Taking Hospital Procurement To The Emergency Room

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Research over the past decade has shown that hospitals in the US market are behind the curve when it comes to good procurement and it is costing them dearly. So, it is time to take hospital procurement to the Emergency Room.

In this insight we will examine the opportunities and challenges that hospital procurement presents for buyers and seller in the sector.

Why Hospitals Have Overlooked Spending

For more than a decade hospitals have been focused on the revenue side of the equation and in particular on battling dwindling reimbursements.

Meanwhile they have payed too little attention to what has been spent and in particular into spending on purchases of hospital supplies.

A three year study by Schneller and Smeltzer puts supplies as accounting for up to 25% of hospital operating revenues – so it is a serious omission.

There are many strategies in pursuit of business revenue and profitability, such as; mergers and acquisitions, or horizontal and vertical integration. The health care industry has tried them all.

However what is arguably the easiest and most profitable strategy has been over-looked. That is strategic procurement and supply, or value chain management.

The Procurement Gap

The gap between those hospitals who are buying well and those who are buying badly is a big one. It can account for up to 12% of operating revenues.

That is according to a detailed analysis of 15 hospitals on the USA’s East Coast who were similar in every way expect their financial results. It published in the important book – Strategic Management of the Health Care Supply Chain.

The best at buying are spending only $244 per patient discharged, while the worst are spending almost 7 times more (a whopping $1640 per patient discharged). The stark difference is shown in the diagram below.

The Implications For Success

As the authors point out poor buying is the difference between a profit and a loss for many hospitals. But the issue of better buying is not just about improving hospital profitability, the return to shareholders and funds available for re-investment. There are also implications for patient care, clinical safety and customer satisfaction. This we will examine next…