Today’s hospitals and health systems are challenged to remain profitable while providing improved patient care. Targeting the amount spent on supplies, in particular Physician Preference Item (PPI) spending, provides an effective way to reduce unnecessary spending.

This is one of the main ways to create savings significant enough to make a real impact on a hospital’s budget and profits, since PPI makes up 40-60% of the total cost for supplies, according to Definitive Healthcare. New strategies are emerging that empower healthcare executives to reclaim millions of dollars in wasteful spend and reallocate that money to improved functioning for their organization and better care for patients.

1. Negotiating

Supply executives know that negotiating can help them bring prices down, yet it takes time and effort to pursue new contracts or renegotiate current ones. Nonetheless, it’s generally worth the effort since savings on a better contract add up quickly and create considerable change over time. It’s possible that executives are leaving a lot of money on the table, and they will only receive that money if they ask for a new Physician Preference Item contract.

They need to find ways to focus on negotiations to realize savings. It’s often possible to cut down on price by cutting out middlemen that add fees, such as sales representatives and group purchasing organizations (GPOs). Hospital administrators can often negotiate directly with manufacturers or distributors, especially for PPIs compared to simpler medical supplies.

Some hospitals have adopted a system with no sales reps, which involves having the manufacturer directly train the staff on an item. Nonetheless, with so many products and vendors, this method is not always possible. Another strategy is hospitals sometimes start with a short-term contract before deciding whether to move into a longer one with a particular vendor.

2. Improving Standardization and Communication

There tends to be a lack of standardization between the different levels of the medical supply chain, which leads to incredible waste. In Becker’s Hospital CFO Report, Emily Rappleye explained that a lack of efficiency within the supply chain leads to $5 billion of wasted product per year. By the different parts of the supply chain, such as manufacturers and distributors, working together and sharing data, they can reduce waste and improve the process. An example would be the use of radio-frequency identification-based technology (RFID) to give different parts of the supply chain real-time data and analytics on products. Different parties can then all access the information through the same platform.

Standardization and sharing of information can facilitate cost savings within hospital systems and between different health organizations. Rappleye gave the unique example of BJC HealthCare, Cardinal Health and Cook Medical sharing resources between organizations, which enabled them to cut down on waste and costs. They already had strong data on purchasing but not on the use of the products. By creating a system for shared data between organizations and better real-time data through RFID, they achieved results that included $17,000 in credits and a 57 percent inventory reduction for one hospital, as well as a significant reduction in expired products across numerous hospitals.

Hospitals pay a huge range in prices for the same item. Data collection and sharing helps hospitals see what others are paying so they can better negotiate. By having a better idea of costs and communicating that with surgeons, University of California was able to save more than $60,000 within four months within a test program, according to Definitive Healthcare.

3. Including Physicians in Decisions

Empowering physicians to be part of the PPI process helps to improve spending and makes it easier to initiate change. Definitive Healthcare explains that providers often choose supplies based on personal preference, yet they might make different decisions when armed with more information. Supply chain leaders need to provide physicians with real, actionable data and recommendations. When they are prepared with this information, they act as strategic members of the organization and earn the trust of physicians.

President at Initiant GPO, John Streger, spoke about meeting and communicating with spine surgeons in practice to share information on vendors, requested items and prices, which can be more effective than just telling them they need to use certain vendors and having them question that. “So, we go through a process structure-wise where the surgeons and value analysis or administrative person helps design that strategy. We gain commitment to that strategy, and then we go to market with that strategy and then bring that back.”

Sales representatives tend to target physicians directly, which can influence physicians to choose certain products and vendors. It can improve a hospital’s system when administrators share different options with the physicians to help them make the best choice for patients and the hospital rather than following a sales pitch.

Another method for saving on Physician Preference Item costs is to have a committee of doctors that considers PPI requests each month. Doctors have to make sure a PPI is valuable before presenting it to the committee, and the committee votes on requests. Supply chain and logistics consultant at Health Future, Leslie Flick said that by having committees with physicians, “What we are able to establish very quickly with that vendor community is that we know better than they do what our physicians actually think about their products.”

4. Incorporating Technology

Hospitals face many challenges in improving their PPI sourcing systems. They often don’t have the time or staff to fully review different options and lack an established system for handling PPI requests and items.

Technology can help with many of these problems and assist hospitals with moving forward to a new method. A clinical sourcing platform can create an efficient system for hospitals and health systems to collect information on different PPIs and vendors, pick the best options, bid and track everything. It can make it easier and faster to save money on PPI spending.

Generally, the contracting cycle of a PPI takes too much time because of manual sourcing of information. Hospitals can simplify negotiations and the contracting cycle by leveraging technology to manage the process.

Streamlined Solutions Are Available

If you’re ready to harness price and market data to move your sourcing strategy to new levels of efficiency and cost savings, check out our free, open price benchmarking app iQO Explorer. With data from over $14BIL in annual purchases from over 450 US hospitals – you’ll have the insights you need and never have to pay for benchmarking again.