Skip To Sections
This value lever can be defined as any revenue, rebate or reimbursement generated from a purchased product or service. Revenue is often overlooked by healthcare supply chain due to the department’s traditional focus on reducing costs. However, many products and services provided by suppliers can play a significant role in generating revenue, rebates or reimbursements for the health system.
Key benefits of this value lever include:
1) Limited Discussion on Any Supply Chain Driven Revenue Opportunities: If your organization is not recognizing revenue as a value lever within supply chain, this may be one of the first signs of opportunity. Once spend categories with potential revenue opportunities are identified, negotiations with suppliers in those categories should include conversations around incorporating revenue or rebates into new arrangements.
Client Example: Pathstone worked with a client that received a cost reduction proposal from its release of information (ROI) provider. Though the client was eager to accept the offer, Pathstone understood that the supplier was funding the client’s program with revenue associated with billable patient requests that were not visible to the client. By analyzing program revenues, Pathstone was able to help the client negotiate a revenue share agreement that generated 30% in additional financial benefit to the organization.
2) Lower Supplier Prices Charged Compared to Market Rates: If supplier prices charged for an outsourced service are lower than what the market typically commands, this is another indication of the potential for hidden revenue opportunities. If the organization’s prices are well below market averages, it may be a sign that the vendor is capturing significant revenue to offset costs of the program being delivered to the client. Further investigation may uncover opportunity for the client to at least share in that revenue. Auxiliary services such as parking and cafeteria are common candidates for these types of evaluations and opportunities.
3) Shrinking Revenue from Existing Programs: If volume for a revenue generating product or service is decreasing, this may signal the current program needs to be modified to align with the current environment. Decreasing volumes may be caused by unexpected factors such as changes in supplier pricing, evolving market forces impacting demand or new supplier/end-user resistance.
Client Example: Pathstone evaluated a health system’s accounts payable commercial bank card program, which offers a quicker payment platform for the health system’s suppliers in exchange for a rebate paid by the supplier to the health system. Our analysis showed low levels of card adoption by suppliers, translating to lower rebates for the health system. A deeper dive into the data revealed most suppliers were already being paid quickly without the use of the card program. By reconfiguring standard payment terms to exceed the card program, the health system created an incentive for suppliers to adopt the card program and thereby increased card program participation and rebates by 10%.
This article was authored by Joseph Jang. Joseph is a management consultant with expertise in healthcare supply chain, non-labor cost reduction and performance improvement at Pathstone Partners.
