Winter 2013 Issue
Healthcare
Magazine Reduce, Control and Eliminate Unnecessary Utilization Practices
Featured In This Issue:
Also In This Issue:
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Page 8—Strategic Value Analysis Planning Page 15—The 7% Savings Solution Page 15—Value Analysis Team LeaderPage 21—Value Analysis 101: Price ship Thinking Page 18— Breakthrough Savings on Page 26— 5 Building Blocks of World Demand Class Value Analysis ==========================================================================================================
Insights, Best Practices and Advanced Strategies You Can Use To Up Your Value Analysis Game
Winter 2012
Healthcare Value Analysis Magazine
Published by Strategic Value Analysis in Healthcare
www.StrategicVA.com
1
WHY LIMIT YOURSELF TO JUST ONE TOOL?
Limiting yourself to just one analytical tool is costing you big time!
“I have found that my spend manager only does half the job when it comes to managing my total end-to-end supply spend. I’m happy to report that the Utilizer Dashboard covers all my bases at one time - every time.”
“You’ve got to have the right tool to make your job a whole lot easier”. It’s the same with value analysis analytics!
If you only have one tool, (e.g. spend manager) then you are only managing a fraction (price and standardization) of your supply spend.
Why not cover all your bases with our UTILIZER® DASHBOARD, the all-in-one utilization management system, to realize an additional 7% to 15%. This is where 79% of all of your new savings reside and you can start saving “big time” within 90 days. Click Here To Sign Up For a FREE DEMO Winter 2012
Healthcare Value Analysis Magazine
2
contents
Healthcare Value Analysis Magazine
Healthcare Value Analysis Magazine is published quarterly by Strategic Value Analysis® in Healthcare Reduce, Control and Eliminate Unnecessary Utilization Practices 7 Building Blocks
*9
P.O. Box 939, Skippack, Pa 19474 Phone: 800-220-4274 FAX: 610-489-1073 bobpres@ValueAnalysisMagazine.com
www.ValueAnalysisMagazine.com ————————————
Editorial Staff 15 The 7% Savings Solution: Why do we continue to pursue 1%, 2% or 3% savings solutions when a 7% solution is easily obtainable?
7 Critical Mistakes
bobpres@ValueAnalysisMagazine.com
————————————
Managing Editor
into a Major Advantage: Why best practices need to be understood and investigated.
Robert W. Yokl ryokl@ValueAnalysisMagazine.com
21 Value Analysis 101- Price Think-
Senior Editor
ing: Why price thinking is holding back big value analysis savings.
Patricia A. Yokl ————————————
23 Value Analysis Leadership Inter-
Editor
37 Show Me The Evidence: What is
Winter 2012
Robert T. Yokl
16 Turning Utilization Best Practices
view: Nila Getter, President of Association of Healthcare Value Analysis Professionals (AHVAP)
Show Me The Evidence
Publisher
missing from the value methodology that when added can help you make a great leap forward in quality today?
Healthcare Value Analysis Magazine
————————————
Danielle DeShong
Copyright 2013 Strategic Value Analysis® in Healthcare. All rights reserved. Reproduction, translation or usage of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without permission of the copyright owner is unlawful. For permission call, fax, or email Robert W. Yokl, Managing Editor, Phone: 800-220-4271, FAX: 610-489-1073, E-Mail: ryokl@valueanalysismagazine.com for approval to reprint, excerpt or translate articles.
