Strategic Supply Sourcing Helps Hospitals Stay Above Water

Strategic Supply Sourcing Helps Hospitals Stay Above WaterThere’s good news and bad news for not-for-profits.  The good news is the operating performance improved in 2012 and has looked stable in 2013.  The bad news—this may be as good as it gets for financial performance.

Fitch Ratings’ states that 2012 may have been the high water mark , predicting slipping margins and weakened finances in 2013 with S&P  predicting this trend to prevail in the next two years.[i]

Why do these agencies think providers will take on water

The reasons are multi-fold:

  • Reimbursement cuts, with further cuts scheduled under the Patient Protection and Affordable Care Act, and 2% Sequestration cuts for Medicare reimbursement
  • Rising expenses, including greater investment needed for physicians and technology
  • Flat or declining patient demand/volume becoming the “new normal”, as patients respond to a slow economic recovery and higher deductibles, and hospitals react to payment and delivery reforms
  • Pension obligations and expenses that are likely to burden non-profit hospitals for years to come
  • Incremental credit pressures, due to healthcare reform uncertainties and supplier investment needed to support the newly insured
  • Revenue enhancements and cost-cutting reaching its limits

So how can organizations turn the tide on profitability?

Although I have to concede that patient volumes, credit pressures and reimbursement cuts don’t look to improve short-term, I have to disagree on the dire prediction that revenue enhancements and cost cutting have reached their limits.  There are still plenty of savings to be had in the healthcare supply chain.

Many healthcare organizations have yet to harness the full potential of today’s strategic sourcing strategies and solutions—which can bring significant dollars to their bottom lines.  And remember, it’s a whole lot easier to save money than to make it.  Driving a 2% savings in your supply chain/bottom line has the same impact as a 24% increase in revenue.

To capitalize on these available savings, organizations need to expand the scope and improve the efficiency of data and procurement processes through comprehensive strategic sourcing that enables them to:

  • Pre-empt bad buying decisions – Traditional procure-to-pay systems focus on automating existing processes AFTER a purchase is already made. Providers need a strategic sourcing solution that enforces the best value choice at the point of requisition—BEFORE users buy—to prevent off-contract, off-price buying decisions from being made in the first place.
  • Engage the entire organization in value-based purchasing – Cloud-based procurement systems offer easy-to-use, uniform access to all employees at all locations, so each user can be empowered to make the right choice—with the system presenting the preferred, best value choice based on each organization’s contracts and pricing.
  • Create a single source of truth – Healthcare organizations need visibility into their entire med-surg spend—not just what’s in their item master.  Capturing non-catalog, non-file spend, especially for high-cost physician preference items (PPI), will help orgs obtain the best tier-level pricing and support standardization efforts.
  • Focus value analysis efforts on the best savings opportunities – Identify potential savings opportunities up front through a strategic sourcing system that automatically finds and presents cost savings and product standardization opportunities through its ability to identify functional similar and functional equivalent items.

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[i] 2012 May Have Been ‘High Water Mark’ for Hospital Finances, Fitch Says; Melanie Evans; August 13, 2013; Modern Healthcare;