How 4 Health Systems Rein in Supply Costs

by | Jun 5, 2013

Hospital executives know they have to get smart about the supply chain if they are to hone strategies to rein in spending. In the HealthLeaders Media Industry Survey 2013: Strategic Imperative for an Evolving Industry, 57% of respondents identified expense reduction via supply chain efficiencies as one of the top three areas their organization will focus on this year to control costs.

Four Northeast Ohio-based health systems recently formed a purchasing collaborative called the Purchasing Organization of the Western Reserve (POWR) in an effort to do just that. The systems hope to leverage economies of scale through the Premier healthcare alliance to drive down their individual supply costs. Collaborative members also gain access to Premier’s comparative effectiveness research, which enables purchasing decisions to be based on evidence of value.

The health systems in the collaborative are University Hospitals, EMH Healthcare, Parma Community General Hospital, and Southwest General. Collectively, the four systems report that they have saved nearly $700,000 in the roughly four months since launching the collaborative, including $250,000 on physician preference items.

In 2011, the latter three health systems formed the Community Health Collaborative, but were not able to purchase in large enough volume levels to achieve big cost savings until University Hospitals—one of the nation’s largest systems—decided to participate in a collaborative with them.

Alan Wilde, MBA, vice president of system services at University Hospitals, says his organization joined the collaborative with two goals in mind: to create more regionalism in its procurement and to save money. “Not only for us, but for the other members of POWR,” he said. “We looked at it as a win-win.”

Wilde says that UH is starting to reap the financial benefits of its involvement in POWR.

“We have just begun realizing the savings,” he said. “We have aggregated volume and received reduced pricing in several categories. Within the POWR group, we have learned some best practices from the other hospitals and Premier has engaged to drive value and reduce costs.”

In Wilde’s opinion, working in a collaborative is a good way for health systems to learn from each other and find solutions to improve efficiencies, and he expects more hospitals to become part of a supply chain collaborative.

“We are very happy with the results we have received so far and look forward to greater accomplishments with the POWR Group. We believe these collaboratives are the wave of the future as hospitals and health systems look for ways to reduce cost and improve quality,” he said.

Premier’s COO Mike Alkire agrees that purchasing collaboratives will gain in popularity as healthcare providers try to figure out how best to prosper in the new era of value-based reimbursement.

“Hospitals and health systems nationwide face a significant change imperative as they transition toward value-based care models. Ensuring efficiency while maintaining high-quality care is key to their success,” Alkire said.

“We can no longer labor in isolation. The challenges of healthcare today around cost and quality require health systems work together, both locally and nationally. Premier alliance hospitals in Ohio and across the country are well along that path already. They are preparing for and adapting to a post-reform world that increasingly links costs and quality and pushes providers to coordinate and become accountable for overall health of a population,” he added.

Alkire says the healthcare industry lags behind other industries when it comes to purchasing supplies and believes the collaborative concept will go a long way toward closing the gap.

Purchasing is a complex business, and to be successful you need to leverage data and scale. The reality is that today’s healthcare supply chain is in the stone ages compared to other industries. This is largely because of the fragmented nature of healthcare in America,” Alkire said.

“This type of collaboration allows hospitals to better aggregate their purchasing volume to get a lower price point and to use data and benchmarking to identify opportunities for improvement. The benefit of this work is lower healthcare costs that can be returned to the communities served by these hospitals,” he added.

Given that the supply chain ranks second only to workforce management for where hospitals spend their money, the 57% of healthcare administrators who are focused on reducing purchasing costs this year may want to consider joining a collaborative similar to POWR.

The remaining 43% may want to reconsider their response to the survey question because it might be time to embrace a new model for finding supply chain savings.

From: Health Leaders Media

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