How Managing Supplier Relationships Reduces Revenue Cycle Costs

Karen Minich-Pourshadi, for HealthLeaders Media , April 14, 2011
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“Today there is a significant focus on providing low-cost healthcare. But in reality, cost is really only one part of the equation. We also have to consider utilization and the quality of the service and goods we receive,” Phylis explains. “Consider the impact a poor-quality product can have, even if it is less expensive; it’s huge. You need to build that type of evaluation criteria into your work with vendors.” 

Johnson says SRM entails using evaluation and goal-setting criteria, especially for your largest vendors. This criterion can be part of your contracts or a set of written expectations established with the vendor that is used as leverage for keeping the vendor long-term.

“It’s as much the supplier’s responsibility as ours to keep track of the benefits of using a particular company,” Johnson says who encourages the use of scorecards. “It’s also beneficial for the supplier to have a tool to use to point out why their service or product is better than their competitors’ product, which may be cheaper.”

Phylis agrees. “There are certainly many agreements based on setting mutual market-share goals that benefit customer and vendor and indirectly improve quality of patient care. I have seen several situations where agreeing on market share—say 80% of one product or drug within a class of products or drugs—leads to increased business for the vender and lower cost for the hospital.”

Johnson says that because supply chain managers often are only looking for the best price, they don’t offer any loyalty to the vendor, which creates a relationship of mistrust. Part of supplier relationship management calls for building an accountable relationship between both the vendor and the hospital that encourages both parties to strive toward helping everyone meet goals.

“When you both keep track of a vendor’s year-over-year progress, you can celebrate successes and develop long-term relationships. And you can justify why you are rolling over a contract and you don’t have to put it out for bid,” Johnson concludes.


Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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