It has been the observation of SVAH and others that 80% of a healthcare organization’s value analysis teams’ time and resources are expended on vetting new or renewal GPO contracts. While this vetting process is necessary, it only yields one, two, or three percent (total supply expense divided by annual contract savings) in annual savings for your hospital, system, or IDN for all your efforts.
And, if you add in the price increases on your GPO contracts on any given year, you will come up with a negative number. So, can you see that this approach to value analysis won’t win your healthcare organization any new value-based contracts?
Four Game-Changing Value Analysis Approaches to Value-Based Purchasing
Value-based purchasing is all about total cost of ownership, not the price at the pump. The lower your healthcare organization’s total cost along with higher quality than your competitors, the more opportunities for new value-based contracts with third parties are realizable.
Value analysis teams just vetting your GPO contracts won’t get your hospital, system, or IDN where you want to be financially over the next decade. Only by following these four value analysis approaches to value-based purchasing can your value analysis team(s) rise to the challenge in the new healthcare economy:
1. Functional Analysis: Functional analysis is applied to value analysis as the first analytical step in determining your customers’ requirements for a new purchase, service, or technology. It requires your value analysis teams to use your customers’ requisitions only as a reference point to start their functional analysis. This eliminates your healthcare organization buying by brand name, which is the costliest way to do business.
2. Utilization Management: If your value analysis teams aren’t measuring, monitoring, and managing the utilization of your GPO contracts, you are missing an opportunity to save hundreds of thousands of dollars annually. This is where the real savings reside in your new, existing, and future GPO contracts, not in price.
3. Evidence-Based Decisions: Evidence to support or not support the purchase of a new product, service, or technology can be found in industry studies, your own healthcare organization’s experience or that of others. How you obtain this information isn’t as important as requiring evidence as one of the first steps in your value analysis process. In SVAH’s Value Analysis Funneling© process, we call this step the UNDERSTANDING/INVESTIGATIVE STAGE, which can never be ignored, skipped over, or forgotten.
4. Life-Cycle Analysis: Just knowing the sticker price of a product, service, or technology you are buying isn’t enough. Today, your value analysis teams must know the cost of the product, service, or technology over its life cycle. Otherwise, it would be like buying a fax/scanner/copier for $99.00, only to discover that it is costing your hospital $1,000 annually in ink cost to operate.
Value analysis’s reason for being isn’t just to be a management tool to vet your GPO contracts. It has a broader scope that needs to be employed by value analysis professionals to truly move the needle on your healthcare organization’s supply chain cost.
Looking Beyond Your GPO Contract Vetting
These four game-changing value analysis approaches to value-based purchasing are a good start for your teams to look beyond GPO contract vetting and then incorporate these techniques into your value analysis methodology to make it more relevant in today’s competitive environment.