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To Cut Hospital Costs, Leverage Vendor Relationships

Karen Minich-Pourshadi, for HealthLeaders Media, May 9, 2011

Some financial leaders may believe that SRM can only work if a facility has the financial clout of an Intermountain. However, smaller facilities can also reap the benefit of creating a strategic relationship with a key vendor.

At 69-bed Gordon Hospital in Calhoun, GA, it took a new physician to prompt a review of vendors. Gordon Hospital, which has net revenue of $85 million annually, had recruited a young, tech-savvy urologist who encouraged the hospital to reassess the number of vendors and products it was using, explains Cory Reeves, CFO at the hospital.

Reeves, along with Pat Aaron, the director materials management, decided to work with one vendor representative to do a full assessment of the inventory. The assessment revealed that the hospital was overstocking—keeping some 31,000 different products on hand. Through a process I'll explain momentarily, it narrowed that list to 10,000, which yielded annual savings of $16,000. 

"$16,000 is a nice chunk of change for our hospital, Cook [Group Inc., the vendor] also helped us to look at ways we could reduce our overall inventory," Reeves explained. "Actually, they helped us reduce our inventory by 75%."

To accomplish this, they brought together a physician—in this case the urologist that had sparked the hospital's effort—and the vendor who worked to assess which products were necessary. For instance, the physician reviewed the materials for a specific urology procedure and determined that the hospital was using two products by one vendor, when a single product by another vendor would work equally well.

"We were able to reduce our inventory, and our costs, and pass the cost savings onto the patients," explains Aaron.

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