The financial strain on independent, small hospitals is set to continue now that much of the Affordable Care Act is in full swing. With millions more people having insurance and seeking healthcare, a primary key to survival for providers will be their ability to increase efficiency and reduce costs in the supply chain.
One way those objectives can be achieved is utilizing volume purchasing to decrease the cost per unit of a product or service. Large health systems have a natural advantage over their smaller counterparts when it comes to purchasing volume. Consequently, independent hospitals often take part in group purchasing organizations (GPOs) to leverage the combined buying power that is generated through multiple members.
Yet participating in a GPO is not enough in today’s marketplace. To survive and thrive, independent hospitals must develop a comprehensive and strategic procurement plan for getting the most from their sourcing processes – and their GPOs.
Here are seven specific initiatives that institutional leadership can implement to help increase efficiency and reduce costs.
- Maximize rebates. To take advantage of volume-derived rebates, hospital employees must be trained to place orders through GPO-contracted suppliers. Also, rebate checks should be validated to ensure that proper credit has been received for the volume ordered.
- Work collaboratively and objectively. When it comes to choosing which items to buy, it is necessary to form a purchasing selection committee that combines the hands-on expertise of clinicians with the budgetary insight of material management and procurement professionals. That way, clinicians will have a greater understanding of the hospital’s finances and will be better able to help balance the desire for product quality with cost-effective options.
- Develop objective criteria. Sourcing decisions should not be based on cost alone. Members of the purchasing selection committee will need to have a matrix comprising a variety of factors, weighted for importance, to help them make objective buying decisions.
- Look for substitutes. Identifying items purchased in high volume and at a high price and finding lower-priced alternatives – where clinicians have some product flexibility – can produce significant cost savings.
- Limit the sales factor. Medical device companies send out sales reps who know just how to generate interest in their products. By limiting the access these salespeople have to the hospital and its doctors, institutions can help reduce the tendency for clinicians to buy impulsively and enable the purchasing selection committee to evaluate new products objectively.
- Keep some sourcing in-house. Although small hospitals often achieve personnel cost savings by utilizing their GPOs for most of their procurement work, it is vital for healthcare institutions to maintain some level of sourcing expertise in-house. An experienced, knowledgeable procurement professional can assist with reducing expenditures, finding product substitutes and rebidding when necessary.
- Review and rebid. The market changes over time. To keep pace with current pricing trends and new product options, institutions should arrange to meet with their GPOs regularly for updates. Plus, by taking the time to develop a basket of items to test, procurement professionals can check to make sure contract pricing remains competitive. Hospitals can rebid the GPO contract as many times as the terms of the agreement allow.
Small, independent hospitals face numerous challenges induced by reduced reimbursement rates and the advent of the ACA. To survive, they’ll need strong leadership and a smart sourcing strategy that’s tuned to the pulse of a changing industry.