Strategic Value Analysis In Healthcare
STRATEGIC VALUE ANALYSISTM NEWSLETTER
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Strategic Value Analysis In Healthcare |
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STRATEGIC VALUE ANALYSISTM NEWSLETTER |
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August 28, 2003
“Cost Savings Used To Be The Prime Reason For Outsourcing, But Now These Decisions Should Be Driven By Your Strategic Objectives.”
Supply/Value Chain managers have one of the best vantage points in their organization to identify non-core functions that can be more cost effectively and profitably outsourced by aligning these decisions with their organization’s strategic objectives. This is because Supply/Value Chain managers should live in two worlds: the world of an internal function expert and the world of an outsourcing expert. As an internal function expert you should know (or make it your business to know) how your organization’s business processes work and because of your link to the outside world (through your sourcing activities) you should be keeping abreast of what out-sourcing services are available to your healthcare organization. By strategically connecting these two functional responsibilities, Supply/Value Chain Managers can identify process outsourcing opportunities, so that your healthcare organization can reduce expenses, improve your quality, preserve scarce resources and focus on your core patient care activities
What Functions Should Be Outsourced? We recently worked with a healthcare organization that came into being 150 years ago to “provide (behavior health) wellness” to an underserved population nationwide, only to find that they also felt it was their core function to provide fleet management services. With over 350 vehicles in their fleet, which was costing them $2 million annually to maintain, we quickly identified this function as a prime candidate for outsourcing. After extensive research, bidding and vendor negotiations the final result was that it made good business sense to save $380,000 annually and free up scarce labor resources. With our clients concurrence we outsource this non-core function to professional fleet management experts who had the infrastructure, capabilities and personnel to manage this function more cost effectively than our client. As I see it, a healthcare organization’s primary function is to “treat patients”, not prepare food, clean rooms, process checks or the myriad of other non-patient core functions that have been considered functional imperatives for healthcare organizations over the last 100 years. Bearing in mind the scarce and limited resources (money, manpower and materials) that healthcare organizations now are experiencing, outsourcing should be a strategic imperative for all healthcare organizations today, because with few exceptions it makes GOOD BUSINESS SENSE to do so.
Why All This Fuss Over Outsourcing? Outsourcing is no longer something you do when you are frustrated with the performance of your food service, housekeeping or maintenance department, so that you can make this “headache” go away. Outsourcing is now a decision that should be driven by your organization’s strategic objectives to improve your service quality, reduce your overall costs, improve operations and get back to your primary function to “treat patients”.
Hospital Margins Decline Further Does Your Hospital Have A Plan To React To This Change In the Healthcare Marketplace A Hospital Databank Program study shows that hospitals’ total margins declined to 4.2% from 5.8% in the first quarter 2003 compared with first quarter 2002. This is due to increased labor cost, severe work-force shortages, increased medical liability, pharmaceutical and technology cost. Do you have a plan to react to this change in the healthcare marketplace to counteract this negative trend? If not, you better get one fast, since reimbursement from third parties continues to lag behind hospitals’ actual costs.
Strategic Sourcing Sounds Good, But What Does It Mean? More and more large hospitals and healthcare systems have senior management positions called Director of Strategic Sourcing, but what does it mean? Some say it means to optimize quality, service, technology and price through competition. Others feel that strategic sourcing is a higher, more organized and analytical level of buying than had been practiced in the past. While some have defined it as researching the marketplace for new innovative sources (solutions vs. suppliers) and techniques such B to B commerce that will dramatically reduce your cost of acquisition. In the final analysis, strategic sourcing, no matter what the definition you would like to hang on it, is in my opinion, a much better designation for purchasing managers in the 21st century because it raises the bar and expectations on the buying function to new levels of performance and expectations. And that can’t be a bad thing – can it?
About the Author
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COPYRIGHT 2003 - THE HCP GROUP, LTD. - ALL RIGHTS RESERVED |
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by
Robert T. Yokl, President