Follow The Numbers

"Follow the Numbers Impacting Health Systems Reimbursement Reductions"

When you “Follow The Numbers” health care providers continue to lose financial ground in their struggle with the staggering effects of reimbursement reductions by government-based sources (i.e. Medicare, Medicaid) and managed care (i.e. United Health Care, Amerigroup). At the same time regulations such as HIPAA have cost the health care industry in excess of $25 billion to implement.

Health Providers receive revenue for the services it provides on the bases of legislation (government-based) and negotiation (managed care) triggered by patient care demand. In large measure a health system does not control the revenue it receives for the services (procedures) it performs. Increases in the cost to provide services may exceed contract revenue levels anytime during a legislated or negotiated term. In this environment a health system cannot pass cost increases on to patient or payor. When a Health system’s operational costs are increased often the only option is to cut back on service levels, which can negatively affect patient care and revenue.

Understanding The Numbers

When suppliers for health systems have an increase in cost, or are not generating acceptable shareholder returns, they simply raise prices. Health systems are contractually and legislatively forbidden to charge for services beyond legislated or contractual limits. These market dynamics combined with the cost of supply-chain inefficiencies, staffing shortages, and the annual growth in the senior population, have caused significant cutbacks in patient care and related health care services (revenue).

In every market the earliest targets of new technology are the largest companies seeking more efficient business solutions. Health care is no different. The largest group purchasing organization’s (GPO’s), manufacturers, and wholesalers are targeted from every direction regarding the latest solutions. Because health systems do not have the disposable dollars, they are often left out in the decision process when identifying the benefits of supply-chain initiatives. Only the largest suppliers of health care can afford to burn millions of dollars building supply-chain initiatives.

For the most part these supplier initiatives provide a way for service and supply companies to trap Health systems in purchasing only their products and services (proprietary catalogs). Health systems are now realizing that proposed solutions delivered through suppliers and GPO services do not provide the solutions needed by health systems.

Investments to date in health care supply-chain initiatives exceed the amount of transaction revenue expected in any reasonable revenue model or term. In fact, a conservative estimate of reported burn rates from GPO’s, manufacturers and wholesalers exceeded $100’s of millions of dollars. Health systems often ask why suppliers will spend more capital than can be recovered.

Is it to help customers buy more products with less competition? This misguided delivery of services is why supply-chain initiatives driven by suppliers and GPO’s have failed to create significant benefits. Health care professionals are now demanding self-directed supply-chain initiatives with proven results.

Medical Supply Chain self-directed initiatives can provided substantial results and savings in excess of 40%. Health systems urgently need self-directed management tools delivered through a neutral source with the ability to execute fundamental supply-chain activities. Medical Supply Chain has developed supply-chain initiatives supporting the health system in controlling the outcome of their contractual relationships and eliminating internal and external supply-chain inefficiencies.

In other industries supply-chain activities not only revolutionize how products move through the supply-chain but also how suppliers and buyers communicate. The health care supply-chain has yet to embrace true supply-chain fundamentals and as a result has not begun to reap the enormous benefits and savings. As supply-chain initiatives continue to evolve in health care, the focus for many health systems will be non-intrusive self-directed supply-chain initiatives. For more information, please review our FAQ’s

“Follow the Numbers Impacting Health Systems Reimbursement Reductions”