It's a well-known fact that supplies are the second largest expense in a health system's budget after labor. In an effort to curb those costs amid declining reimbursements, health systems continue to look for creative ways to save money. Some determined health systems have had success increasing discount opportunities by telling suppliers if they can't meet the health system's expectation for discounted prices, they'll be replaced by vendors that can. Discounts have become critically-important, but for all the time and effort that's put into negotiating lower prices on supplies, it's shocking how little effort is put into ensuring health system users order products that meet contract obligations. Contracted discounts mean nothing if you can't ensure compliance. The unfortunate reality is the average IDN is leaving millions of dollars in volume discounts and rebates on the table due to lack of compliance.
To turn the tide, here are some tips to improve contract compliance:
Modernize manual methods and enrich catalog content
Today, many health systems manage contract compliance with the item master. Unfortunately, there's a limit to the depth of information the item master allows you to include about each item. In some cases, images, specialized part numbers and preferred status tags - all important elements for enabling accurate and on-contract purchase decisions - cannot be included. This incomplete and imperfect data can often lead to incorrect purchases, processing delays, invoice exceptions, and user frustrations. For other health systems, the requisition process is still managed manually. With a proliferation of content management solutions available, it's time to modernize the requisition process and enrich item content to ultimately enhance search capabilities and simplify the purchasing experience.
Drive users to the correct formularies
The most effective way to manage compliance is to ensure that requestors see the products for which you've negotiated the best prices. Once you streamline the requisition workflow for requestors, you can drive contract compliant information directly to the point of purchase from a single source. This allows you to direct spend to preferred contracted vendors, eliminating discretionary purchasing options, while delivering real-time transparency and cost control to all purchasing activity across the enterprise supply chain.
If this sounds familiar, it's because it's the same technology-enabled purchasing concept that has been employed by large retailers and manufacturers for several years. The pace of adoption within healthcare has been slow because of things like the complexity of the supply chain, the sheer volume of contracted items needed to meet patient care needs, etc. Thankfully, the technology has finally advanced to a point where the hurdles to healthcare adoption have virtually been removed and providers can now bring the same, intuitive online shopping experience that consumers enjoy to their purchasing process.
Count your savings
By improving contract compliance, some health systems can save as much as 12 percent on supplies. The greatest savings opportunities come from a reduction in addressable spend, increased participation in GPO share back programs, more rebates and discounts, increased visibility on total spend as leverage to negotiate better item prices, reduction of invoice errors through automation and improved exception handling, minimized supply chain support costs by simplifying the user experience and going "paperless."
Cost savings aren't the only benefit to improving the experience of purchasing health system supplies. The thousands of users who access your catalog to request products each week need to know they've purchased the right product for the right application. Let's go back to the limitations of the item master briefly: Without pictures and detailed descriptions, requestors don't always have certainty they're buying what they need. In healthcare, that's a scary proposition. Providing clear and concise product descriptions improves the point-of-sale experience, reduces potential error and minimizes risk.
Elevate the Supply Chain
This article may go a bit further, proverbially-speaking, "into the [supply chain] weeds" than what most health system executives deal with on a daily basis. Perhaps, not for long. For many years, purchasing has been a back-office activity inside health systems. However, because of the dramatic benefits it can bring to the health system bottom line, supply chain is being elevated as a critical function within health systems today - bringing what was once in the background to the foreground. That's why this issue is being addressed by leading healthcare news outlets with C-level audiences, like Executive Insight. They may not be fluent in supply chain lingo, but healthcare leaders are beginning to understand the importance of focusing time and resources on operationalizing contracts across the continuum of care. Those who are successful will see their health systems thrive.
Michael DeLuca is executive vice president of technology and client services for Prodigo Solutions, a healthcare supply chain solutions company helping hospitals gain control of supply chain spend through contract compliance and automation.