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Labor Efficiency Emerges as Cost Containment Measure

Michael Zeis, for HealthLeaders Media, October 17, 2012

It's a classic:  Supply-chain efficiencies

Nearly one-third (30%) of leaders saw their greatest cost savings in the prior fiscal year from supply-chain efficiencies, and virtually the same percentage expect supply-chain efficiencies to be their biggest contributor to savings in the current year. The savings can be substantial: One-fifth (21%) of respondents reported supply-chain savings in excess of 10%.

Although negotiating with suppliers is hardly new, purchasers have been newly empowered by industry shifts toward value-based purchasing and the certainty of reduced reimbursement. These fundamental shifts prompt healthcare organizations to examine cost factors with new resolve. In addition, changes in reimbursement are prompting a trend toward consolidation, and the resulting larger organizations have more leverage when consolidating their purchases.

Nickolas A. Vitale, executive vice president and chief financial officer of Beaumont Health System—a three-hospital system based in Royal Oak, Mich., with revenue of $2.1 billion—has seen substantial supply-chain savings by implementing a single systemwide pharmacy formulary; previously the three Beaumont hospitals had ordered pharmaceuticals independently. Savings in 2010 were in excess of $1 million. "In 2011," Vitale says, "we were able to negotiate an additional $3.4 million per year by going to a common formulary and bidding it out as a system."

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