Supply cost savings part 2: Putting the final pieces in place

Last week David Markoski, senior vice president of Supply Chain Performance Services at Irving, Texas-based VHA Inc., shared two of four steps to setting up a process to achieve optimal savings in hospital supply budgets. Why is setting up a process so important?

"For CFOs, the bottom line is: When you're looking at total costs across your organization around the supply chain, you cannot consider price only," says Markoski. "To really become best-in-class and maximize your opportunities, you have to start with price, but you also need to look at the total cost of your procedures and operations so that you can identify potential savings related to standardization and the utilization of supplies. Second, creating a process to implement cost-savings initiatives will help you take full advantage of the opportunities that you find."

The first two keys championed by Markoski are to launch the cost-saving process with executive leadership and to create organizational support. Here are the final two keys:

Key No. 3: Establish benchmarks and analytics.

In order to determine realistic financial targets and goals, "you need to have benchmarks and analytics," says Markoski. "You need to establish the baseline, where you are at in each area, so that you can put together a plan for getting from the current state to your future state."

CFOs also should create and implement tracking tools to monitor the hospital's progress toward the established cost-savings goal, he advises. In addition, "you need to have those tools and analytics in place to monitor whether you are sustaining your success. That will help ensure that you don't slide back into prior behavior and lose some of your gains."

With regard to the analytics, "you cannot be paralyzed because you don't have 100 percent of the data," stresses Markoski. "No one is going to have 100 percent of the data, and the data you do have is not going to be 100 percent accurate." The goal is to make sure the data is "directionally correct," he says. "If you feel comfortable that the data is measurable and you can monitor it, then go with it."

Key No. 4: Beef up your contract management skills.

Unfortunately, many hospitals miss opportunities for cost savings because they don't have a clear understanding of the contracts they have in place. CFOs should identify all contracts and implement a centralized contract management program, recommends Markoski.

"Often contracts are negotiated in 20, 30 or even 40 different departments within the organization, and no one is monitoring the contracts at a central location," says Markoski. "Every time we go into an organization and start looking for the entire portfolio of contracts that they have for all services within the organization, it's not centrally located. Locating all of the contracts is often quite a heavy task. Sometimes we can't even find the contracts, and someone has to go to the supplier to get a copy."

The contract management department should review facility contracts on a regular basis "and monitor them for expiration dates, renewal clauses and other critical milestones," suggests Markoski. "Time and time again, we find that contracts automatically roll over without the organization even being aware that they have a contract.  If you miss the opportunity to re-negotiate when the contract is up for renewal and it rolls into a new year, you can end up stuck in a bad contract for the full length of the notice period required by the contract, which can be as long as 12 months." - Caralyn