3
From the Publisher's Desk
Are You Educating Your Value Analysis Team Members? Robert T. Yokl
As you can see, we have just published our second issue of our Healthcare Value Analysis Magazine and the response from our readership has been very encouraging. Yet, while we have supply chain managers, value analysis directors, managers and coordinators signing up for their free subscription to the Healthcare Value Analysis Magazine, we don’t see the members of their value analysis teams doing the same. Is this an oversight on your part? I ask this question because your VA team members are the individuals who should be doing all the hard and arduous work on your VA teams; therefore, they should be the most educated in the philosophy, principles and practices of this classic technique. Without a solid foundation in the value analysis methodology, your team members will tend to do their “own thing”, which rarely is the right course of action in any value analysis study. It would be like doing surgery without any training. You could guess the outcome of that scenario! Although I have been a value analysis trainer for over 26 years, I first learned the tenets of value analysis by reading articles, monographs and books by value analysis gurus to obtain my basic training. I then assimilated all of this knowledge and hands-on experiences into our advanced VA training program for my clients, so they didn’t need to spend years learning what works and doesn’t work in value analysis. They could learn from my mistakes and successes and not have to acquire this knowledge by the school of hard knocks! I make this education easy for them! My point here is that value analysis professionals now have their own value analysis magazine, which can train your VA team members in the art and science of value analysis. Why not sign your team members up for their FREE subscription to the Healthcare Value Analysis Magazine @ www.valueanalysismagazine.com so they too can become experts in value analysis without the angst I went through to acquire this knowledge. Let us help you to make their education easy for them, too! Robert T. Yokl can be reached by phone (800-220-4274) or by e-mail at bopres@StrategicVA.com with your questions, comments or counter-points to his editorials. Or, anything else that peaks your interest in this issue. Winter 2012
Healthcare Value Analysis Magazine
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You could be leaving up to 11% to 18% in new supply savings on the table untouched!
BenchPlusManager
Does your team have the visibility and control over your purchase services?
.com
Four easy steps to quickly ring the towel dry on these multi-million dollar expenditures... 1. Build a case for change: Show your C-suite how much they are spending and what the potential savings (11% to 18%) would be if you were to aggressively attack these multimillion dollar expenditures that are ready to be harvested. Or, let BenchPlus do it for you! 2. Centralize all purchase service contracts: We recommend that all of your purchase service contract documents be archived and administered by your materials management/supply chain department. If the workload justifies it, you will need to hire a contract administrator to manage, control, analyze, bid or negotiate these contracts. However, this very small investment, if required, will yield a high ROI in a very short time. Or, archive w/BenchPlus! 3. Benchmark all purchase service contracts: This will ensure that your purchase service contract’s total lifecycle costs are within acceptable limits. Otherwise, how could you know if there are savings opportunities, if you don’t quantify them and have a roadmap to start saving? This shouldn’t be a one time event, but instead a continuous process. Or, BenchPlus can do this for you too! Winter 2012
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From the Managing Editor’s Desk
Navigating Uncharted Waters of Supply Utilization Management Robert W. Yokl
Traditionally, the Healthcare Supply Chain saving game has been greatly influenced by the "price" savings opportunities offered by group purchasing contracts, standardization, and capitation. Unfortunately, we are not seeing the ROIs from these major savings sources that we once experienced. In addition, the Affordable Care Act’s 2.3% medical device tax on healthcare device manufacturers took effect in January 2013, thereby creating even greater pressure on price savings. The future is crystal clear for value analysis professionals; we won’t be able to hold the line on price savings. Therefore, we will need to move into uncharted waters for new and even better savings sources. The good news is that with any new challenge there are always new opportunities that have been either ignored or undervalued and can now be tapped into to reinvigorate your savings prospects. One such new source of savings is Supply Utilization Management, which is a new discipline that has been experimented on by some value analysis practitioners but has not been integrated into most healthcare organizations’ value methodology. That’s why these are still uncharted waters for countless value analysis professionals who do not realize the huge return-oninvestment possible by embracing this concept head on. Let’s face it, we have nowhere left to go for big savings, but Supply Utilization Management. Robert W. Yokl can be reached by phone (800-220-4271) or by e-mail at ryokl@StrategicVA.com with your questions, comments or counter-points to his editorials. Or, anything else that peaks your interest in this issue. Winter 2012
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Value Analysis News New Book Gives Many Answers to Your Questions in the New Era of Healthcare Reform
If you would like a copy of Pritchard’s book, it can be ordered at The Journal of Healthcare Contracting website for $21.50, plus a small charge for shipping and handling.
