You Get What You Pay For – There is More to Cost Than Price

Financial viability is the order of the day for hospitals and health systems. However, when looking for savings, a service or item that is the cheapest is not necessarily the lowest cost.

A recent HealthLeaders’ article, “Find Deeper Healthcare Supply Chain Savings,” which I referenced last week, looked at what a number of systems are doing in order to reduce costs in their supply chain. Main Line Health (MLH), a 1,295-bed health system with $1.4 billion in annual operating revenue was featured in the article because it has undergone an organization-wide initiative to reduce supply chain spending.

“Every year we have a target to cut somewhere between 5% and 7% of our spend,” says Chris Torres, MLH’s vice president of supply-chain management. Yet Torres goes on to say, “The last thing we look at in our supply chain is cost.”

If she’s looking to reduce the supply chain spend, why not focus on cost?

Because the two things that really matter are scalability and utilization.

Torres says finding the cheapest product is not MLH’s priority. “It’s interesting because you can get quality products that are sometimes less expensive and sometimes more expensive, but it all goes back to utilization,” she says. A service or item that at face value is more expensive can actually be “more efficient in the end” if it reduces waste or the need to rework.

And the way to know if you’re reducing waste is data. You have to know what you know in order to objectively assess if something is scalable and enhancing utilization. “The first thing you go in with is data, but it has to be actionable, and it has to be accurate,” Torres says. When something new is implemented at MLH, she says that they monitor it every month.

Looking at the data to actually understand how things are being done or being utilized is the only way to know if and where there are inefficiencies. You have to have a core understanding of your supply chain costs in order to manage it in a more efficient way,” Torres says.

Pulling cost out of the supply chain is critical to a health systems’ long-term financial success, but scalability and efficiency are what can really move the needle because quality delivered is what really matters.