DO
YOU GET IT YET?
Value Analysis Is Not About Price, Standardization Or
Capitation!
Most Healthcare
Organizations Still Don’t GET IT about Value Analysis.
They Still Believe It’s All About Best Price, When In
Fact Value Analysis Is All About "Best Value"!
I think it’s time for some straight-talk,
as Dr. Phil would say about value analysis. In Dr.
Phil’s Life Law #1 he tells us that you either get
it, or you don’t about life in general. The
secret he tells us is defining the
IT,
since you can’t get it until you know what the
IT
is.
It’s the same with value analysis;
you either get it, or you don’t. Unfortunately,
most healthcare organizations don’t get it. They still
believe that value analysis is all about having the best
price, 100% standardization, great capitation pricing,
and superior prime vendor contracts. In fact, value
analysis is none of these things. It’s all about the
study of function and the search for lower cost
alternatives.
By focusing all your efforts on price,
standardization, capitation and your prime vendor
contracts, which only represent less than 1% savings
annually for your hospital, system or IDN, you are
losing an opportunity to shave 3%, 6% or even 9%
off your supply chain budget with the technique of value
analysis in 12 to 18 months.
As an illustration, if you are able to
trim 10% off the price of your isolation gowns as the
result of a new GPO contract that is costing you $3.70
each, that’s a .37 cent savings for your hospital.
However, what if by studying the functions of your
isolation gown you are able to find a lower cost
alternative gown that meets your customer’s functional
requirements for $1.00? Which savings would you rather
have, the .37 cent or the $2.70 on
these gowns? I think I know your answer.
In other words, if you want to move to
the next level of supply chain savings at your
healthcare organization you will need a paradigm
shift on what you have been focusing -- price. Price
should be the very last factor to be determined in your
value analysis equation. In fact, we don’t even want to
talk about price at all; what we really want to talk
about is your “life cycle cost” (or birth to
death cost) of the product, services and technology you
are purchasing in determining “best Value”.
Let’s hope you “get it” now!
Value Analysis isn’t about price; it’s about determining
“best value”. This can only be accomplished by
studying the functions of the products, services and
technologies you are purchasing, and then searching
for the lowest cost alternatives to meet those functions
reliably. In doing so, you will dramatically increase
your savings yield by 200%, 300% or even 400%
annually.
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