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Did You Know...?

That Value Analysis Was Developed Back In the 1940's After World War II as a Way to Find Lower Cost but Higher Quality Alternative products and methods. This was Due to the Lack of Material Resources At The End of The War.

Savings Beyond Price -Weekly eNewsletter - September 7, 2011

 

A Note from Robert T. Yokl,
President and Chief Value Strategist

I guess most of your kids and grandkids, as mine are, are back to school and you can get a little time to yourself. That is until they interrupt your leisure time to take them to their football, soccer or cheerleader practices.  It’s a never-ending cycle that doesn’t change even when they are all grown up! Then you will need to go to your grandkids games too!  

There is something that changed recently, do you know why your hospital’s non-labor expenses are increasing at a rate of 3.5% annually and now exceed your hospital’s labor cost? That’s the topic of my feature article this week that I believe needs to be addressed and pondered before these costs are completely out of control.  

In my blog article this week I talk about whether there is a
“single bullet” (or one solution) that supply chain managers should know about to rein in their cost.  Or, is it an arsenal of solutions that really gets the job done right? I’m sure you can guess what the right answer is… 

Finally, we have our new report “Guide To Automating Your Supply Value Analysis Program”, published and posted on our website for you to download at “no cost” to you.  It’s all about how you can quickly and consistently generate superior VA results by employing technology to do the heavy lifting. I hope you enjoy reading this new guidebook and then will give me feedback @ bobpres@strategicva.com on what you think of it.

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Why Are Our Non-Labor Expenses Increasing?

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I’ve heard a lot of talk lately about hospital non-labor expenses outpacing their labor cost and then at some time in the future actually passing them. I wasn’t sure these predictions were factual until I recently came across a study performed by Thomson Reuters that revealed that hospitals’ non-labor costs are NOW (not in the future) at $3,791 per discharge whereas labor costs per discharge are $3,319. This is a 13% spread (labor vs. non-labor) that is increasing about 3.5% annually.

This has been the trend line since 2008, and it doesn’t seem to be slowing down. The big question then is “Why are our non-labor expenses increasing?” I have a few thoughts on why this is happening and what we can do about it before we have lost control of this spend category completely. They are:

• Health Insurance: One of the largest non-labor expenses for a healthcare organization is health insurance which is increasing at an unbelievable rate of 8% to 8.5% annually, while our inflation rate in 2010 was 1.5%. I believe the answer to this challenge is for hospitals are to open employee clinics to control one of the most costly aspects of healthcare -- unnecessary visits to doctors and emergency rooms. This won’t solve this costly problem altogether, but I have confidence that it will put a big dent in it.

• Purchase Services: In an effort to rein in their costs hospitals have outsourced more and more of their clinical and operational services over the years. This has increased this non-labor cost category exponentially from prior years. To control these costs efficiently and effectively they need to be centralized under the control of your supply chain department, which isn’t the case in most healthcare organizations today.

• New Purchases: I am always amazed at how many new products, services and technologies (we have seen it as high as a 24% increase quarterly) are purchased by every hospital we have worked with over the last 12 years. In my opinion, this is a symptom that value analysis programs aren’t working the way they’re supposed to at healthcare organizations today. This is especially troubling since there are very few really new products, services and technologies in the healthcare marketplace. Most are repackaged to look new, therefore we must do a much better job of value-justifying what we buy to hold back these purchases.

Since our inflation rate over the last three years is running an average of 1.4% annually you can’t blame all these non-labor expense increases of 3.5% in 2010 on inflation. It’s much more than that; it’s about effectively controlling all, not just some, but all of your non-labor expenses as successfully as you have done with your supply expenses. It’s all about committing the necessary time, money and resources to doing so!
 

Warmest Regards,

Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
Bobpres@strategicva.com
1-800-220-4274

Your Partner In Savings Beyond Price™,

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