AHVAP Announces New Board
John L. Pritchard, publisher of The Journal of Healthcare Contracting, has written a new
Members for 2012-2013
book called Muddy Waters: Making Sense of the Healthcare Supply Chain in the Era of Re-
The following board members have been elect-
form.
ed by AHVAP for 2012–2013:
This book gives a brief history of supply chain
Donatelli,
Treasurer: Melanie Miller, RN, BSN
an integrated delivery network, how group
Manager,
purchasing organizations have evolved for the
Cedars-Sinai Medical Center
better, talks about the new trend of regional purchasing coalitions, and how hospitals will
Supply
Chain
Management,
President: Nila Getter, MS, RN, Nursing Product Manager, Kettering Health Net-
be aligning with their physicians to lower their
work.
costs and improve quality. It helps you decide if self-distribution and/or a service center
RN
Senior Vice President, Hayes, Inc.
management from the early 1950s right up to present day. It defines what is and what is not
President-Elect: Dee
Secretary: Mary
(Beth)
Potter,
RN,
model is right for you, and discusses how Ac-
CMRP, Director of Clinical Value Analysis,
countable Care Organizations will change the
Iowa Health System
face of healthcare.
Central Director: Cindy Christofanelli,
It’s a quick read, but the book is packed with
RN, Corporate Director Supply Chain Man-
insightful, timely and predictive information
agement, SSM Health Care
that all supply chain/value analysis profes-
Eastern Director: Gloria Graham, RN,
sionals need to know as they plan for their
Clinical Materials Specialist, Cincinnati
own supply chain department’s future. It’s a
Children’s Hospital Medical Center
must read, as Pritchard says, “For those who want to understand the complexities in today’s fluctuating marketplace.”
Winter 2012
Western Director: Cheri Berri Lesh, RN, Value Analysis Coordinator, Group Health Cooperative
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An Important and Timely Message from Robert T. Yokl on Why Utilization Management is More Important than Ever Before!
When I look at the Affordable Care Act’s new ValueBased Purchasing (VBP) Prospective Payment System that was implemented in October of 2012, I get the feeling that we in healthcare are rowing our boat in the wrong direction. This is because over a five-year period your reimbursement to fund this new VBP payment system, which includes a minuscule award of 1% for complying with 62 new quality measures, will be reduced about 7.25% In addition, Medicare will reduce its DRG payments if your hospital readmission rate is 30 days or less for your patients with heart attacks, heart failure, and pneumonia if they exceed a preset threshold. By 2015, hospitals that don’t meet the government’s IT “meaningful use” criteria in delivering their patient care will face further reductions in their reimbursement. Top this off with a new mandate in 2015, which says that hospitals with high rates of selected hospitalacquired conditions will receive further payment reductions. If this wasn’t an actual fact, I would think it was fiction! What this means to your healthcare organization is that you will need to save even more money in your supply streams to offset these deep cuts, since NEW PRICE SAVINGS ARE A THING OF THE PAST. No longer can you count on price to put you into the next savings tier. Rather, the way of the future is utilization management, which can help you cut your supply chain expenses to the bone and find thousands, even millions, in hidden savings. The good news is that you have five years to do so. I would plan to target about 1.5% in utilization
“The prices of products, services and technology
may
be
important,
but
reducing the utilization of supplies will have a much greater positive financial impact on a hospital’s bottom line.“ Anonymous savings per year, starting now, so you can get ahead of the curve. To save less per year, as I see it, would be a real struggle to catch up at a later date. Plan now to save more, so you have less pain later. This way, you can make your job somewhat easier, even though you have a big mountain to climb. And if you REALLY want to make your utilization job much easier, call us at 1-800-220-4274 and visit our website to see for yourself how our new Utilizer® Dashboard (all-in-one utilization management system) can help you reach new savings heights. We guarantee it within 90-days!
