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How Managing Supplier Relationships Reduces Revenue Cycle Costs

Karen Minich-Pourshadi, for HealthLeaders Media, April 14, 2011
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“You go to the suppliers and you tell them, ‘We’d like to continue to use your products, but this isn’t acceptable,’” says Phylis. “I think there’s an expectation there that you’ll call them on it, but we had never pursued it.”

Centralizing the process also allowed the hospital to eliminate supplier preference purchasing. “At first there was pushback [from clinical staff] —they didn’t want us to alienate their vendors and jeopardize quality and safety,” he says. “But you show them what we are doing does not adversely affect patient quality and care and the bottom line and they get the idea.” Centralizing guided them along the path to reduce their number of vendors and negotiate better contracts with the best vendors for the best price—resulting in a bottom line improvement of approximately $1 million annually.

After providers have had a chance to thin out the number of vendors, and carefully analyze the role that each plays, then the relationship between the vendor and the hospital or health system comes into play.

For example, Phylis describes an experience with a drug wholesaler that made a very competitive, low-cost proposal in an aggressive attempt to build market share. The hospital he was working for at the time opted for the contract, but the wholesaler was unable to provide products and drugs at an acceptable fill rate. This resulted in the need to carry increased inventory to overcome the frequent shortages and the need to purchase a higher-cost alternative brand-name drug, delaying or changing patient treatment, incurring overnight shipping costs to obtain product, or utilizing a high cost secondary wholesaler.

“Our costs were higher and the service much worse than if we had chosen to do business with a different wholesaler that had proposed a slightly higher cost. We did not stay with that wholesaler and were happy to make the change,” Phylis says.

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