Achieving Sustainable Supply Chain Cost Reduction


Tips for overcoming obstacles while supporting CQO initiatives

Health systems are continually squeezing their operating budgets to identify cost savings to weather declining reimbursements, maintain financial viability and support cost, quality and outcomes (CQO). The supply chain is one of the top targets as supplies are the second largest expense in a health system’s budget. But many health systems struggle with long-term, sustainable supply chain cost reductions versus short-term annual cuts.

Focus on Contract Compliance

Sustainable supply chain cost reduction is not possible without contract compliance. For all the time and effort that’s put into negotiating lower prices on supplies, it’s shocking how little effort is put into ensuring compliance to those contracts. If hospitals don’t meet contract terms, the volume discounts or rebates negotiated are not realized. In fact, the average IDN is leaving millions of dollars on the table due to lack of compliance. That money can go a long way in supporting CQO initiatives.

To better manage contract adherence across the entire health system, direct spend to preferred contracted vendors through a one-stop, compliant purchasing interface that delivers a standard shopping experience across all vendor-enriched catalog content. That means, when requestors search for product to purchase, they only see products that are under contract. After all, you can’t manage maverick spending without ensuring that requestors have the right information at the right place at the right time. Recognize that item masters have significant limitations in their ability to properly manage contract compliance because they don’t allow the type of detail needed for each item to enable accurate and on-contract purchase decisions.

Boost Visibility to Usage Data

If you lack visibility to supply usage and spend, you can’t leverage the data to negotiate deeper future discounts, so you’re potentially missing out on larger and longer-term opportunities to lower spending. That’s why it’s critically important to bring real-time transparency and cost control to all purchasing activity occurring across the enterprise supply chain.

Today’s supply chain technologies can provide simultaneous visibility to what you bought by category, by company, by item, against the contract terms, where it was relative to year-to-date, how much you saved and who bought it.

Increase Standardization

Standardization has long been a four-letter word in healthcare, but most health systems are embracing standardization as a strategic way to reduce supply chain expense. It’s possible to rein in physician preference items by influencing end-user behavior in a customized way without blanket mandates, 50-page purchasing policies that nobody reads or emails that get lost in inbox black holes.

In other words, use a product marketplace that allows a level of customization on a per-user basis. Requisitioners that prefer certain devices or implants can be allowed to purchase those products. The system can be customized so that other buyers only see preferred, contracted items.

Evolve Purchase Criteria to Consider Outcomes

When evaluating supply contracts, don’t look at cost alone; look at the big picture. Consider the total cost of ownership and the potential positive impact supplies can have on enhancing patient outcomes, helping to lower the overall cost of care delivery. While it’s easier said than done, marketplace solutions are evolving to provide you with independent sources for product safety and effectiveness data, so your requisitioners can make more informed decisions.

Imagine a future when your health system buyers not only exclusively see items available for purchase that are under contract, but also those that offer the best price for the best outcome. It’s not just about having the right data. It’s about having a contract management tool that helps you organize the data and present it to buyers at the point of decision. That’s the best way to influence the purchase of supplies that deliver quality care at a lower cost across the system.

Lean on Suppliers

Suppliers and vendors can be allies in your quest to reduce supply expenses. Look for companies whose incentives are aligned with yours. Partnerships based on shared accountability are becoming more common. Communicate your goals and ask what solutions they can bring to the table to help you achieve them – whether its new cost-effective solutions or suggestions for how your health system can increase efficiency to save operating costs.

As one example, consider moving toward a supplier-supported bill-only purchase model for orthopedic implants. Rather than tasking nurses or surgical techs with ordering and stocking multiple implant sizes in advance for each case, set-up your procurement system to enable bill-only purchase orders (POs) to be generated by the manufacturer rep during a case, once a surgeon determines which implant is right-sized for the patient. Rest assured that the rep only has access to filtered information in your purchasing system that’s limited to their company products; not sensitive or confidential information about pricing agreements with other suppliers. Implementing a bill-only policy for orthopedic implants can reap long-term benefits, both in terms of time and cost-savings.

The Importance of Contracting

Enabling strategic sourcing decisions to support CQO requires improved utilization compliance, real-time transparency to purchasing decisions, increased standardization, holistic product data, and strong supplier partnerships. That might seem like a tall order; the good news is new healthcare supply chain technologies have evolved, and it’s now easier for your health system to achieve these objectives to realize significant savings that help support your CQO initiatives.


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About Author

Michael DeLuca

Michael DeLuca is executive vice president of technology and client services for Prodigo Solutions, a healthcare supply chain solutions company helping hospitals gain control of supply chain spend through contract compliance and automation.

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