Click Here Learn More or to Sign Up for a FREE demo Winter 2012
Healthcare Value Analysis Magazine
8
Feature Article Reduce, Control and Eliminate Wasteful and Unnecessary Supply Utilization Practices Go beyond price and standardization to save more in less time
Traditionally, healthcare organizations have focused their value analysis efforts on lowering the price and standardizing on the products, services and technologies that they are purchasing. This attitude has carried over to the evaluation of group purchasing contracts where price, standardization and suitability are the key factors in a hospital, system or IDN’s product, service or technology selection. Yet, these tactics are only saving healthcare organizations 1%, 2% or 3% on their total supply expenses annually. This is a meager contribution to your healthcare organization’s bottom line, when you consider that by also attacking your utilization misalignments, you can save even more (7% to 15%) in less time. We like to call this line of attack closing the door on the “Supply Chain Triangle” where value analysis teams focus their efforts on price, standardization and utilization as a continuum, not as separate distinct events.
Winter 2012
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Utilization Management Reduce Consumption What typically isn’t understood in value analysis circles is that 79% of all new supply expense savings will be uncovered in utilization, not price or standardization. This is because we as an industry have rung the towel dry on price savings in the last few decades with our GPO and local contracts, and standardization has been substantially achieved on most commodity groups. There is nowhere else to go for savings! This could be a shock to value analysis leaders and team members who haven’t thought about how products, services and technologies are deployed in their healthcare organization. Everything that may appear to be a routine clinical or operational supply chain practice, in actuality, can be very wasteful and inefficient. Take, for instance, the practice of hospitals loading up their patient rooms with boxes (100/box) of disposable floor examination gloves, which often results in glove waste because gloves become unusable if they fall on the floor. A better way to provide these gloves and solve this wasteful practice would be to either supply your nursing and ambulatory units with gloves packed 50 to a box or to purchase foolproof glove dispensing systems that are now on the market. In doing so, your healthcare organization can save up to 33% in this category of purchase alone. Based on our 16 years of experience in supply utilization management, we have helped our clients uncover wasteful and inefficient practices in thousands of their supplies and purchase services; therefore, we can categorically state that utilization misalignments are epidemic in healthcare organizations today. It doesn’t need to be this way!
Winter 2012
Healthcare Value Analysis Magazine
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Utilization Management Control Waste Sixteen years ago, we stumbled on the realization that most of the savings (about 79%) we were identifying for our clients weren’t price or standardization, but utilization savings. That’s when we coined the term “Utilization Misalignments” to distinguish price-oriented savings from utilization or “in-use” savings. This was a new source of savings for clients who hadn’t realized these savings were available to them. This was a big leap forward for us and our clients, since these new utilization savings represented 7% to 15% in savings and went far beyond the 1%, 2% or 3% savings they were receiving on price. We then realized that it wasn’t good enough to just uncover these utilization savings, but that we now needed to control them before they damaged our clients’ bottom line. This was the genesis for developing the new tool that we called “Value Analysis Analytics” that identifies, manages and controls our clients’ utilization misalignments. It’s based on an Activity-Based Costing Model that had been successfully employed in the industry for many years.
“We coined the term “Utilization Misalignments“ to distinguish priceoriented savings from utilization or “inuse” savings. This was a new source of savings for clients who hadn’t realized these savings were available to them.”
