Getting Past the Supply Chain Credibility Gap

Your Healthcare Organization’s CFOs are Expecting and Inspecting Whether Your Price, Standardization, and Utilization Savings Are Sticking

The world of supply chain/value analysis expense management is changing quickly and in ways that you might not have imagined or anticipated. That is, healthcare organizations’ CFOs are expecting huge non-salary expense savings from their supply chain and value analysis managers and then are inspecting that these same savings are hitting their healthcare organization’s bottom line. Yes, CFOs are asking their supply chain and value analysis managers to make more savings happen, but to also prove that their price, standardization, and utilization savings are sticking.  

No Longer Can Supply Chain and Value Analysis Managers Guesstimate Their Savings; They Must Also Prove Them

We know the game: We identify, negotiate, or contract for new non-salary expense savings and then guestimate the savings that will be generated by this change. We then report these same estimated dollar savings to our CFO as being saved. The problem is, based on SVAH’s multi-year research, only 46% to 72% of these reported savings hit a healthcare organization’s bottom line. This creates a vast “credibility gap” for supply chain and value analysis managers that needs to be closed immediately.

This “credibility gap” is happening at all healthcare organizations because something has happened between the time of the original savings guestimate and the acknowledgement of the savings in your hospital, system, or IDN’s general ledger. Some causes of this anomaly could be poor in-servicing training, product upsell, over-utilization, insufficient historical data, optimistic estimates, etc.

We should also have mentioned that 8% of the time these projected savings are grossly underestimated. Therefore, supply chain and value analysis managers don’t get credit for these extra tens and hundreds of thousands of dollars saved. If you are getting a bonus based on your annual savings, this is a real problem!

To this point, we are hearing from multiple clients, colleagues, and our value analysis community that more and more of their CFOs are now requiring them to prove that their reported savings are hitting their bottom lines. Are you ready for this accountability or do you believe that your CFO will just believe any savings you report to them – without verification?

Non-Salary Savings Verifications/Quantification Is the New Normal

If you believe that your CFO will continue to accept your non-salary savings guestimates as business as usual, you have missed our point. They have bosses too, and a board of directors that they also must report accurate data to. This is impossible to do if they continue to rely on non-salary savings estimates from you and then don’t have them verified and quantified as real. That’s why CFOs are expecting and inspecting non-salary savings that have been reported to them as guestimates.

Based on our research, this high level of accountability can only be accomplished with a Supply Compliance Performance System that will track, verify, and quantify all of your price, standardization, and utilization savings for any given period. No longer will you over or under estimate your non-salary savings. You will have a precise tool to adjust your savings estimates up or down for any period that you would require finalizing your savings reports, which will read estimated and implemented.  Implemented savings would mean savings that have been proven to hit your healthcare organization’s bottom line. Doesn’t this make sense as a better and more accurate way to report your non-salary savings? I hope you agree it does!