This article appears in the April 2014 issue of HealthLeaders magazine.
As margins shrink and budgets tighten in reaction to healthcare reform and the development of value-based reimbursement models, hospitals and health systems need to trim as much expense as possible from the supply chain in order to remain financially viable.
Simply relying on a group purchasing organization to contract with vendors for competitive pricing is not going to cut it anymore. What hospitals need now are strategies for finding deep, sustainable reductions that move the dial even further on supply-chain costs.
Cutting costs through 'staff or stuff'
Three years ago, Boston-based Beth Israel Deaconess Medical Center, a teaching hospital of Harvard Medical School with 649 licensed beds and about $1 billion in annual net patient service revenue, began a mission to find big supply-chain savings, says Steve Cashton, director of purchasing and contracting.
"We were being squeezed by declining reimbursements, and there was an initiative to cut costs," Cashton says. "We either had to cut staff or stuff, so instead of staff, we decided to look at the stuff. You really can't cut your way to success by reducing staff so we started looking at where we can improve our margins with the supply chain."
Since then, BIDMC has cut about $25 million from its supply-chain spend. "We took out almost $7 million in fiscal year 2011, $10 million in fiscal year 2012, and $9 million in fiscal year 2013, in round numbers," Cashton says. "We have a similar target set for this year. We'll be looking to cut about $8.5 million."
To achieve these savings, BIDMC created six clinical quality value analysis teams in the areas of support services, OR, med-surg, pharmacy, clinical services, and intervention procedures to "look at the value of the supplies that are already in the organization," Cashton says. "Each team has a goal, and all of them hit those goals and typically exceed them. They are looking at everything to find the opportunities that we have to save."
Cashton notes that while the teams are looking for ways to cut expenses, they are also always concerned about quality. "The reason we called it clinical quality value analysis is we didn't want it to be a finance-driven process. We do look at outcomes and length of stay and all of these clinical aspects, which are central to our analysis along with the financial piece."