Quite simply, this new tool enables us to isolate our clients’ utilization misalignments from the thousands of products, services and technologies that they purchase annually. We can then quickly eliminate them with the assistance of our clients’ value analysis teams. A good example of how our Value Analysis Analytics worked for one of our clients is that it identified that their anesthesia trays’ cost per surgical case (CMI adjusted) had jumped 27% over four quarters, while their surgical volume decreased by 2%. When our client’s supply chain manager researched this anomaly with his director of anesthesia, it was uncovered that one or two trays (10 trays to a case) were damaged>>
Winter 2012
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Utilization Management and unusable when received from their supplier and his staff were promptly throwing them away. Once the supply chain director solved this quality issue, the utilization misalignment disappeared from our client’s radar screen and $17,926 in cost avoidance annually was achieved. This is just one of numerous analytical techniques that you too can use to track, trend, and then measure your entire formulary of products, services and technologies to determine your favorable and unfavorable consumption patterns, quarter to quarter, to uncover anomalies that can’t be seen with the naked eye. Eliminate Waste The best technique we know of to eliminate wasteful, inefficient and unnecessary supply chain practices in a healthcare organization’s supply stream is to concentrate your value analysis efforts on what you are purchasing now vs. just evaluating new group purchasing contracts or new purchase requests from your department heads and managers. One of our clients accomplished this goal by making sure that he has at least three current product, service or technology investigations on his value analysis team’s agendas each month. The reason for this, as I discussed earlier, is that GPO contracts are only generating 1%, 2% or 3% savings (if that), whereas utilization studies generate 7% to 15% in new savings gains. New purchase requests usually cost your healthcare organizations money, so why are you rushing to approve these purchases? Let’s face it, very few are mission critical or an emergency! The secret to managing this three-fold evaluation, selection and investigation process is to prioritize your agendas by estimating the potential savings and identifying the importance (1-10 with 10 being highest priority) of your agenda items as shown in the following example:
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Utilization Management Agenda Item
Type
Annual Spend
Est. Savings or Increase
Oxisensors Exam Gloves Surgical Masks
Current Current Request
$220,395 $129,293 $14,982
I.V. Sets
GPO
$193,566
($5,299)
6
Vacutainers
GPO
$26,777
($1,962)
5
B.P. Cuffs
Request
$12,328
$4,523
4
($77,296) ($12,989) $1,296
Priority 10 10 7
The priority can be assigned by your value analysis manager or team leader based on a combination of factors: savings potential, urgency, or increased cost. Although the priority assigned is subjective, it will still be a good guide for your value analysis team to assist in directing their efforts to the highest priority (vs. lowest) agenda items first. Another idea for eliminating waste is to re-specify the top 20% (in dollars) of the products, services and technologies that you are buying. This is accomplished through functional analysis. Meaning, you determine the primary, secondary and aesthetic functions that are absolutely required for each of these products, services and technologies, and that’s your new specifications. The reason this is important is because your customers don’t need everything they are requesting now – but they don’t know it. A few years ago, we did a functional analysis study on one of our client’s top purchases, which happened to be a General Requisition Form, with an annual spend of $189,536. Since this was a form which had been used for years by the hospital on their nursing floors, we asked what its primary function or purpose was. We were told that it was once used for “Results Reporting”, but over the last few years it was exclusively used for “Test Requests”. We identified no secondary functions or purpose for this form. Winter 2012
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Utilization Management Our investigation pointed out that the General Requisition Form was now strictly employed for requesting tests (not results reporting), which clued us into the fact that this form was ripe for savings, now that the functions had changed. The aesthetic features of the form were: pin feed, eight punched holes for filing in a patient’s chart, 8 1/2 x 11, two peel-off labels, hospital’s name imprinted, and green and red bars running down the sheet. We were told that the labels alone were one-third of the cost of the form, or $127.08 per case, and nursing rarely used more than one label. With these facts in mind, and after consulting with the customers of this form (nursing, laboratory, environmental services, IT department and storeroom), we were able to write new functional specifications as follows: Blank, 8 1/2 x 11, continuous pin feed computer paper with one peel-off label. This exercise saved our client “The lesson here is that there are millions of dollars of savings at your hospital, system $67,107 without changing intent or reliaor IDN that can be achieved by re-specifying bility of the form. all of your top 100 or so products, services and technologies to reflect their true funcThe lesson here is that there are tionality today.” millions of dollars of savings at your hospital, system or IDN that can be achieved by re-specifying all of your top 100 or so products, services and technologies to reflect their true functionality today.
Save More in Less Time All of the examples we have depicted in this article actually enabled our clients to save more in less time. For instance, to identify the $67,107 General Requisition Form savings I just talked about, required about four to five hours of work to accomplish, including making the changes that were recommended. To rearrange your value >>>>>
Winter 2012
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Utilization Management analysis agendas would take an hour or so the first time around, but would become second nature to you going forward. The point here is that reducing, controlling and eliminating your wasteful and unnecessary supply utilization practices isn’t as time consuming as you might think. All you need to do is go beyond price and standardization to open up a whole new world of savings for your healthcare organization. It will take you less time, effort and resources than you might think and the rewards for doing so (double-digit savings and quality improvements) will be well worth your effort!
