of an IV infusion pump is 51 times ($308,032/$5,982) more than the initial cost of the IV pump. That’s why we preach that your savings job isn’t done when you obtain the best price for the commodity you are buying. It is just the tip of the iceberg! You need to drill down even deeper if you want to wring the towel dry on your life cycle cost savings.
Life Cycle Cost Analysis (LCCA) is the assessment of the total cost of ownership (acquiring, owning, and disposal of a product, service, or technology) over its lifetime. The goal is to reduce operational cost, eliminate waste and inefficiencies, and increase the life span of the commodity. Going back to our IV infusion pump example, we often discover while performing LCCA for our clients wasteful and inefficient consumption, misuse, and misapplication of their IV sets that can represent as much as 50% of their life cycle cost. That’s why it is mission critical that LCCA is performed on every commodity with an annualized spend of $250,000+.
Now that you understand the concept of LCC, how do you integrate it into your value analysis model? The answer is to measure your LCC outliers with a technique called Value Analysis Analytics (or the extensive use of data, statistical and quantitative analysis, explanatory, predictive models, and fact based management*) on each commodity you purchase with an annualized spend of $250,000+ to determine the best candidates for LCCA. Then add one of these LCC outliers to your value analysis agenda each time your VA team meets. Then assign a VA Project Manager to perform the LCCA over a 90 day period and report back their results. You will be amazed at the results of the life cycle cost assessments.
(*) Definition by Thomas H. Davenport, Competing on Analytics
Measure your LCC outliers with VA Analytics on each commodity you purchase with an annualized spend of $250,000+ to determine the best candidates for LCCA.
Robert T. Yokl, President/CEO, SVAH Solutions
To stay ahead of the curve, we have always searched out advanced management techniques that could improve our hospital, system, or IDN client’s supply chain/value analysis performance. We started this practice when we discovered that most new supply chain/value analysis innovations are tested, refined, and proven in industry before they are eventually adopted at healthcare organizations. We would like to share with you one of these best practices we have identified that we believe will greatly improve your value analysis team’s performance. It is called key performance indicators.
Key performance indicators or KPIs are employed to quantify, measure, and monitor your value analysis performance. This way your value analysis teams will have goals to shoot for, milestones to meet, and then gain vital insights into your healthcare organization’s supply/value streams. For example, how would you know if you were spending three times as much historically for your orthopedic cement, that you were utilizing 27% more bath blankets than your peers, or that your VA team’ s meeting absenteeism is twice more than it was six months ago? The answer to this question is that you wouldn’t know unless you employed KPIs in selected operational categories (usually mission critical)
to ensure the success of your supply value analysis program. With this said, here are five additional reasons why we believe KPIs will optimize your value analysis team’s performance almost overnight:
1. Help Establish Goals and Objectives: All high performance value analysis teams that we have trained, coached, or observed have annual goals and objectives that they have agreed too. These goals and objectives are a mix of savings, quality, and outcomes that keep their VA team members engaged and moving forward, all because they are measuring and managing their outcomes. It starts with establishing key performance indicators.
2. Pinpoint Target Savings: Key performance indicators can help your VA team(s) identify where your best savings opportunities reside by quantifying, measuring, and monitoring the waste and inefficiencies in your supply/value streams, such as, how the cost of your office supplies per patient day is twice that of your peer cohort group.
3. End Learning Gaps: Based on our empirical experience, 20% of all product misuse or misapplication is due to lack of training of clinical staff; therefore, your KPIs can help your VA team(s) be made aware of what clinical departments require remedial training on certain product categories.
4. Detect Unfavorable Trends: By monitoring your KPIs over time, you can spot favorable and unfavorable patterns and trends that your VA team(s) need to investigate, like your reference lab cost per test increasing by 33% in one year.
5. Better Decision Making: If your Surgical Value Analysis Team knew, because of a KPI you had initiated, that their operating room packs were being utilized at a higher rate than normal, wouldn’t they decide to investigate why this is happening?
