A New Spend Matters Series: Healthcare Cost Reduction — Putting Savings First

Starting this week, I plan to write a number of columns on Spend Matters analyzing the potential for new types of savings in the healthcare supply chain. Even though you might agree or disagree with the US legislation that passed Congress this weekend mandating that businesses provide coverage for employees (or pay fines / penalties if they do not), there's an area of common ground in the healthcare debate that's largely been ignored. And that's the importance of looking at how we can further reduce costs in the healthcare supply chain by tackling non-partisan areas. From pursuing new ways of sourcing and managing categories in a GPO environment to building up internal procurement and supply chain teams to working closely with physicians and nurses to tackle preference areas and strategic spend, the opportunity for post-partisan cost reduction is huge. Yet you won't hear this debate in the popular press, largely because healthcare supply chain nuances are not well understood.

One of the largest opportunities for cost reduction in provider environments today is tackling physician preference. There are some strong analogies here to both direct materials and indirect materials in the procurement environment from other industries. As an example, years ago, many procurement organizations began to work with individual plant and office managers to analyze vendor preference and cost savings potential in such areas as MRO and PC desktops and notebooks. Clearly, prior to procurement's involvement, not every distributor (or manufacturer) was providing apples-to-apples comparisons for what it sold, as well as the service levels with which it would deliver its products as part of an integrated solution model. However, once procurement teams got more involved, not only did organizations begin to save money through more effective sourcing and supplier management (often to the tune of 15% or more), they also built rapport with stakeholders by quantifying and increasing the levels of service the organization required from suppliers.

What many people fail to realize in the healthcare debate is that procurement-driven cost reduction does not represent a zero sum game that reduces the level of ultimate patient care. Moreover, it's possible to work with frontline medical professionals to help them better quantify what they value for particular specified items, from IVs to syringes to gloves to bandages. In some cases, it may even be possible to increase supplier service levels and move to a just-in-time (JIT) environment where a consolidated set of strategic suppliers are taking a key role in monitoring and guaranteeing inventory and service levels for key consumables (in this regard, a provider may even begin to analyze what they're buying as an overall service rather than consumables).

Join me in taking a procurement and supply chain driven look at how we can reduce the cost of healthcare. Whether or not you agree with Congress' actions this week -- and even if you're reading these virtual pages from halfway around the world and could care less about the nuances of the US medical debate -- there are many universal lessons in how both providers and payers in the US healthcare system could be saving money and improving patient (i.e., customer) outcomes at the same time.

- Jason Busch

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