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SPANNING THREE DECADES OF VALUE MANAGEMENT LEADERSHIP

July 11, 2002

VALUE MISMATCHES ARE COSTING YOUR HEALTHCARE ORGANIZATION BIG DOLLARS!

Value Is In The Eye Of The Beholder or Is It?

Robert T. Yokl, President, The HCP Group, Ltd.

We all say we can spot a best value when we see it, but can we really?  Did you know that the Lincoln Navigator is basically a Ford Expedition with a Lincoln emblem and trim, but it cost $10,000 more?  That Kroger’s peanut butter is equal in quality to Skippy and Jif in taste tests yet cost 30% less, or that you can reprocess laparoscopic instruments for 50% less than buying new. These examples of value mismatches when we opt to purchase higher cost alternatives instead of products, services and technologies that have functionally equivalent lower cost alternatives available are costing your healthcare organization thousands of dollars of unnecessary cost annually.  Why, when we need to save every dollar possible, when reimbursement has shrunken and resources have dwindled, do value mismatches still exist in healthcare organizations today?

Three Reasons for Value Mismatches in Healthcare Today

Value mismatches exist in healthcare organizations by the thousands, because of three incontrovertible reasons that are holding back huge savings opportunities:

1.    Price Thinking

Price thinking has created most value mismatches at our nations hospitals. This reason for this is that few healthcare organizations look behind the requisitions they are processing to understand the functional requirements they need, then search for lower cost alternatives that can meet these functions at a significantly lower cost. The search for alternatives stops at BEST PRICE in most hospitals today, thus holding back enormous savings from happening. 

2.    Believing in Myths

With few exceptions, healthcare organizations believe that their clinicians’ resistance to change is the reason why they aren’t saving more money on the products, services and technologies they purchase.  This is a myth! The real reason for clinician resistance is that healthcare organizations aren’t offering their clinicians the best value alternatives to what they are buying now.  Rather, they are offering alternatives that have a lower price tag than what they are purchasing now.  Positive change can only happen when BEST VALUES are offered to your clinicians, then they will welcome the change being offered with enthusiasm! 

3.    First Best Idea – Wins

When healthcare organizations do search for alternatives they often stop their search when they find the FIRST BEST IDEA that saves money over their current price or cost, as opposed to searching for the second, third and fourth best idea that will really drive down the total cost or life cycle cost of the commodity under investigation.  The FIRST BEST IDEA is never the lower cost alternative in any value study. To be truly cost effective, you must push on the second, third and fourth best idea to make dramatic savings happen.

All of the above reasons for value mismatches have one common thread woven through them – PRICE THINKING vs. BEST VALUE THINKING – that is the overriding explanation of why we have thousands of value mismatches at our hospitals today.  Now how can we change this price thinking to best value thinking?

Price Thinking is Holding Back Best Value Offerings

No major purchase of any commodity should ever be made without first understanding the functional requirements of the purchase.  Otherwise, you will leap to the BEST PRICE THINKING first as opposed to conducting a value study to determine BEST VALUE.  Best value is determined by investigating customer functions with them, then meeting their requirements reliably at the lowest possible total cost.  This requires an exhaustive search for alternatives. Then and only then can a product, service or technology purchase be deemed a BEST VALUE in your customer eyes.

Robert T. Yokl, President, The HCP Group, Ltd., has over 35 years of experience as a consultant and manager in the field of Supply/Value Chain Management and is one of the country's leading healthcare experts in value analysis, value engineering and materials management. He is the developer and program leader of the award winning Certified Value Analysis Practitioner Training Program™. Mr. Yokl is also the developer of the healthcare industry's leading ValueNetCentral™ Value Analysis Software. Over the past two decades he has trained thousands of healthcare managers in his patented Strategic Value Analysis™ and Team-Based Project Management™ processes and has assisted scores of organizations in developing their own value management programs. He has published six books, videos and audios on supply/value chain management. His latest book being, “ Strategic Value Analysis™: The #1 Smart Strategy for Taking Cost Out of a Healthcare Organizations’ Supply/Value Chain”.