At the Margins

Supply cost efforts stalling? Think beyond price.

by Lulis Navarro

Supply purchasing is certainly not a new topic; it has been a target for cost reduction for many years. However, the rise of value-based payment programs is pushing hospital leaders to rethink ways to achieve internal cost savings and boost overall margin performance. Since supply purchasing remains a rapidly growing spending category, optimizing the current approach could make a difference for hospitals’ finances.

Top Three Priorities to Ensure Success Under CJR and Bundled Payments in 2016
n=266 hospital executives

1. Reduce post-acute cost
2. Reduce in-hospital cost
3. Improve quality

Supply cost reduction strategies have traditionally focused on leveraging scale and volume commitments to bring down prices from suppliers. While this strategy has resulted in cost savings, it has also occasionally harmed relationships with suppliers and physicians and limited further gains. Moving forward, we encourage your organization to move beyond price and focus on driving value for all achieve greater cost savings.

Here are eight strategies to help you get started:

To get physicians on board

1. Ask physicians what product attributes matter and why
Framing product evaluations in terms of clinical attributes—and shifting the focus away from brands—allows purchasing teams to both identify cost-savings opportunities and maintain physician satisfaction.

2. Enable physicians to compare vendor offers and let them drive final purchasing decisions
Involving them in the process can help with buy-in and adherence later on.

3. Use data to drive compliance
The problem is not necessarily high supply costs on their own, but rather the difference in costs between providers with similar clinical outcomes. Allowing physicians to compare their performance against their peers’ can lead to more rational, consistent supply use.

4. Offer financial incentives
Another way to engage physicians is to reward their performance with a percentage of the resulting cost savings. However, keep in mind that different federal programs might have unique rules for gainsharing.

To strengthen collaboration with vendors

5. Focus on value, not only on price
When negotiating with suppliers, take into account total costs (accessory supplies, logistics, patient outcomes, etc.), physician preferences, and vendor past performance (on fill rates, invoice errors, etc.). Suppliers will likely improve their service if they understand your expectations.

6. Ensure data transparency around utilization
Industry surveys have shown that proving strong physician engagement can drive more competitive pricing than sheer volume. Suppliers appreciate demand predictability.

7. Advance true partnerships with strategic suppliers
Establish long-term collaboration to reduce mutual costs and achieve better outcomes.

8. Establish a balanced vendor access policy
While introducing a vendor access policy on the surface might seem restrictive, sensible and clearly defined rules can ultimately build trust and improve relationships between providers and vendors.

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