John Cunningham is Corporate Vice President, Supply Chain for Universal Health Services (UHS) in King of Prussia, Pennsylvania. He started his career with the US Navy and has built an impressive 20-year track record as a healthcare supply chain executive. To say the least, John has seen a lot of the materials management world.
We asked John to share with us his thoughts on ways hospitals can create cultures of savings. In John's own words…
Not too long ago I was working with a materials director who took great pride in driving a hard bargain. He was particularly pleased with a contract in which he won deep price concessions from the supplier. I was helping the hospital run a contract pricing audit. When my team reviewed that specific agreement, we confirmed that he had negotiated a good deal. But in tracking the contract price back to his receipts, we found he was paying a price 54 percent higher than what he negotiated!
Nobody was monitoring "actual price paid", and he didn't have the information systems in place to do this automatically for him.
Throughout the healthcare supply chain, we're winning battles while losing the war. When MediClick asked me about ways we create cultures of savings in our hospitals, my thoughts kept coming back to getting the fundamentals right.
Effective management of our product and price information is one of those fundamentals. We can invest a lot of effort into standardizing a product category or negotiating better prices, but we lose any advantage we gained if we don't have the systems in place to track the progress of our projects over the ensuing months and years. We'll find that pricing creeps back up on us or that our clinicians have slipped new products into our mix. It forces us to repeat the same projects every couple years or so.
The healthcare organizations with the best cultures of savings pay attention to these details. They construct procedures to monitor invoices continually and confirm they're being charged the correct contract price. They stay on top of new products their clinicians order, knowing the impact of any change on existing market share agreements with suppliers. And they invest in the IS infrastructure to support these efforts.
I recently noticed a physician requesting a new product for a surgical procedure. I reviewed the data and – based on his case volume – calculated that adding the item to our mix would cost us an additional $100,000 over the next year. When we talked about it, the doctor highlighted that he brought in millions of dollars in revenue by conducting this surgery in our facilities. How bad would it really hurt to use the new product?
Well, as I shared with him, he would have to generate $11 million in additional revenue just to make up that $100,000 difference to our bottom line.
It might have been the path of least resistance to let this important surgeon use the new product. I know from experience that it happens all the time in hospitals around the country. In this situation, we dodged a sizable increase in our supply costs by paying attention to the data, by knowing the financial consequences of making a product change, and by discussing the impact with the doctor.
We don't need to spend a lot of time and energy chasing after small ideas. The biggest opportunities for savings sit in some pretty obvious places. We help our hospitals the most – and make the best contribution to creating cultures of savings – when we focus on getting the fundamentals right.



