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At the Margins

It's what you don't know about supply spend that's costing you

by Harry Kirschner

A recent Credit Suisse study confirmed what we’re hearing in conversations nationwide: hospital leadership is turning to the clinical supply chain to deliver near-term savings.

But when we examined typical approaches to clinical supply cost savings, we found that each stakeholder—physicians, finance leaders, and suppliers—lacked a piece of knowledge that obscured potential sources of value within the supply market for an organization.



Physicians have low supply-cost literacy

More hospitals are regularly sharing high-level cost data with physicians, but few are sharing actionable and detailed supply cost information such as unit and case costs, as well as costs of alternative supplies. Beyond making actionable supply cost data available, progressive systems are having ongoing conversations about costs with their medical staff and not only breaching the subject at re-contracting time.

For example, one 650-bed academic medical center in the Midwest shared detailed supply cost information with physicians practicing in the cath lab, and found that physicians’ preferences were less significant than expected. 

Once physicians saw there was a lower-cost option for guidewire already on contract that was clinically preferred, no concession was required—just accurate information and a platform to effectively discuss preferences in a non-punitive manner.

  • Download a case study on how an 800-bed AMC in the Midwest used a robust bidding process to renew competition in a mature market, and view a list of five things physicians may not know about clinical supply costs.


Financial leaders have limited visibility into physicians’ clinical requirements

Physicians can express immutable preferences as a defense mechanism when confronted with potential change. But we’ve found that physician preference does not always uniformly match a vendor’s footprint in supply spend. When we create a forum to understand preference on its own merits, accuracy can only be achieved at a very granular level: product by product and attribute by attribute.

When hospitals use brand names as a proxy for product attributes that drive clinical outcomes, they risk missing potential value in the supply market. Hospital leaders don’t need to match clinician’s product expertise—they need to use it effectively in supplier negotiations.

By using a pre-populated equivalency matrix during a sourcing effort for orthopedic supplies, Meriter Health Services created an array of all potential products with prices to determine product equivalency, agnostic of supplier brand.


Physicians at Meriter determined that a supplier assignment to a premium price based on a special coating was unwarranted. The physicians did not believe the coating changed outcomes, and told the hospital they shouldn’t pay extra for an attribute that was not proven to drive better clinical quality. Physician-led guidance helped Meriter achieve 17% savings on their $4 million selection of orthopedic implants.

  • Download a case study on how Munroe Regional Medical Center reshaped the orthopedic supplies market around clinical preferences.


Suppliers need specific information (and a believable business case) to provide compelling value

Hospital leaders are in a unique position to help suppliers bring their best offers forward.

Suppliers working through a third-party sourcing partner are forced to guess at what drives local physician satisfaction, leading them to offer a "lowest common denominator" solution. With improved insight into local physician requirements, suppliers are free to eliminate shared costs that don’t drive value and meet specific local requests in their offers more efficiently.


North Kansas City Hospital (NKCH) used direct supplier communication to expose value in the cardiovascular supply market. NKCH sought savings on a broader market basket of CRM, EP, and cath lab supplies, totaling $7.8 million in spend.

When they disaggregated physician preferences from brand names, they exposed very specific physician requirements around product attributes, service coverage, and participation in clinical trials. Their suppliers, responding directly to those physician requirements, proposed an alliance-based, cross-category solution that drove 17% savings, for a total $1.3 million in impact.

  • Download a case study on how a three-hospital system in the Midwest saved 32% on orthopedic supplies—despite deep supplier loyalty.

12 Ways to Transform Your Supply Chain Strategy

Breakthrough clinical supply savings are possible, but it takes all three supply chain partners working collaboratively with data to find mutual wins.

Our study, Next-Generation Supply Cost Savings, explores a new sourcing strategy that offers the greatest opportunity to compress costs while unlocking value for the hospital and other stakeholders.

READ THE STUDY

  • Member exclusive: A value-based sourcing success story

    Bray HealthThrough a tool that puts prices to preferences, physicians were able to make educated decisions on which products to purchase and help their system achieve 18% savings on cardiac rhythm management supplies. Financial Leadership Council members can read the case study.

5 Things Physicians May Not Know About Clinical Supply Costs

A list of five common knowledge gaps that you should address to help align physicians around supply cost management. Download the list.


 

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See More Posts on Supply Cost Strategies

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Two reasons why your sourcing strategy is flawed (and what to do about it)


 

About Clinical Sourcing Impact

Clinical Sourcing Impact helps suppliers bring their best offers forward with a data-driven market platform shaped by physician-led requirements.

To learn how we help your organization build physician alignment by exposing hidden value in the clinical supply market, contact Harry Kirschner.


 

Meet the Author

Harry Kirschner
Managing Director
Spend Performance Solutions