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Buyer be wise: using data to reel
in supply spend
T
oday’s healthcare organizations are
transforming themselves into lean,
mean, care-providing machines. Well,
with more of a focus on “lean” than “mean,”
hospitals are executing a “less is more” approach to operations. Deloitte Touche found
that a hospital would need to generate $11.7
million in new revenue to have the same
impact as a $100,000 reduction in operation
costs. The supply chain is an optimal access
point for excising the excess of operational
expenses.
Many healthcare organizations turn to their
item master as a baseline source of supply
data, but a recent Association for Healthcare
Resource & Materials Management (AHRMM) study estimated that an organization’s
item master is only 70 percent accurate. Data
quality issues spanning multiple sources, description limitations, non-item file purchases
and supply leakage challenges plague supply
chain management professionals who aim for
efficiency. Alternatively, placing key pieces
of information—such as last price paid, correct contract price and less expensive alternatives—at the fingertips of requisitioners
empowers them to make informed decisions
and control costs.
Lawrence (Kansas) Memorial Hospital
(LMH) is one of many premier healthcare
providers seeking out increased spending
visibility at the point of requisition. The 173bed hospital located between Kansas City
and Topeka was named one of the country’s
top 100 hospitals the past two years by Truven Health Analytics, Most Wired 2011, Top
100 HealthStrong and top 100 Great Community Hospitals by Becker. While the
organization boasts many accolades,
management determined it needed to
reduce operating costs and improve
efficiencies to thrive in the current
healthcare marketplace.
“An assessment of our supply chain
revealed that we were missing many
opportunities for savings,” says Binh
Pham, Director of Materials Management at Lawrence Memorial Hospital.
“Items were difficult to find, our master
data had room for improvement and
we had lost some control. We needed
a solution to drive data accuracy and promote savings through formulary managed
requisitioning.”
LMH previously used a manual, paperbased process to drive standardization. Data
attribution was lacking, categories were
narrow and there was no consistency in the
naming conventions. Requisitioners could
not find or compare products, which created
an excess and obsolete inventory of certain
critical items.
With each added manual step in the chain,
costs skyrocketed and frustrations ran high.
Requisitioners were forced to seek frequent
decision support from materials management staff. LMH also relied heavily on the
suppliers to correct or identify pricing errors
during transactions, which did not always
occur. Non-file trunk stock was often priced
by the supplier sales representative with
limited hospital controls in place. As product
prices fluctuated significantly over a one-year
period, supply chain management uncovered
contract overpayment with physician preference items, resulting in a 7 percent to 38
percent higher charge compared to contract.
“Every time our requisitioner couldn’t find
an item, our organization was exposed to additional processing costs, spend leakage, and
frustrated users,” says Pham. “And it’s not
just about seeking out the right item: Without an effective process in place that drives
standardization, we were exposed to diluted
spending power and excess inventory.”
LMH sought a solution that would lead
product users to purchase on contract. With
built-in contract information, requisitioners
have all relevant data at their fingertips. If
buyers want non-contract or high-dollar
items, the solution prompts alerts—on directors’ mobile devices—for approval, a huge
improvement over their tedious, paper-based
system.
Built-in price and contract checking were
also a must for optimal spending visibility.
After all, LMH primarily sought control to
maximize the economic advantages of contracting and standardization. “If your requisitioners aren’t presented with the last price
paid, the contract price and a less expensive
alternative product, you are actually paying
for group purchasing organization services
that are not rendered,” notes Pham.
A preemptive formulary guided procurement system provides data relevant to each
organization’s pricing and contracts. With
standardized descriptions and unlimited
product attributions, a SaaS-based solution
with an artificial intelligence engine makes
supply chain shopping simple and seamless. With access to functional equivalency,
normalizing data and lower cost alternatives, requisitioners yield both power and
efficiency.
“With a reasonable investment in the
strategic supply sourcing solution, we are
targeting an annual reduction in operating
costs of over $500,000,” says Pham. “Its ease
of use and intuitive ordering has improved
end-user satisfaction, and our employees
have also reclaimed time for other tasks.”
“With the right tools and technologies
driving our supply chain, we gain control
of procurement with at least a 2.14 percent
savings on annual supply spend,”
reports Pham.
Formulary managed requisitioning
delivers new efficiencies in spending,
inventory oversight and workflow,
enabling organizations to achieve
financial gains where they need it
most. To learn more about how you
can improve your supply chain and
save, read this white paper at http://
www.mckesson.com/contact-us/
form/strategic-supply-sourcing-whitepapers/ or visit www.McKesson.com/
supplychain. hpn
www.hpnonline.com • HEALTHCARE Purchasing NEWS • October 2014 7