Getting to the Next Level of Savings
I’m hearing from our clients that they aren’t saving money with new GPO contracts that are coming across their desk. In fact, they say that they are actually losing money due to 1%, 2% or even 3% price increases on these GPO contracts.
This reversal of GPO contract savings momentum is because the LAW of DEMINISHING RETURNS is now affecting the GPO healthcare model. This immutable law says that continuing efforts toward a particular project, goal or objective (e.g. contract savings) will decline in effectiveness after a certain level of results has been achieved.
Specifically, there is a level of savings that you can achieve with your GPO contracts (national, regional or local), but then inevitably you will hit a wall on savings. I personally believe we have reached the point in healthcare where LITTLE or NO new savings will be achieved in the very near future by any GPO. This is because we in healthcare have reached the level of diminishing returns with our GPO contracts after more than 68 years that GPOs have been in existence.
Now What? Healthcare organizations can’t survive without saving time, money and resources in all their operations every year due to the pressures of unfunded mandates, reduced reimbursement, inflation and now a weak economy. That’s why I have been preaching for nine years that we all need to get to the next level of savings: utilization misalignments in the products, services and technologies you buy. You need to do this or will risk watching your supply expense savings evaporate before your eyes.
Reality Check! The empirical data now quite clearly shows that your GPO contracts aren’t going to provide you with the savings momentum that your hospital sorely needs to survive and thrive in the new economy we are experiencing today. Isn’t it time you reprioritize your savings efforts from contract management to utilization management to hold the line on your savings increases?
Filed Under: Best Practices • Healthcare Supply Chain • savingsblog
