Spend analytics are shedding light on supply chain costs at one of the largest non-profit health systems, enabling leaders to consolidate and better manage contracts.
As one of the largest non-profit health systems in the country, Banner Health relies on hundreds of contracts to ensure providers have the supplies they need to deliver high-quality care, and now spend analytics are helping the system manage those contracts and reduce supply chain costs.
“There’s a lot of disparity when it comes to contracts and suppliers,” explained Jon Ellsworth, director of strategic sourcing at the 28-hospital system in a RevCycleIntelligence.com interview. “Banner operates in several different states and geographical regions. We have large academic hospitals, but we also have very small critical access hospitals.”
The supply chain needs are different at large academic hospitals versus a small rural facility. But like many hospitals across the country, consolidating contracts is a major cost-cutting opportunity at Banner Health.
The average hospital spends nearly one-third of its overall operating expenses on supply chain, and those expenditures are slated to surpass labor as a hospital’s greatest expense by 2020, according to seasoned industry experts.
For an organization as large as Banner Health, supply chain expenditures are a major drain on hospital and health system resources, and one that is made larger without a tool that can show supply chain leaders just where money is going.
Most hospital staff report using manual processes to perform supply chain tasks like inventory management. These manual processes are negatively impacting workforce productivity, leading to overutilization and waste and even patient safety events, according to hospital representatives participating in a survey.
Using analytics can not only help hospitals understand supply chain costs but identify where they can consolidate spending to increase purchasing power, improve system-wide efficiency, and lower costs.
At least that was the case at Banner Health, Ellsworth stated.
“We use Medpricer to help us categorize our spend so we understand what the organization spends in terms of collections, coding and billing, background checks, et cetera,” he said regarding the recent implementation of Medpricer’s mSource solution, which is a purchased services cost management tool that uses spend analytics and a reporting functionality.
The analytics solution allowed Banner Health to aggregate supply chain costs across the organization and understand contract specifics, such as expiration dates and recurring payment amounts at various hospitals. With that information, there is now an opportunity to have a conversation with executives and providers to consolidate vendors, Ellsworth explained.
“The tool helps my team understand who’s in this space and where they can layer in more hospitals when all my contracts are up for renewal. It saves my team a lot of work, hours, and effort to quickly understand what a category might look like from a spend perspective,” he said.
Saving time is one of the greatest benefits of using supply chain spend analytics, Ellsworth added. “Dollars are really important. But the bigger value for us is the freeing up of time,” he said.
The analytics tool, for example, reduced the amount of time and effort to create and go after requests for proposal.
Banner’s supply chain team spends anywhere between 50 to 100 hours to create a data-driven, complete request for proposal, which is typical for the health system and hospital industry. With the analytics tool, however, the supply chain team can use the system to identify a category or contract that the health system should pursue for renegotiation. The system also calculates the potential savings from renegotiating the contract, enabling Ellsworth and his team to determine if the amount of time needed to create a new contract is worth the potential savings.
“We’re able to prioritize our work internally to see if an opportunity to renegotiate make sense from a business case standpoint or if there is somewhere better that we can spend our time and our resources for a higher ROI,” Ellsworth highlighted.
Banner Health is also able to identify potential savings from contracts with recurring payments using the supply chain analytics tool, the supply chain leader added.
“Think of a mortgage: you pay the same amount every single month. Similarly, Banner has hundreds of contracts in which we pay the same amount every single month, and we spend billions of dollars per year on those contracts,” he explained. “A lot of those contracts have been in place for several years and were created under previous leaders. Unfortunately, like most health systems, we sometimes forget about them.”
Supply chain analytics, however, bring some fortune to the health system. Through spend management analysis, the tool brings contract details to light, including recurring payments. Supply chain leaders and executives throughout the organization can now see what payments are going where to determine if the health system is still getting a good deal from a vendor.
For Banner Health, the tool has allowed supply chain leaders to identify potential areas in which the health system can renegotiate contracts for better value.
“Savings are not guaranteed, but a lot of times we can go from a fixed fee arrangement to a variable arrangement that aligns, for example, with adjusted patient days, or we adjust the scope of the contract accordingly,” Ellsworth said.
The supply chain analytics tool also helped the health system to “understand where there are anomalies in spend, where there are recurring payments, and where the organization can better utilize its scale and size,” he added.
In a largely manual environment, hospitals and health systems have the potential to significantly reduce costs and improve productivity using supply chain analytics. Understanding supply chain costs across the health system and being able to break down and categorize spending is key to jumpstarting conversations with the C-suite and providers on how to better manage the supply chain.
“We want to make sure that we have the data to support those conversations,” Ellsworth concluded.
Date: October 10, 2019
Source: RevCycle Intelligence