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The doughnut dilemma: Loyalty vs. cost

August 14th, 2014

by Kevin L. Shrake

Loyalty is a very desirable trait we should value in our personal and professional lives. It is great to have a friend or business colleague you can count on to not only support you, but to always create maximum value for you whether you leverage a personal relationship, or optimize a business arrangement. However, as cost pressures intensify in the business setting, prudent leaders must evaluate and balance the cost of continuity, or loyalty, versus the best financial deal for their organizations.

But she brings doughnuts...

"Linda is the clinical educator for the surgical devices we routinely use in our facility. She is so nice and every morning she comes to speak with us she brings doughnuts!" That is wonderful and Linda undoubtedly is an extremely nice person. But what is the cost benefit ratio of the doughnuts if Linda's instruction promotes the overuse of expensive implant devices that costs the organization more than is clinically necessary and exposes patients to unnecessary risks? How does the education provided affect value based purchasing criteria such as hospital acquired complications, 30-day readmission rates and patient satisfaction?

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But he serviced our equipment for 20 years...

"George is awesome! He comes to support us immediately in radiology when our machines are down. He even went to our annual employee picnic last year. I can't imagine what we would do if we didn't have him to keep our service going." That is very valuable and there is no doubt that George has tremendous respect and credibility with the staff. What if we could create a customized equipment maintenance and repair process that would lower costs by 30 percent and still allow George to service the equipment? Is the relationship alone really worth such a premium in program costs?

We can't buy from two different GPOs...

Once again loyalty is great, but do we purchase everything we need in our personal lives from one store? We don't do that because shopping allows one to find the best deals, promote quality and develop multiple relationships. Companies looking for customer exclusivity don't want competition, but it is a great advantage for those willing to promote a process that lowers cost and enhances customer support. Cost pressures naturally increased the numbers of facilities with a multiple GPO approach which has also driven down the percentage of off contract spending, which is often 50 percent of total purchases.

But what about our bond rating...?

"We have had a relationship with our local bank for decades. They have been great working with us on bond issues and building projects." Having access to a favorite banker that you know and trust is very desirable. But just because your favorite bank provides great service in core areas does not mean you should automatically look to them for equipment financing, electronic payables programs or investment advice. It's advantageous to look at companies specializing in these areas as opposed to expecting a bank to be a jack of all trades.

We must measure loyalty against financial reality today because of the intense cost pressures of our environment. All things being equal, by all means we should feel good about partnering with people that we trust and appreciate. However, if there is financial disparity, leaders have a fiduciary responsibility to act in the best interest of their organization. How do we best accomplish this? Using a scorecard system to take emotion out of the decision process is very effective. Partnering with a trusted adviser who can advocate on your behalf in a vendor neutral fashion is also a great way to optimize decision making.

Kevin L. Shrake is the executive vice president and COO of MDR™, based in Fresno, California. He is a 35 year veteran of healthcare, a fellow in the American College of Healthcare Executives and a former hospital CEO.

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