Already picked the low-hanging fruit in your supply chain? Our experts tell you how to shake the tree. By now, most hospitals have already taken a first pass at cutting supply costs—joining group purchasing organizations, forming value assessment teams, and standardizing commodities. But there is still work to be done, say supply chain experts. 

Below, two of those experts, Wes Champion, senior vice president of Premier Consulting Solutions, and Robert Davis, founder of Resource Development Associates, identify some of the processes that can lead to significant savings along your supply chain.

To see whether you’re squeezing the inefficiency out of your supply chain, ask yourself the following questions. 

1. Are the hospital’s top leaders engaged? When the chief medical officer, CFO, COO, and even CEO start talking about the supply chain, the rest of the staff will pay attention. From big-ticket equipment to small items, everyone has a role to play—so tell them. “In hospitals today, the supply chain is much more integrated within the organization,” Champion said. “What used to be referred to as director of materials management now may be the vice president of supply chain.” 

2. Are you maximizing your group-purchasing contracts? “I’m amazed that even today, when GPOs have been around for a long time, people don’t use their contracts to get the best prices they can,” said Champion, whose division of the Premier healthcare alliance garners 95% of its customers from the company’s GPO. The fix could be as simple as documenting the correct number of an item purchased to qualify for a higher tier of savings.

3. Have you gone beyond commodities to physician preference items? After the cotton balls and suture kits have been identified and benchmarked, it’s time to direct your attention to surgical implants and pacemakers. “Going after physician preferences is tricky, but it’s where the money is,” Davis said. Much of Premier’s consulting work, added Champion, amounts to helping organizations understand what they are looking at when they are buying orthopedic and cardiovascular implants.

4. Does your value assessment team include physicians? When it comes to addressing the sensitive items, Davis said, there are ways to do it right and ways to do it wrong. The first step is to involve physicians in the decisionmaking process.

“Most organizations have attempted value analysis in one way, shape, or form, but for various reasons, it may not have had the stickiness within the organization to drive as much improvement as they would have liked,” Champion said. That’s when his group is brought in. Two common errors his team finds are a narrow focus and a lack of physician involvement. “If you’re trying to cut OR supply costs, for example, radiology and pharma must be involved,” said Champion. “We look at establishing cross-functional teams that are physician led.” 

5. Does your value assessment team include subgroups specializing in target areas? 

No one team can do it all. Create subgroups to focus on various preference items, commodity supplies, clinical commodities, high-preference items, and physician-preference items. At Virginia Commonwealth University Health System (VCUHS), which cut $5 million in clinical supply costs in one year, a senior management steering committee oversaw several subgroups, said Davis, who served as a consultant with ACS-Health Care Solutions.

6. Are you speaking physicians’ language? No one likes to be told what to do. That may go double for physicians. But being scientists, they are often responsive to a logical argument backed by evidence. From purchase history to distribution, said Champion, “We try to piece together the data to be able to show hospitals what is occurring on these clinical preference items. We’re seeing that almost every physician is open to looking at data.” For instance, if two types of hip implants get similar patient results but one is significantly less expensive than another, orthopedic surgeons may be willing to try the less expensive option.

7. Are savings tied to specific goals? Physicians are also more likely to cooperate with cost-saving efforts when they can see the benefits. Cutting $2 million of expenses is a good thing, but reinvesting a portion in new equipment or programs is even better. 

“If the CFO is seeking to squeeze money out this year, and he is perceived as trying to cut indiscriminately, he’s going to meet some resistance,” Davis said. “At VCUHS, the new CEO was trying to build a new surgical services tower and was able to sell the idea that if everyone helped pull back on the cost of supplies, he would reinvest that money into the new building.”

8. Are you looking at the entire supply chain, including distribution? The point of purchase is just one link. “If you build a really efficient supply chain, you can shave a few percentage points off distribution,” Davis said. “The other end of distribution is having the right product in the right place at the right time so users don’t get frustrated and block you when you’re trying to change something.”

9. Are you working cooperatively with your vendors? Don’t leave vendors out of your efforts to make purchasing and accounts payable more efficient, Davis said. “Instead of treating the vendor as an alien that you’re trying to pay the least amount of money to, and the vendor looking at the hospital as a victim, you should ask, ‘How do we build a synergistic relationship with 10 or 20 of our best vendors?’”

10. Are you managing all your inventory?

A common situation Davis sees is inconsistency in inventory management. “We see places that are managing maybe half a million dollars in commodities very effectively, but they’ve got $5 million out in departments that aren’t being tracked at all,” he said. “Manage every single item until the point of use.” That means, for example, applying the same inventory management techniques to the OR that you do to your storeroom. 

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