Waste in the Hospital Supply Chain | E. 105

The Healthcare Leadership Experience

An estimated 40% of expenditure in the supply chain goes to waste. CEO Luká Yancopoulos explains to Jim Cagliostro how Grapevine Technology aims to put the power back into the hands of hospitals.

Episode Introduction

Luká explains how Grapevine can help hospitals save up to 80% on a single line item, how even small healthcare businesses spend six figure sums on the supply chain each year, and how to frame the reality of years of overspending to his clients. He also reveals three key ways that hospitals can lower the expense of their vendor management.

Show Topics

• The power of building networks

• Supplies are a huge expense in healthcare

• Up to 80% of spend may be waste

• Connecting the source of supply to the end user

• Framing harsh truths on expenditure

• Seeing value every step of the way

• Leadership tip: deliver solutions to real problems

03:12 The power of building networks

Luká said Grapevine can help its clients to save 70-80% on a single line item.

‘’So Grapevine is working to make it very easy to basically manage your existing network. We've got healthcare businesses. They usually come to us, and they've worked with a handful of suppliers over the years. They think of each of these suppliers as their supplier for blank, fill in the blank, and Grapevine rewrites that. We think they're all your suppliers, they're all your network. Every time you add an item to cart from one of them, let's make sure it's the best price and that your other suppliers that you already trust and know don't have the same exact product at a cheaper price. Oftentimes, they do. We've basically redirected spend from one major distributor to another major distributor, saving the customer or the healthcare business 70%-80% on a single line item. The thing like a Becton Dickinson or a BD catheter or infusion pump or something they buy, and they have a bad habit of buying it from the wrong guy. So we basically let them link all their suppliers with the click of a button to a single screen, read in their current offerings, and tell them where to redirect their spend, acting as a traffic cop if needed.’’

05:14 Supplies are a huge expense in healthcare

Luká explained that even small healthcare businesses are spending six figure sums on supplies every year.

‘’Certain medical specialties get hit harder than others. If you're performing surgery, obviously, you're burning through a lot of supplies, you're using anesthesia, you're using all sorts of things that maybe your average urgent care clinic won't need. So we focus on specific specialties that have a high consumption rate of important and expensive technologies, things like oncology, dermatology, surgery, these sorts of things. Even a small healthcare business is spending six, seven figures on medical supplies and pharmaceuticals, like, a customer that comes to mind, a family-owned dermatology practice in upstate New York, and Rochester, New York is spending $200,000 a year pre-Grapevine on medical supplies. So like the instruments and whatnot, they're using sutures and implants and this and that, and then they're spending another million a year on injectables. Things like lidocaine, fillers, and different sorts of things of that realm.’’

08:38 Up to 80% of spend may be waste

Luká explained why a single supplier can’t offer hospitals the lowest price for every item.

‘’I think that, in some cases, it's as much as 80% of the spend on supply is fruitless and extraneous. As far as what makes up those inefficiencies, there's a number of things. There's a classic idea that I am a strong believer of, that no one person or entity can be the best at everything. So even if you're comparing suppliers of the same business model, these large distributors, we could talk like McKesson, Henry Schein, Medline, the list goes on and on. Every one of those has built supply chains like warehouse fulfillment, shipping teams, customer service, et cetera, tailored around a specific core competency or level of products. So not one of those suppliers is going to be able to offer you the 5,000 SKUs or different item numbers that you need, all of the lowest price. That's naive. The way this world works is helping specialists, people that have specific skill sets, work together to serve a singular end goal.’’

10:24 Connecting the source of supply to the end user

Luká said simplifying the supply chain is key to reducing costs.

‘’I understand that when I'm buying it from a reseller, it needed to get in the hands of the reseller. That means it needed to get shipped there. That is a cost. Costs get built on the customer service, the labor. It all gets built into the price that hospitals are paying. By working with these downstream distribution companies that are, in some cases, 200 years old, you're just taking on additional costs. So if we can disintermediate supply chains when possible, connect source to end user as much as possible. You make things overall much more efficient. Then the third and really important major point, just to exemplify the inefficiencies and the lack of belief I have in these major distributors, is, you've got these distributors that people still buy everything they need from. These are the same companies that were selling cocaine pills to pregnant women in the late 1800s and arsenic pills for patient treatment and temperature up until the mid-1900s.’’

13:33 Framing harsh truths on expenditure

Luká said understanding the extent of potential cost savings can be a shock to hospital executives.

