Spend Management: Positioning Yourself for Success in a Post-pandemic WorldIdentify cost-saving opportunities by analyzing your spend, evaluating vendor relationships, and validating and verifying pricing and contracts.
The COVID-19 pandemic has taken its toll on healthcare organizations’ financial health. In the first eight months of 2020, hospital operating margins were down 89% compared to the first eight months of 2019. The pandemic has also significantly impacted patient care delivery and behind-the-scenes operations, including supply chain. To recover from staggering financial losses, healthcare organizations must focus on spend management to control costs.
Virtual patient care and remote patient monitoring have increased dramatically. Telehealth visits increased 300-fold from March 15, 2019, to March 15, 2020, and accounted for 69% of total patient encounters in April 2020. Although telehealth usage has declined since April, it remains higher than pre-pandemic levels. Virtual urgent care visits at NYU Langone Health grew by 683 percent, and non-urgent virtual care visits grew by an unprecedented 4,345 percent.
Patient care isn’t the only activity that is conducted away from healthcare facilities. With many supply chain staff working remotely, purchasing operations, including interactions with vendors, are now conducted virtually. Some of these care delivery and operational changes may become permanent, dictating complementary changes in how healthcare organizations purchase equipment, technology, and services, as well as what they choose to purchase. To make timely, fully informed decisions about new products and technologies, you need to incorporate clinical, operational, and financial considerations and make sure all departments have access to the same information. This can be easier said than done in a virtual environment.
Behind the scenes at every healthcare organization is a supply chain team that is constantly looking for ways to decrease their spend. Supply chain spending is one of the largest expenses for healthcare organizations, accounting for up to one third of operating expenses at some hospitals. In 2018, U.S. hospitals spent a combined $36 billion on medical and surgical supplies, with an average of $11.9 million per hospital. An analysis of 2,127 U.S. hospitals found that hospitals are overspending on supply chain expenses by $25.7 billion annually. The average hospital could save $12.1 million annually by using the right data and reducing supply variation.
To identify supply chain cost-saving opportunities, you need to determine where your organization is leaking money or leaving it on the table. You can do this by analyzing your spend, evaluating and resetting vendor relationships, and analyzing contracts and quotes.
Analyze your spend. To pinpoint opportunities to save money, you have to know where you’re spending your money. Start by documenting your spend over time, organizing and standardizing your spend data. Measure your suppliers’ performance to be sure they are delivering high-quality products and services at the best prices.
Evaluate and reset vendor relationships. Unhealthy vendor relationships can result in over-spending on products and services. When vendor relationships are too personal, hospital staff can be reluctant to demand full transparency, so you may wind up paying too much for products and services. Look for red flags—such as being asked to sign a non-disclosure agreement related to pricing—that indicate unhealthy vendor relationships.
Validate and verify pricing and contracts to create transparency and strengthen vendor relationships. Although it seems counterintuitive, questioning vendors about pricing and contracts builds trust. Conduct true due diligence that creates transparency and ensures a legitimate quote. Examine benchmarking data for list price, component price, warranty terms and other measures. Look at total lifecycle costs by assessing market dynamics, clinical efficacy, reimbursement reviews, and other factors—to help you purchase the right products or services at the right price.
TractManager’s Spend Management solution includes spend analytics, benchmarking, contract and quote analysis, and invoice reconciliation to help you identify cost-saving opportunities and improve your operating margins. TractManager’s customers improve their operating margins by 3% and spend 17% less on non-labor and outsourced services.
To learn more, read our white paper titled “Validate and Verify: How to Establish Healthier Vendor Relationships During and After the Pandemic.”