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SPANNING THREE DECADES OF VALUE MANAGEMENT LEADERSHIP

October 14, 2002

Supply Chain Managers Can Generate Revenue Streams, as Well as Cost Reductions, For Their Healthcare Organization

“ Supply Chain Management Isn’t Just a One Way Street (cost reductions), it Should Also Greatly Contribute to the Revenue Stream of Your Healthcare Organization”

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

Supply chain managers who have been aggressively focusing their efforts on cost reductions in their supply/value chain may be missing adding potential value to their supply chain “beyond cost reductions”, if they also don’t consider contributing to the revenue stream of their healthcare organization.  As cost reductions slow down or shrinks over the next few years, based on the law of diminishing returns, how can supply chain managers continue to contribute value to their healthcare organization?  One answer to this challenge is for supply chain managers to transform their organization from cost reductions only, to also one of revenue enhancement.  Here are a few ideas on how to add additional revenue to your supply/value chain.

ü      Charge Administration

Even though up to 90% of your patient product charges are fixed or bundled under DRG, APC and HMO reimbursement formulas there is still approximately 10% of your patient charge revenues that are reimbursed on a patient charge basis.  One healthcare system we are working with patient’s product charges represent $12 million annually. This is a big chunk of money that if optimized, through effective charge collections and creative pricing models, can grow by 10% to 20% if supply chain managers start focusing on this area of their responsibilities.

ü      Equipment Asset Management

There are three areas in equipment asset management that can enhance a healthcare organization’s revenue stream: trades, disposal and refurbishment.  

·        Equipment Trades

All healthcare organizations routinely trade in equipment annually to manufacturers for meager credits against new equipment purchases. This equipment should be sold on eBay or auctioned off at higher residual values. Computer manufacturers have found this to be a real goldmine for their used or outdated equipment.

·        Equipment Disposal 

I have been in healthcare organizations that have set aside whole warehouses or even rent one for the storage of used equipment that just sits there waiting for someone to do something with it.  Don’t you make this same strategic error, if a piece of equipment hasn’t been used in one year then sell it off at a fair market price, as opposed to warehousing it until it ends its useful life and has no value at all.

·        Used or Refurbishment Equipment

Most hospitals believe they must buy new equipment (desk, chairs, carts, shelving, refrigerators, medical equipment, etc.) when used or refurbished equipment will meet their functional requirements at 50% to 75% the cost of new.  As an illustration, at one time in my career for a new building project, I contracted with a refurbisher who restored millions of dollars of our own office furniture to like new conditions vs. buying millions of dollars of new furniture at a tenth of the cost of buying new.  That’s like giving your hospital a donation of millions of dollars annual for capital equipment purchases.

These equipment asset management revenue enhancing tactics are just a few thoughts on how to squeeze more dollars out of your equipment budgets and return the extra cash to your hospitals revenue streams in big chunks. In addition this will create additional space for revenue producing departments that are now filled with used equipment. 

ü      Selling Products or Services

We all have some great internal products, services or processes that other healthcare organizations would pay to have access to. Companies like IBM, which sells their sales system, 3M that sell their TQM program and GE, which sells their 6 Sigma program, have been doing this for years.  Maybe it would be the software program you developed to manage and control your linen utilization, or a training program for newly hired buyers that you have been successful implementing. Whatever the product, service or process you decide to offer to the marketplace, it will generate new revenues for your hospital or system that will contribute to your bottom line…and that’s always a good thing to-do to create value!

Creating Revenue Streams as a Strategic Objective

If you are serious about adding to your hospital or systems’ revenue stream (and you should be if you want to continue to show value to your senior management, because that’s how you get big raises and promotions), then you need to consider it a strategic objective of your supply/value chain management and actively seek out revenue enhancement ideas annually that can add value to your supply/value chain and new revenue streams for your healthcare organization.

Lastly, if you want to truly be a strategic leader and a trendsetter at your healthcare organization you will need to document your value to your executive management in the form of a profit and loss statement for all of the revenue producing ventures that you developed and are managing for your hospital or system.  By doing, so you will demonstrate to your management that supply chain management isn’t just a one-way street (cost reductions), but also can contribute to the revenue stream of your healthcare organization.

 Copyright © 2002 The HCP Group, Ltd.

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”.