There is a constant tug-of-war between the hospitals and their suppliers. When it comes to supply-chain management, vendor contracts and automation are often touted as the keys to cost efficiency; but without a spend analysis, neither of these may reveal their inefficiencies. When it comes to effective capital management at your hospital, a spend analysis is the underutilized tool that can transform your bottom line and bolster the strategic vision of the hospital.
Adding analytic software can transform a previously manual spend analysis and make sense of the data that’s collected, unveiling areas of greater savings, as Angel Pallin, associate vice president of finance and resource management for Mount Sinai Medical Center in Miami Beach, FL, can attest. In 2001 the medical center audited financial statements showed a projected operating loss totaling $62 million, and by 2009 the hospital was able to turn around a net surplus of $14.5 million—much of which he credits to aggressive expense management.
Mount Sinai developed an internal project management office to control expenses—no easy task for this not-for-profit teaching hospital working with more than 3,000 employees and covering 955 beds and 26 operating suites. The focus had been cutting expenses overall, though they had minimal success with cutting supply expenses. So in 2008 leadership decided to dig into processes, which meant that Pallin and his team had to look for inefficiencies throughout the organization. They found their analytic data was lacking; they needed to upgrade and add to their software. So they went from using two main systems to six interconnected ones.
“We’ve gotten more technology dependent, but we needed a broader picture of our spend,” explains Pallin. “We had a purchasing system in-house, which is still at the heart of the department, but we’ve enhanced the system with other resources such as [Charlotte, NC-based] Premier’s MySpend software, which gives us the ability to look at our spend and benchmark it against other hospitals.”
The ability to benchmark the hospital’s spend has enabled it to enhance its contracts using the analytics as a negotiating tool, Pallin says. For example, if the hospital was to evaluate its use of pacemakers, it would start by using the My Spend program to get a sense of how many devices are being used. Next, using contract software, the hospital would verify it is purchasing the devices through the correct supplier at the lowest price. Then Mount Sinai would cross-reference this against the purchase order system. Finally the hospital would compare its utilization against other hospitals using benchmark software. Once all the data points are gathered, leaders can better understand if there is room to negotiate a better price with suppliers.