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06.24.2015

Can hospital systems really save “millions” with an exclusive or near-exclusive beverage partnership?

By Tim Richardson

The short answer is, “Yes, you can.”  If your hospital system has at least four acute care hospitals, 1,200 or more staffed beds and 6,000 or more employees, then, yes, you can save at least a million dollars over a five-year beverage partnership term, or two million over a fairly typical ten-year beverage partnership term. If your system is significantly larger than that, then we will definitely start using the plural form of “million” to describe your net savings, no matter if the partnership term is 5, 7 or 10 years.

Many times when we begin a conversation with a prospective hospital system client about the value of an exclusive or near-exclusive beverage partnership, we encounter a lot of healthy skepticism about such net savings estimates.

Oftentimes, a supply chain executive or finance department executive will push back hard on our initial estimate. This person will usually produce a beverage category spend report of some kind and, based on this report, assert something along the following lines: “We only spend $900K a year on beverages flowing through all five of our campuses every year. How in the heck can we save the $400K per year that you’re estimating?!”

Usually, when we encounter a statement like this, we are able to quickly prove that this person’s beverage category spend report is wrong.  Usually, their spend report was generated with the help of their GPO or their outsourced cafeteria operators or their broad-line distributors.  All of these intermediary partners are notoriously unreliable when it comes to such beverage volume and spend reports.

The charitable explanation for the unreliability of volume and spend reports from these intermediaries is that they have bad procedures and systems in place to track beverage volumes and expenses.  The not-so-charitable explanation for this bad data is that these intermediaries have an economic incentive to under-count this volume.

No matter why this data is bad, we are usually able to quickly establish that it is bad, that beverage category volumes and expenses are more than what our well-meaning prospect thinks they are. First, we establish this by referring to proprietary metrics that we have developed over the course of ten years of tracking beverage volumes and expenses at over 332 hospitals nationwide. Second, we tally up volumes and expenses based on actual beverage invoices from all the facilities owned or operated by our hospital system prospect.

Once we establish what the actual beverage volume, mix and spend really are, then we are usually able to convince our initially skeptical prospect that our net savings estimates are at least plausible. From that point forward, whenever we have been allowed to engage with a client that meets our size and operating model criteria, we have successfully achieved or exceeded our initial net savings estimates.

As an added benefit to our clients and prospects, at a minimum, we always bring much greater accuracy, detail and transparency than they have ever had before with respect to their beverage business.

Here are three concrete examples of our success:

Client A: Large national HC provider with 225+ facilities.
Net savings per year:    $2,057,310
Net saving %:        19%
5-year total savings:    $10,286,550

Client B:  Large SE regional provider with 18 facilities
Net savings per year:     $370,489
Net savings %:    21%
5-year total savings:    $1,852,445

Client C:  Large NE regional provider with 14 facilities
Net savings per year:    $266,976
Net savings %:    25%
5-year total savings:    $1,334,880

As long as your hospital system has four or more acute care hospitals, 1200 or more staffed beds and 6,000 or more employees, we can most likely generate similar savings for you.

Contact us today to learn more.

 

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Join over 10k other industry experts who receive Enliven's advice direct to their inboxes.

06.24.2015

Can hospital systems really save “millions” with an exclusive or near-exclusive beverage partnership?

By Tim Richardson

The short answer is, “Yes, you can.”  If your hospital system has at least four acute care hospitals, 1,200 or more staffed beds and 6,000 or more employees, then, yes, you can save at least a million dollars over a five-year beverage partnership term, or two million over a fairly typical ten-year beverage partnership term. If your system is significantly larger than that, then we will definitely start using the plural form of “million” to describe your net savings, no matter if the partnership term is 5, 7 or 10 years.

Many times when we begin a conversation with a prospective hospital system client about the value of an exclusive or near-exclusive beverage partnership, we encounter a lot of healthy skepticism about such net savings estimates.

Oftentimes, a supply chain executive or finance department executive will push back hard on our initial estimate. This person will usually produce a beverage category spend report of some kind and, based on this report, assert something along the following lines: “We only spend $900K a year on beverages flowing through all five of our campuses every year. How in the heck can we save the $400K per year that you’re estimating?!”

Usually, when we encounter a statement like this, we are able to quickly prove that this person’s beverage category spend report is wrong.  Usually, their spend report was generated with the help of their GPO or their outsourced cafeteria operators or their broad-line distributors.  All of these intermediary partners are notoriously unreliable when it comes to such beverage volume and spend reports.

The charitable explanation for the unreliability of volume and spend reports from these intermediaries is that they have bad procedures and systems in place to track beverage volumes and expenses.  The not-so-charitable explanation for this bad data is that these intermediaries have an economic incentive to under-count this volume.

No matter why this data is bad, we are usually able to quickly establish that it is bad, that beverage category volumes and expenses are more than what our well-meaning prospect thinks they are. First, we establish this by referring to proprietary metrics that we have developed over the course of ten years of tracking beverage volumes and expenses at over 332 hospitals nationwide. Second, we tally up volumes and expenses based on actual beverage invoices from all the facilities owned or operated by our hospital system prospect.

Once we establish what the actual beverage volume, mix and spend really are, then we are usually able to convince our initially skeptical prospect that our net savings estimates are at least plausible. From that point forward, whenever we have been allowed to engage with a client that meets our size and operating model criteria, we have successfully achieved or exceeded our initial net savings estimates.

As an added benefit to our clients and prospects, at a minimum, we always bring much greater accuracy, detail and transparency than they have ever had before with respect to their beverage business.

Here are three concrete examples of our success:

Client A: Large national HC provider with 225+ facilities.
Net savings per year:    $2,057,310
Net saving %:        19%
5-year total savings:    $10,286,550

Client B:  Large SE regional provider with 18 facilities
Net savings per year:     $370,489
Net savings %:    21%
5-year total savings:    $1,852,445

Client C:  Large NE regional provider with 14 facilities
Net savings per year:    $266,976
Net savings %:    25%
5-year total savings:    $1,334,880

As long as your hospital system has four or more acute care hospitals, 1200 or more staffed beds and 6,000 or more employees, we can most likely generate similar savings for you.

Contact us today to learn more.

 

Subscribe to Enliven

Join over 10k other industry experts who receive Enliven's advice direct to their inboxes.

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We Don't Want Your Money

We want to dramatically increase how much money you make - or save - with respect to beverages. And then we want to take a small percentage of that new money that we earned for you. That’s our pay-for-performance model. It ensures that our incentives are aligned. It's why our clients think of us as a true strategic business partner and not just a vendor.

Let's Start a Conversation

We Don't Want Your Money

We want to dramatically increase how much money you make - or save - with respect to beverages. And then we want to take a small percentage of that new money that we earned for you. That’s our pay-for-performance model. It ensures that our incentives are aligned. It's why our clients think of us as a true strategic business partner and not just a vendor.

Let's Start a Conversation