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Most are missing the opportunity to slash 3 percent, 6 percent, or even 9 percent annually off their supply-related expenses. Although hospitals think they are performing value analysis studies, they are really doing something else: Bidding, comparison-shopping, group purchasing, sourcing or negotiations.

Most healthcare organizations have now picked "the ripe fruit" in their healthcare organizations through group purchasing, renegotiations of their prime vendor contracts and standardization. They have obtained the lowest price for the commodities that they purchase. With little savings left in this vineyard, now is the time to drive out all of the hidden costs in your products, services, technologies and their supply chains by adopting a "functional" value analysis model.

Value analysis, by definition, is the strategic, creative and analytical study of the functions of products, services and technologies and their value chains. The objective of value analysis is to determine the lowest cost of providing an equivalent or better performance of a required function at the lowest possible cost. If the tenets of value analysis are applied consistently and scientifically, it will enable your healthcare organization to dramatically reduce the total cost (not just purchase price) of your products, services, technologies and their supply chains by millions of dollars a year — and improve your quality!

The following is an example of a value analysis study using a functional approach. The value team of a 270-bed hospital in the suburbs of Philadelphia was researching savings opportunities to reduce their hospital’s budget. Through their strategic value analysis planning process, the hospital’s value team found that the hospital was renting in excess of $423,921 annually in specialty rental beds and bed overlays to manage skin breakdowns of at-risk patients. The value team felt this cost was excessive and assigned an infection control nurse as project manager to manage the specialty bed value study since she had no direct ownership over this commodity group.

Her first steps (Understand and Investigative Phases) in the value study was to review the current cost of the beds, determine bed utilization, benchmark other hospitals’ experiences and interview customers, stakeholders and experts.

Based on the data collected and her interviews, the project manager established a Specialty Bed Value Team (SBVT) composed of clinicians, maintenance, environmental services and biomedical representatives that used the beds, repaired the beds, moved the beds, could contribute to the study due to their expertise, or had partial ownership in the beds being investigated. The SBVT then defined the functions (primary, secondary and aesthetic) that were absolutely, positively required in the beds to meet their exact performance requirements. Next, the SBVT requested existing and new vendors to provide their specialty beds for a two-month pilot study, so that the SBVT members (including patients) could truly understand the functions/cost ratio of each bed.

After the pilot study, the SBVT entered into the Speculation and Analytical Phases of their value study to determine which bed manufacturer met their exact performance requirements (or primary, secondary and aesthetic functions) at the lowest possible cost. As part of this process, customers took apart the beds, analyzed their functions, rated them, and then chose a new vendor, because the functions of this new vendors’ bed were useful to their jobs as opposed to some of the current vendor’s functions that they thought were value mismatches. The bonus for the hospital was that the new vendor’s beds were less expensive than their current vendor. The bottom line was that the hospital saved $220,236 annually since the new beds do not need to use bed overlays, and an additional $81,629 annually was saved due to the lower cost rentals from the current specialty bed vendors.

Functional analysis is a powerful savings tool, but if it is not applied strategically, or not being practiced at all, then value practitioners will generate only meager savings. On the other hand, if the right people, having the right tools, training, and a proven functional analysis process are deployed by a healthcare organization to look at the right things, then millions of dollars can be saved for your healthcare organization annually.

More importantly, for the first time, you will be able to negotiate with your internal and external customers what they absolutely, positively require in the products, services and technologies they desire and eliminate the waste and inefficiency in the processes that they manage and control.