Recent surveys by SVAH have concluded that most hospitals, systems, and IDNs are experiencing what Seth Godin, noted author, writer, and speaker, calls “The Dip” or where your value analysis team hits the wall on value analysis savings results despite their best efforts. Incredulously, “The Dip” happens after years of explosive saving results! What do you do now if you’re their VA leader?
The Law of Diminishing Returns
To put it another way, the more time, effort, and resources you expend on your value analysis efforts, the lower the savings results you will achieve over time. This phenomenon is called the law of diminishing returns or the point at which your level of savings is less than the effort invested. “The Dip” is the point where you first realize that you have hit the wall on savings from numerous savings sources.
VA Could Actually Be Losing Money for Your Healthcare Organization
This same SVAH survey shows that there is another value analysis phenomenon you may not be aware of taking place that is materially affecting your healthcare organization’s financial health. This is that most hospitals, systems, and IDNs are approving 1% to 1.7% more in new product, service, and technology requests than they are denying. This fact is costing these healthcare organizations hundreds of thousands of dollars annually and not saving a dime. This practice isn’t sustainable and needs to be avoided.
3% to 5% Historical Value Analysis Savings is Achievable
SVAH’s National Best Price Studies have demonstrated that 1% to 2% in price savings is still achievable in reducing a healthcare organization’s total supply chain budget. However, you will need to belong to a strong regional committed volume group purchasing organization to obtain these additional savings. You can also chip away at waste and inefficiencies in your supply streams for a total annual savings of 3% to 5%. However, your value analysis team won’t move beyond “The Dip” without changing the direction of your value analysis program. Worse yet, it could wither on the vine if you do nothing.
The Next Generation Value Analysis Program
Precisely, we have seen healthcare value analysis programs achieve 7% to 15% in annually savings (moving beyond “The Dip”) when they focus their VA efforts on the consumption analysis of their products, services, and technologies instead of just chipping away at price and standardization. This is a next generation value analysis program that is the future of supply chain expense management. As we like to say, “There is nowhere else to go for double-digit savings.”