by Kevin Groarke
Vizient Consulting Director
As hospital supply chain departments around the country evolve through varying states of maturity, they likely will have driven out most all operating expenses in the traditional spend categories. Med-surg commodities, physician preference items and purchased services categories will have been targeted, and additional savings opportunities will slowly dry up year over year. To continue to achieve the savings target supply chain departments are tasked with every year, they will have to explore new spend categories for value, savings and optimization. More and more supply chain departments are targeting spend in the facilities and construction space. Here are four opportunities where hospital supply chain leaders can derive value and savings from their group purchasing organization (GPO) in the facilities and construction space.
When I assess a hospital’s spend in the facilities and construction space, I often see that they are using multiple suppliers in the same category. Whether the category is a service based or a material/supply category; hospitals will see greater savings if they can aggregate spend and drive consolidation to one supplier. For instance, a large integrated delivery network in the northeast was using different elevator maintenance suppliers to service different hospitals within their system. This approach limited the opportunity to aggregate spend as a lever for lowering cost and did not impact operational efficiencies associated with vendor consolidation and management. We worked with the system to standardize all hospitals within the system to their vendor of choice; achieving a 13% savings on their elevator maintenance spend.
Sign end-user agreements
Hospitals also often leave value on the table with their End-User Agreements (EUA). An EUA may be required when utilizing a GPO agreement for services, as they often have nuances that are not necessary in a traditional GPO commodities contract. If a hospital does not sign the EUA with a supplier that requires one, they will not be granted any of the benefits of the GPO contract. These benefits including pricing, administrative fee return or value-added services from the supplier. Hospitals that do not sign the EUA may not be able to look retrospectively and collect administrative fee share on past spend with the supplier. One academic medical center in the northeast had three different GPO contracts, totaling about $4 million in spend, with no EUA in place. Once they signed the EUAs, they added roughly $120,000 in administrative fee back to their annual share-back.
Identify third party construction spend
Most GPO agreements are accessed through direct purchasing channels in the form of a direct payment from the hospital to the supplier. In the facilities and construction space, often the materials are procured by the general contractor or subcontractor on behalf of the hospital. Although these materials are not directly procured by the hospital, the hospital is still entitled to the benefits of the GPO agreements, including pricing and administrative fee share return. It is important that hospitals’ supply chain and facilities departments work together with the general contractors and subcontractors on facilities and construction projects to ensure the hospital is receiving the pricing and administrative fee share return associated with the GPO agreement.
Optimize GPO contract connectivity
Because GPO relationships are usually born out of the need for medical supplies, devices and equipment, as well as pharmaceuticals, it is common for those managing the facilities and construction areas to overlook the breadth and depth of a GPO’s portfolio offering in this space. This is a significant missed opportunity to utilize the added value of the GPO’s strong terms and conditions, pricing and administrative fee share return. To help ensure optimal GPO contract connectivity, cross reference an accounts payable spend report of your hospital’s facilities with your GPO’s contracts in that category. It will help you to identify GPO contracts you can access and ensure you are maximizing the benefits associated with the partnership to your GPO.
As hospital supply chain departments across the country are continually tasked with increasing savings goals year over year, know there is untapped savings potential in the facilities and construction space. By standardizing suppliers, signing end-user agreements, identifying third party spend and optimizing GPO contract connectivity, you will be targeting new savings opportunities while getting the most value from your GPO. If you need help in this area, check out Vizient’s facilities, capital and construction solutions.
About the author
Kevin Groarke brings more than six years of experience in the health care industry. Kevin works as a consulting director on the Facilities, Capital and Construction Advisory Solutions team where he leads engagements focused on driving standardization, reducing costs and optimizing spend in the Facilities and Construction Space. Prior to this role, Kevin served as a portfolio executive and helped to expand the breadth and depth of Vizient’s facilities and construction portfolio. Before joining Vizient, Kevin spent four years in various roles in supply chain and purchasing in the health care industry.