As we head toward the end-of-year budget cycle, what is your plan to reduce non-labor supply expenses next year? What tools, reports and people do you have to ask to get this answer? Have you invested in the right supply chain technologies to drive the greatest value to your system?
On average, providers overpay for supplies (medical/surgical and Physician Preference Items) by 12.5%, and services by 24%1. Although Group Purchasing Organizations provide significant resources to help manage spend, provider supply chain teams are still responsible for understanding and knowing where opportunity lies to reduce pricing and utilization. Based on data from over 2500+ hospitals, the sheer magnitude of work can appear quite daunting.
We looked at statistics for multi-hospital systems operating 4-8 hospitals: On average, they must manage and implement 985 supply contracts, 268 service agreements, 1530 unique suppliers and over 5000 sub-categories of non-labor supply expense. That’s a lot to manage – and most healthcare systems we work with have five or less staff to handle these projects. How are pioneering providers utilizing technology to understand and manage this workload? Working with thousands of providers over the past six years, we’ve built technology focused on three main steps for handling non-labor supply expenses: Measure, Score, Act.
Measuring spend starts with understanding the scope of supply expenses, and the ability to quickly analyze what you’re buying, who you’re buying it from and who you’re buying it for. Technology tools that integrate multiple-data feeds, like ERP, EMR, P-Cards, contracts and pharmacy wholesaler data, provide incredible insight into your current purchasing patterns. Tools built with a sourcing focus incorporate the terminology of sourcing, unlike finance systems that bucket spend by general ledger. The ability to quickly understand your volumes and market shares by supplier and category for all non-labor expense is the first step.
Imagine you notice cardiac rhythm implant costs rose 12% year-over-year. Your sales rep will say volume and share are the two biggest drivers of price. We start by working with clients to understand the ‘Why Behind the Price’TM. Did the entire market take an increase, is 12% within norms? Is my pricing market competitive based on my current, unique volumes and shares? The ability to quickly score and compare spend in supplies, services and pharmaceuticals to peers, either at the product, category or KPI level, is crucial to controlling costs.
Finally, it’s time to act on this internal and market intelligence – that can only occur if your tools provide actionable data analytics. This means the data must be recent, meet strict data integrity rules and aim to provide a complete picture of the situation. This ensures your sourcing team is armed with the information needed to achieve market competitive pricing. Understanding what others pay for similar products and services, along with insight into the corresponding volume and market share data, provides a better understanding of the ‘why’, versus older technologies based on price statistics like minimum, average, maximum, or composites and scores, like quartiles. Investing in technologies that help prioritize opportunities also has a significant impact. Through reporting, trending and comparing, these tools help your supply chain manage the opportunity, rather than providing an excel spreadsheet of contract expiration dates.
Some providers have taken the dive into technology to try and tackle these issues. We see many homegrown systems where a visualization platform like Tableau or Cliq is applied to the ERP or EMR to provide some of this data. These systems rarely have the staff readily available to cleanse and normalize the non-item master spend data (about 25% of monthly spend), as well as the ability to integrate and normalize data from multiple sources. Technologies built on big-data recognition engines that cleanse and normalize data from thousands of disparate hospitals provide access to one-stop shop platforms that can handle all different feeds needed. These technologies also compare data to peers, providing market insight that’s unavailable in homegrown systems.
The benefits of investing in supply chain technologies have a direct and measurable return on investment, but they also provide significant efficiencies. Automation, proposal analysis, easy-to-understand reports and savings tracking, as well as importing/exporting data capabilities give supply chain teams the tools to drive additional value to the organization within a single platform. Providers using these comprehensive tools have seen a 3:1 or higher ROI in 90 days, some within one week. The right data technology tools can help you uncover savings and strategically deliver results across your entire organization.
