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That Value Analysis Was Developed Back In the 1940's After World War II as a Way to Find Lower Cost but Higher Quality Alternative products and methods. This was Due to the Lack of Material Resources At The End of The War.

Savings Beyond Price -Weekly eNewsletter - November 03, 2010

Robert T. Yokl

President & Chief Value Strategist

 

3 Big Lessons for Controlling Non-Labor Expenditures

Greetings,

Over the years I have learned three big lessons from my bosses, peers or clients on how to control just about any hospital expenditure (supplies, purchase services, or technology). Just as important, these three ideas have saved more money than almost any other technique I can think of and keeps a healthcare organization’s budget in the black. They are:

1. All purchases must be specifically budgeted

Every year thousands of new product, service and technology purchases are bought by hospitals that aren’t specifically, explicitly, and categorically budgeted. By this I mean that there isn’t a line item in the department’s budget specifically designating a description, manufacturer, product number, volume and dollars that is being budgeted. If you look at most department heads’ approved budgets for any given year all you would see is a category called supplies, purchase services or capital that had a budget number filled in by accounting that I would call a blank check.

Correspondingly, what progressive hospitals have been doing for years to control their expenditures is to have their department heads fill in the blanks (description, manufacturer, product number, volume and dollars) for each and every new product, service or technology that they perceive they want to buy each year. Then they must justify them with numbers, which we will talk about in idea #3.

If a department head was able to get through this gauntlet, then maybe their budgeted commodity would be purchased sometime in the next 12 months, if and when, funds were available and if it could pass the value analysis tests conducted by their value analysis team.

I’m sure you can easily see how this budget process would ensure that NOTHING is purchased that isn’t absolutely, positively necessary vs. most budget processes in place at healthcare organizations today.

2. Emergency purchases, must be counterbalanced with a reduction of some other budgeted item

Another technique that works wonders to keep a hospital’s budget in balance is to counterbalance any approved emergency purchase with a reduction of another item in a department head’s budget. For example, at one hospital where I worked the environmental department was always breaking equipment (carpet sweepers, wet dry vacuums, buffers, etc.) during the year that wasn’t budgeted. They then had to give up some other item in their budget of equal value to obtain approval of their emergency purchase. It might seem harsh to do so but guess what, my hospital never went over budget in any department and we somehow found a way to do more with less.

3. All purchases must have a numerical justification

I talked about this idea in my blog article on September 17th, but I thought it was important to reiterate that if your department heads can’t justify their proposed new budget items by the numbers (statistics, ROI, and life cycle cost) then they shouldn’t be permitted to budget for this new commodity. No…ands, buts or ifs about it!

As I said, all of these three lessons have come from the school of hard knocks and have also passed the test of time. If your healthcare organization isn’t employing these ideas to control their budget maybe you should talk to your CFO about doing so. I can guarantee you that it will make your job easier and absolutely hold your healthcare organization budget in line in any given year.


Warmest Regards,

Robert T. Yokl
Chief Value Strategist
Strategic Value Analysis® In Healthcare
Bobpres@strategicva.com
1-800-220-4274

Your Partner In Savings Beyond Price™,

 

P.S. If you want to learn more about holding your budget in line, you might want to check out the blog article I just talked about “It’s all in the Numbers – Every time!” to understand this concept in detail. 

 

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