If you are looking for a surefire management technique to help your value analysis team(s) to get better than just good, then we would highly recommend that you investigate further by employing KPIs to quantify, measure, and monitor those things that are mission critical to the success of your value analysis program.
By Robert W. Yokl, Sr. VP, Supply Chain & Value Analysis SVAH Solutions
Everyone is back in saving money mode in a big way, but many of the streams of savings have fallen off or fizzled out altogether. That does not mean that there are not major savings still left in the healthcare supply chain, because there are. Most healthcare supply chain pundits and afficionados agree that the next big wave of healthcare supply chain savings is about to happen. This is right at your fingertips, but in order to gain this next level of savings you have to position your organization for the big wins.
Ten years ago, we used to call the perioperative and procedural areas at a hospital the last bastion of supply chain savings due to the nature of the physician preference item complexities, standardization conformity, and associated vendor negotiations. Now, in 2022 and beyond, most organizations have already wrung the towel dry on the majority of perioperative savings that were there 5 10 years ago. So, what is left that will take organizations to the next level of savings that they so desperately need? The answer is simple, clinical supply utilization management (CSUM) or the optimization of the consumption, waste, in use costs, and life cycle value of the products, services, and technologies that you buy.
SVAH has long been consultants, trainers, coaches, and software providers to health system-based value analysis programs. We would provide all of the savings opportunities to the teams that we would assist in setting up. This is something we have done for years, but then we started finding something
Robert W. Yokl
different, something that was not GPO pricing or standardization, but savings beyond price. Through our normal key performance indicator reporting for teams, we found these anomalies that were bigger savings than we ever found on a GPO contract. The more we reported on these savings, the more we found that these savings blew away the normal savings that hospitals get through their GPOs, and we knew this was the next wave of supply chain savings.
1. How do we know if a nursing unit is selecting the three-port power PICC 95% of the time when it should only be used about 20% 30% of the time? A $58K savings at a 232 bed Medical Center.
2. How do we know if nursing units are changing 48 72 hour wound care dressings in less than 24 hours? A $52K annual savings at a 190 bed Hospital.
3. How do we know that the ED is using too many disposable sensors when they triage a patient? $380K savings at a University Teaching Medical Center.
Since you don’t have any reports on your desk or on your computer to tell you that this is happening, this is a case of “you don’t know what you don’t know.” At this time in the healthcare supply chain, we need to take the next step and realize that there is something different other than your contract pricing and that you can find as much as 7% to 15% of total supply budget beyond price. There are so many savings that once you go down this road you will find that you will be able to make the big savings happen right away that your CFO wants for the budget right now. It will also power your savings machine for a minimum of the next 3 5 years because there will be so many opportunities for you to find continued savings.
There is a simple system that we have been employing for many years with our software that has been highly effective which features using patient centric volume based benchmarking and key performance indicator reporting. We call this a baseline. This baseline will let you know how much, where, and what category to answer the savings question. Next, you are going to need to know how to go about making changes that won’t affect your quality of patient care but will yield big savings in every category you address.
Let’s just say all the pieces of the puzzle fall into place and all your savings opportunities from CSUM fall into your lap on a silver platter, so now you know where millions of dollars in new savings are and better yet how much each category can yield. Just knowing where all your savings are hiding does not mean that you will realize these savings right away. Why is this?
Most organizations are not set up to be able to go after major CSUM savings initiatives nor would they really know what to do in order to achieve all the savings and not leave any money on the table. They can’t just go to the supply chain department and tell them to find us a better mouse trap because that is not how CSUM works. It’s about understanding how the customers are utilizing the products that they use every day.
CFOs are aware that supply chain has done a great job in wringing the towel dry on contract price and standardization opportunities. This next level of CSUM savings is not the responsibility of supply chain or value analysis but lies with the end customers. Supply chain’s responsibility is to, like contracting, facilitate the knowledge to the clinical and non clinical departments to help them understand that corrective action is needed.