‘’People are definitely surprised, and honestly, I need to figure out a better way to frame sometimes exposing harsh truths to our customers because we've had people... When you find out that something bad's been going on for a long time and you're the victim of that bad thing, it does not feel good. We've got customers that are hurt by that. They don't blame us, but I wish we could deliver that more as an opportunity to win as opposed to an exposé of historic losses. I think you could do that with the right framing, with the right user interfaces, but it's something that we're not doing the best job of now, just packaging that and making it a digestible change for them. But yeah, people are shocked when they're working with, let's just say, even two distributors. They're working with... We've talked about the names already, so I won't name them here, but one 200-year-old company and they have another 100-year-old company that they've worked with, and when they add to cart for the first time on Grapevine that same IV catheter that they've purchased thousands of times, that they've spent literally millions of dollars on over the last couple of years, that one item number, and they add it to cart and it says, "But wait, you could buy the same exact item from the other supplier that you already trust and know for 70% cheaper." That happens. They feel a level of frustration, and rightfully so.’’

22:47 Seeing value every step of the way

Luká said that hospitals need to be able to see the win and the reason when they’re stepping out of their comfort zone.

‘’So work with your existing suppliers, and you're going to save a lot of money by having them on one screen and us alerting you, and there's a cheaper alternative. Once you've done that, then, "Hey, why don't we introduce you to this broad network of new suppliers that we know, that we've vetted, that we trust?" And you can connect them and start subbing in not exact matches from your trusted network, but new suppliers or specialists that can add way more value, exponential value, and achieve even more savings. That's why we could deliver this all in month one as a 60%, 70% savings, but it's not palatable. People would rather get month one of halfway there, big win, see their wins and their hard work paying off, and see the value of what they're doing every step of the way. Every time we make them do something outside of their comfort zone, they need to be able to see the win and the reason. If it ties back to financial savings, that's part of it. For the people that actually shop, we're putting things into one screen, and that's a part of it. They don't need to flip between tabs and windows anymore. So showing what we do and showing why it's helpful to them every step along the way to mitigate the pain of adopting a new solution is a big part of our philosophy here.’’

25:19 Leadership tip: deliver real solutions for real problems

Luká said solving the biggest problems for your target customers is the way to unlock real value as a business.

‘‘…So I think if you are following the white rabbit of real problems for real people, real struggles, and you constantly and iteratively try to come up with smarter and better solutions to solve those pain points, and once you do look for new problems, the next biggest problem they're facing, and continuously deliver real solutions based on those problems, I think that's the key to financial success as a business, is make yourself important, make yourself valuable, make yourself the solver of the biggest problems for your target customers, and that's the way that you unlock real value as a business and the money, the revenue, the whatever it comes all from that. If you're not important to solving someone's real problem, mending someone's real problems, then you shouldn't play the game of business in the world that we live in.’’

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You’ll also hear:

How Grapevine is putting the power back in the hands of healthcare providers: ‘’We do that by showing doctors what they should be paying for the supplies that they use on a regular basis. We make it incredibly easy to achieve savings of more than 50% on their healthcare, medical supply, and even drug, pharmaceutical spend.’’

Helping healthcare organizations to shop smarter: The hospital that saved 40% in one month: ‘’We've got a public company that uses Grapevine. They have 80 locations. They're in the oncology space. They went from spending $400,000 a month on supplies down to $250,000 in their first month, which was January 2024. So they are down 40% in the first month. There's a lot more work for us to do there. I think we can get them down to close to 80%.’’

Recognizing that every hospital has unique needs: ‘’So yes, we need to have standardization. We need to have the best practice, best ways of doing things, but this hospital, this large health system in New York has different needs than a rural hospital out in Kansas or wherever it may be. So meeting those needs is going to look different. So we need to find ways to do that in order to minimize those inefficiencies.’’

Putting all of your data into one screen is the first step to reducing waste: ‘’If you're managing 100 different suppliers, and that means you have a person or maybe dozens of people or hundreds of people that log into one screen and then they are pulling up listings that look totally different, and then putting another window up and looking at it on the other screen and then trying to do that across 12, you're hopeless at that point. You need to have all of your options in one place. ‘’

What To Do Next:

1. Subscribe to The Economics of Healthcare and receive a special report on 15 Effective Cost Savings Strategies.

2. There are three ways to work with VIE Healthcare:

• Benchmark a vendor contract – either an existing contract or a new agreement.

• We can support your team with their cost savings initiatives to add resources and expertise. We set a bold cost savings goal and work together to achieve it.

• VIE can perform a cost savings opportunity assessment. We dig deep into all of your spend and uncover unique areas of cost savings.

3. If you are interested in learning more, the quickest way to get your questions answered is to speak with Lisa Miller at [e-mail] or directly at 732-319-5700.