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November 1, 2001 

HOW TO GENERATE NEW SAVINGS OPPORTUNITIES EVERY YEAR!

A CEO of a 350-bed hospital in Oklahoma called me a few weeks ago, as he was preparing his budget for fiscal year 2001, to discuss how he could generate new savings for his healthcare organization.  He needed my advice, since he believed he had squeezed all of the excess cost out of his operating budget.  The first question I asked him to get an understanding of his situation was did he know what his net revenue to salary ratio and his net revenues to non-salary expenses ratio were?  And did he know his overtime to worked hours ratio and benefits to salary ratio?  To my surprise he said he didn’t!  My next question was, then how do you know with certainty that there are no new savings opportunities at your hospital?  He had no answer for this question either? 

Measurement: The Key to Generating New Savings Opportunities 

A 350-bed hospital can employ over 1,500+ employees and purchase 15,000+ products and services annually, so how could this CEO know with surety if he was rightsized and buying the right products and services in the right quantities and at the right price?  This will leading to the identification of new savings opportunities for him.  The answer is by exacting and continuous measurement of the right stuff!  

Since things change, people change and technology changes every year, there are always opportunities every year for savings opportunities if you know where and how to look for them even at the best-run healthcare organizations.  The best method for identifying savings opportunities is to continuously measure the right stuff: People, Processes and Purchases.  This challenge begins with the development of exacting measurement tools and/or instruments to measure your:

1.                  People

The best way to measure if you are rightsized is to measure in real-time each of your hospital’s departments against a predetermined agreed upon standard of performance.  Then continuously improve on your standards by benchmark yourself again your best in class peers. 

2.                  Processes

Process teams should be employed continuously to improve how you perform your knowledge and clinical tasks with the goal of streamlining and reinventing your financial, medical and operational processes every three to five years, not just when a problem arises that your want to fix.

3.                  Purchases

The purchasing department needs to develop measurement instruments to determine if they are buying the right products and services in the right quantities and at the right price.  To do so purchasing needs to conduct price and utilization audits frequently (annually at minimum) of all of your hospital’s major commodity groups, e.g. pacemakers, stents, defibrillators, office supplies, paper products, forms, food, blood products, endomechanicals, x-ray film, sutures, services, etc., to determine if you have any outliers that need to be addressed.

The question that you may now be asking is, “yes measurement makes sense to find new savings opportunities yearly, but how do I find benchmarks to measure my organization against once I have a measurement tool or instruments in place?”  The good news is that with few exceptions (new modalities, new processes and new products or services) there are copious benchmarks available on almost anything you want to measure that can be obtained from your peers, associations, manufacturers, GPOs, and internet websites that will meet your exact requirements.  So now that you know how to generate new savings every year, let’s get started measuring, monitoring and benchmarking to identify those cost drivers that are eating away at your health-care organization’s profits and viability.

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply/Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Supply/Value Chain”.