South Florida Hospital News
Monday August 10, 2020

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November 2016 - Volume 13 - Issue 5


Is Your Organization Taking a Strategic Approach to Spend Management?

Many hospitals and health systems take a short-sighted approach to procurement – purchasing products, reviewing vendors and negotiating contracts on a piecemeal basis. Failing to examine spend from a global perspective may lead to missed opportunities and purchasing inefficiencies, and it could hold your organization back.

With the ongoing push toward value-based care, healthcare organizations are under increasing pressure to keep costs low while providing the best possible patient outcomes. Taking a strategic approach to spend management enables organizations to tackle costs head on.
Strategic sourcing is an approach to supply chain management that helps organizations leverage their purchasing power to optimize spend. Doing it effectively involves not only managing the purchases of direct and indirect materials and services, but also deciding when and how to outsource activities or entire departments. In this dynamic industry, strategic sourcing and spend management must become a core competency that hospital leadership monitors closely.
Before you can create an effective spend management program, you need to understand your current sourced spend situation. That entails reviewing your spending processes, centralizing your contracts, and classifying and analyzing your overall expenditures. 
Next, you should reassess your organizational capabilities to determine if there are any functionalities that your organization currently performs in-house that would make more sense to outsource to a third-party vendor, either directly or through a shared-service model.
Now it’s time to look at your strategic sourcing framework on a more granular level to find opportunities to minimize spend and increase efficiency. You may be able to renegotiate existing contracts, develop a standard list of preferred vendors, or consolidate multiple services to a single vendor to cut costs.
However, with value-based care in mind, you should take a holistic view of procurement, looking beyond upfront product and service costs. For purchases of medical equipment and supplies, you should consider factors such as product safety, quality, differences in clinical outcomes across products, and whether any new and improved products will be coming on the market soon.
You should also consider the total cost of ownership for big purchases, including IT systems. In addition to the product cost, total cost of ownership should factor in related expenses, such as training, maintenance, and reimbursement changes.
At the end of the day, the goal is to create a strategic sourcing framework that will continually execute the best deals for your organization in terms of price, quality and service. When done well, strategic sourcing and spend management can help healthcare organizations improve procurement on a global level and help them move the needle closer to value-based care.
Kevin Fine is a director of healthcare advisory services in the Miami office of Kaufman Rossin, one of the Top 50 CPA and advisory firms in the U.S.  He can be reached at
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