Helping hospitals to tackle rising cost

Background
Almost half the total cost of hospitals in the Netherlands are due to purchased goods and services. Suppliers typically make solid to very good margins on their sales to hospitals. There are many reasons for that. Generically it is strongly driven by the fact that the sales and marketing power of suppliers is stronger than the hospital’s ability to manage volumes, set specifications and effectively negotiate and enforce contracts. Orchestrating a counterforce against this power can be highly effective and bring substantial savings. We have done this ‘reverse-marketing’ for several hospitals, most recently for a large group of hospitals.

Why we became involved
Hospital management, asked us to help organize the counterforce against the marketing power of their suppliers, leveraging our experience in the private sector. Goal and explicit purpose of hospital management was to reduce costs by better purchasing and invest these benefits in enhanced care activities/ tools/ facilities. This was pivotal in securing the full support of both medical and other staff.

What we did
Key was to find ways to set new volume and spec levels, as these influence costs much more than price alone. First, we needed to construct a transparent overview of the total annual purchase (all €€€ paid) by supplier and type of purchase. Then for the large categories and product-types, we reviewed how volume and specs were determined and what alternatives for lower cost levels could be envisioned. The actual alternatives and cost reduction ideas were generated jointly with the key professionals involved. This provided new volume and spec levels that were agreed upon and could be entered into the negotiations.

In parallel we reviewed price levels: internal and external benchmarking provided insight for lower realistic price targets. And formed the closing piece for the negotiations.

The result
Armed with new targets for volume, specs and price we assisted hospital management in entering renegotiations with their largest suppliers. We also stimulated doctors and other professionals to take an active role – this provided extra power in the negotiations and longevity of results. The savings were well above 10% of the total purchasing volume of the various hospitals.