Spend Management Technology: The Quickest Way To Cut Healthcare Costs?

Last week in my article Don't Lose Faith In EHRs, I discussed how EHRs (electronic health records) still have the potential to save the United States healthcare system billions of dollars annually even though a recent study by Massachusetts General Hospital and Harvard Medical School showed little monetary benefit from use of the technology to date. While I took issue with several points raised by the research, one thing the study made clear is that it may take several years for the U.S. healthcare system to realize any significant cost savings from EHR technology. The economic impact of EHRs will most likely gain momentum slowly, year over year, as more healthcare facilities begin to leverage the technology in "meaningful" ways. While billions of dollars in potential cost savings from EHRs a few years down the road is nothing to sneeze at, the fact remains that the U.S. healthcare system is in desperate need of significant cost-saving measures that can be executed today. Perhaps the best way to accelerate cost savings in your own healthcare organization is to take a closer look at it's existing purchases and ensure it is spending that money in the most effective manner.

Spend Management Technology Basics
Several spend management platforms are currently on the market that can help ensure you are optimizing every purchase in your healthcare organization. These platforms typically consist of a spend analysis toolset, an electronic RFP (request for proposal) or negotiation management feature, and a contract management module. With these tools, you can not only get a clear view into your spend footprint (i.e. how much you spend on certain items and who you buy these items from), but you can also negotiate more cost-effective contracts using the electronic RFP tools, and ensure that all your healthcare facilities purchase only those items that have set pricing under contract. Spend management platforms produce the most significant ROI when they are leveraged by healthcare GPOs (group purchasing organizations), IDNs (independent delivery networks), or large independent hospitals because of the volume discounts that can be secured. "Approximately 80% of healthcare GPOs currently leverage some sort of spend management platform," says Kristian O'Meara, director of healthcare practices for spend management vendor BravoSolution. "However, this technology has only been adopted by 25% of IDN's or large independent hospitals to date. By leveraging spend analysis platforms in these areas, there is a significant opportunity for substantial savings to our healthcare system in the near term."

3 Steps To Optimize Spending
According to O'Meara, there are three main ways you can leverage spend management technology to quickly optimize your spending and reduce costs:

1. Identify Your Largest Expenses — First, you'll want to use the technology to identify which commodities (e.g. surgical supplies, office supplies, staffing services, etc.) you spend the most money on. If vendor contracts aren't in place for these items, establish them. Aggregating your largest spends under contracts allows you to secure the most lucrative volume discounts.
2. Identify Vendor Fragmentation — Next, you'll want to identify significant commodity purchases that are fulfilled from multiple vendors and consolidate these spends under single- or multi-vendor contracts. This practice will also improve the volume discounts you receive. Furthermore, vendors are more willing to discount their pricing further if they know they are the exclusive, or one of only a few select vendors from which you'll buy an item from within a contracted time period.
3. Analyze Existing Contract Agreements — Several healthcare organizations have already established numerous purchasing contracts, but have no way to effectively police the contracts they have in place. For instance, they can't accurately confirm or deny that the hospitals or facilities within their network are actually purchasing items from the contracted vendors or receiving the contracted pricing. Spend management technology provides you with insight into the purchasing activity of your entire network, allowing you to identify and correct any unauthorized purchasing activities.

While these steps may seem overly simplistic, the monetary benefits that can be realized as a result of effectively leveraging spend management technology are staggering. For example, BravoSolution worked with one GPO that realized it spent more than $50 million annually on bed sheets and other textiles. By analyzing its current vendors and consolidating contracts, the GPO was able to reduce this expense by 25% — that's a savings of $12.5 million a year! Similarly, another GPO used the technology to identify a $55 million annual spend on office supplies and initiated contracting efforts that resulted in a 20% (or $11 million) cost reduction.

In most cases, the largest economic benefits of using spend management technology come as a result of first-time cost savings. However, in many instances, hospital networks can realize year-over-year single-digit cost savings by continually optimizing their spending. If all hospital networks can realize cost savings similar to the percentages referenced above, effective spend management could be the quickest way to cut healthcare costs.