How Do We Deal with the Fallout from the Clinical Departments? There has always been a bit of reluctance to challenge clinicians and other departmental customers with regards to how they are using the products they use to take care of patients every day. Once again, they don’t know whether they are using too many wound care dressings or selecting the wrong PICC from the cart, let alone that it is increasing costs in those categories by over 40%. Clinicians are evidenced based and if you were to provide them with solid evidence that they are over-consuming more than their peers or historically or both, then they will start to work with you.
Start with the Low Hanging Fruit First. The good news is that once you launch your program and put a solid baseline in place there will be low hanging fruit that will be easy for you to optimize and save big with.
What About Our Value Analysis Program? Value analysis is really the engine that can assist your clinical departments with their cost optimization, especially if you have baseline reporting set up for your value analysis teams to work from. Without any reporting, value analysis teams are flying blind and would not know where to focus their attention, but with it they can use their value analysis process to make the savings happen.
This is 2022, You’ve Got This!
Remember, clinical supply utilization savings have been sitting in your supply chain for decades with no one doing anything about them forever. This is not the case any longer! This is 2022 and you have the data, the people, and the understanding to launch a successful CSUM program that will power your savings machine just like the GPOs have been doing for the past two decades. You’ve got this!
We went through almost two years of supply and labor shortages (not that these challenges are entirely solved) during the pandemic and now we are dealing with rampant inflation that is taking the wind out of our sales. Yet, what seems to have taken a back seat during these trying times is that “cost is our enemy and we must always be on the attack.”
Before the pandemic, supply expense cost management was one of our primary missions in supply chain/value analysis, but now it seems to be of secondary concern. There seems to be an assumption that most supply chain professionals believe that their group purchasing organizations’ offerings have their supply expenses under control. Nothing could be further from the truth!
What most supply chain professionals don’t realize is that price is the smallest element (minimum 1:250 ratio) of the “Supply Expense Savings Triangle” (Figure 1) whereas customization and utilization is where the optimal savings opportunities reside for your healthcare organization. Let me explain in detail what I’m talking about.
Figure 1
Robert T. YoklCustomization is a technique where you don’t standardize on one product, service, or technology, but instead you tailor the product, service, or technology to your customer’s exact requirements. By applying this strategy, you will discover that your vital few customers (20%) will have higher or different requirements, while the majority (80%) of your customers will have lower or consistent requirements which translates into overall lower cost vs. standardizing on one product, service, or technology organization wide. For example, we had a client that standardized on nitrile non allergenic gloves (.19 each vs. 0.9 for latex) house wide when only their hypersensitive employees required these expensive gloves. Once a policy was put in place by this hospital on who should be using their non-allergenic gloves, our client saved thousands of dollars annually through this customization, not standardization. You might think this concept is upside down, but the proof is in the new savings on each product, service, and technology you are purchasing.
Supply utilization management (SUM) on the other hand is the measurement, monitoring, and control of the wasteful and inefficient consumption, misuse, misapplication, and value mismatches in a hospital, system, or IDN’s supply streams. Historically, we have documented SUM savings of one million dollars per 100 occupied beds for our clients who embrace this concept. Case in point: A university teaching hospital client of ours is projecting $500,000 in implemented SUM savings for their new laundry/linen service contract based on KPI metrics that we provide them compared to their peer cohort. These SUM savings are just the tip of the iceberg!
The consulting firm Kaufman, Hall and Associates (KHA) predicts that “2022 is shaping up to be the worst year financially for U.S. hospitals and health systems since the beginning of the COVID-19 pandemic.” KHA also reported, “Hospitals and health systems saw gradual improvement in recent months but inflated labor cost, aggressive staff hiring, and prolonged hospital stays from sicker patients…reverse any gain hospitals saw this year.” That’s why your supply chain expense savings this year is mission critical for the financial viability of your healthcare organization. As we see it, the best way to make these new savings happen beyond price is through customization and utilization management. Your GPO’s contract savings in 2022, if any, will be meager, insufficient, and inadequate to fill the holes in your healthcare organization’s operating budget.
