Ten Practices For Increasing Hospital Profitability: Tip #2

Yesterday I began a series of posts on how to make your hospital more profitable and covered the art of making data driven staffing decisions. Today I want to move on by discussing how to reduce supply costs.

Tip: #2 Reduce supply costs by better managing vendors

Yesterday we talked about the largest expenditure that hospitals deal with, staffing. Today I want to cover another significant expenditure, supplies (particularly medical supplies). This involves not only working with vendors but also getting your physicians on board to make fiscally responsible supply choices. It has often been said that the costliest instrument to a hospital is the physician's pen. Of course that has now been replaced by his or her keystrokes on the CPOE system. Working with vendors will go just so far if they have they physicians tightly aligned with them.

In dealing with vendors, do not be shy about demanding additional discounts due to the harsh economic times the hospital is facing. Although the medical supply business is also experiencing a downturn in profits, most are still faring a lot better than hospitals. They certainly will not provide discounts you don't ask for, and probably will still be reluctant until you threaten to take your business elsewhere. Keep in mind that this threat only works if it is real. That is why you need your physicians aligned with you before you start.

Experts have always talked about a partnership with vendors and this is a laudable objective which can only be achieved with totally aligned incentives. I don't think that really exists in today's cutthroat world of medical sales. I know of too many experienced reps who have had long term relationships with physicians and hospitals compromised by corporate demands for more sales whether it is the right product or not for that patient.

Many hospitals have had success by reducing the number of vendors they deal with and limiting the variety of inventory. Again this requires physician support. Another key area is to require purchase orders 24 hours in advance for any equipment or implant that is not already covered by a negotiated written agreement. Vendors must sign a statement that if they fail to do this, the item they provided is free to the hospital. This aligns the vendor's financial incentive with yours for that partnership.

Finally, in dealing with physicians, they truly must be treated as partners. Forcing changes on them for medical supplies or equipment will just not work. They must be involved from the start and both parties must ultimately be ready to make compromises. Sometimes it is better to give in on the cost of an item if it will secure the loyalty of a physician down the road.

More on profitability practices tomorrow.

Mark Brodeur