Optimizing Contract Compliance: Putting ERP Data into Practice

Imagine this: After a year-long clinical review and value-analysis process, your health system leaders have decided to standardize all cardiac valve replacement surgery supplies and enter into long-term, best price contracts with only a handful of vendors.

On paper, this decision should save $20 million in expenses a year. But after one quarter, your CFO looks at the numbers to find that only half the savings expected will likely to be realized.

What went wrong?

For most health systems, contract compliance is an uphill battle. Even after difficult reviews have occurred and a standardization decision has been made, there invariably remain outlier clinicians who continue to order off contract. This happens due to habit or lack of knowledge about the standardization decision.

Identifying outliers and ensuring their compliance is an incredible challenge, particularly as systems grow and become more complicated networks that span across settings within the continuum of care. For multi-site systems, managing compliance is more than materials managers can shoulder alone. Integrated data, analytics, contracting and enterprise resource planning (ERP) technology, is needed to ensure all savings are unlocked.

Next Generation ERPs Standardize and Remove the Outliers

ERP technologies that digitize and automate internal processes have been around for decades. But next generation ERPs that are combined with a robust data and analytics platform can better support standardization goals. Next generation ERPs have the capabilities to limit order options, automatically suggest or substitute options, and quantify the financial impact of non-compliance.

Moreover, the best ERP systems also provide analytics that allow purchasing staff to spot new items, identify opportunity areas, pinpoint outlier clinicians, benchmark performance compared to peers, forecast volume and streamline the entire purchasing process – and all in real time.

The Power of the ERP to Drive Standardization is Real

A recent analysis of three Premier ERP implementations showed that contract compliance within medical and surgical products grew by more than 67 percent over a two-year period when compared to hospitals without them. Top-performing hospitals leveraging Premier’s ERP technology can save millions through standardization and streamlined spend on supplies.

Take OSF Healthcare, a health system based in Peoria, Ill., as an example. The health system was looking to leverage ERP technology to manage contract standards and maximize cost saving opportunities. Additionally, executive leadership wanted a partner that could go beyond the traditional ERP solution. They wanted the partner to provide other tools that integrate data and metrics, and could be leveraged to drive performance improvement efforts and more informed purchasing decisions.

OSF selected Premier’s ERP technology, and we worked with them to implement the technology within a 12-month timeframe. With the rapid deployment, OSF was able to drive a 23 percent increase in contract compliance within two years. This was a major shift for the system, as they previously didn’t have full visibility into individual purchasing decisions, nor did they have the technology needed to drive compliance.

For any standardization effort to effectively realize all the potential gains, supply chain leaders need holistic, intuitive and intelligent solutions that empower proactive decision-making to control purchasing costs with precision.

For more information on Premier’s ERP technology, which is uniquely built for the needs of the healthcare purchaser, contact us.