The Seven-Percent Savings Solution Why do we continue to pursue 1%, 2% or 3% savings solutions (i.e., price), when a 7% savings solution (i.e., utilization) is just as easily obtainable? For instance, I know of healthcare organizations that have spent months to achieve a 3% savings on their cardiac rhythm management products, when a 7% to 15% savings was realizable in the same amount of time by also attacking their pacemaker and defibrillator utilization.
since you would just be spinning your wheels. A much more productive and profitable use of your time (step 2) is to investigate the utilization of the product, service or technology under investigation.
For instance, if you find that you are at the 95th percentile on price on your dressing kits, jump to step 2– utilization study. This would be conducted by calculating your cost per patient day (CMI adjustLook at it this way—If you are already looked) of your dressing kits and then ing into price savings for any commodity benchmarking them against a peer group, why wouldn’t you utilize the same hospital. If you find that you have a data to measure your utilization? This is substantially higher cost per patient analogous to changing your oil, but not reday than your peers, you will then placing your oil filter at the same time. You are al- want to observe how your customers are utilizing ready under the hood of your car, so why not take a these dressing kits, since there is a 98.6% chance they are misusing or misapplying them, or you have few more minutes and get the job done right. Since 79% of all new savings are in utilization, not a value mismatch in this commodity group. price, it just makes good common sense to have a To summarize, price savings are still achievable on much more rational two-step process for any or all many commodities that you are buying today. Howproducts, services or technologies that you are in- ever, if you are already at the 95th percentile on vestigating for possible savings opportunities. The your pricing on these commodities, you can better first step is to validate at what percentile you are utilize your limited time and resources by perusing with your prices. If you are at the 95th percentile, utilization savings, instead of price. That’s where forget chasing any more price concessions here, your real, tangible and robust savings are hidden! Winter 2012
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Best Practices
Turning Utilization Best Practices Into a Major Advantage Why best practices need to be understood and investigated While presenting a supply utilization savings report to a large community hospital’s chief operating officer and her supply chain committee members, which outlined the savings opportunities that were available to them, I had an epiphany. In addition to the savings opportunities, the report also included areas in which this hospital exceeded the benchmarks, and in many categories they were the best practice hospital. What got my attention was that the COO thought it was important that her hospital not only investigate the savings shown on the report, but to also explore what exactly the best practices were that her hospital was employing, in areas exceeding the benchmarks. She thought that knowing they were a best practice hospital in many areas of operations was great, but she also wanted to investigate their best practices in detail, because no one ever seemed to know what they were actually doing to achieve this best-in-class status. She felt it was shortsighted of her hospital to not learn the ins and outs of their best practices and turn them into a major advantage. Therefore, the COO didn’t want her healthcare organization to lose the opportunity to translate their best practices into protocols, share them with other departments, and where possible, engineer them for other areas of hospital operations. What really resonates with me about this conversation is that while in the search for utilization savings opportunities, we need to understand our hospital’s best practices and those of other healthcare organizations’ as well. I know this to be useful, since I often contact our client hospitals to discover how they were able to achieve their best practice status and then translate this information into protocols to be emulated. You should do the same! Winter 2012
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Verifying Savings Control and Verify Your Savings Before, During and After Implementation Assume nothing, verify everything with your own eyes! Did you know that the word “savings” is the most misunderstood word in our supply chain business? We use it every day to describe cost reductions and cost avoidance, and then report it to our bosses as gospel, but do we really know what the word “savings” means? When our CFO questions us on why he doesn’t see the millions of dollars we reported to him six months ago hitting his general ledger on a new I.V. contract….is this savings? Or, a department head isn’t seeing the effects of savings on a new waste management contract we signed three months ago…is this savings? Let’s face it, our industry has a challenge tracking savings and ensuring that it actually happened. That’s why you can’t call a savings a savings until it’s tracked, trended and validated as being a savings. The biggest challenge we have found in getting savings right the first time is dedicating the necessary time to analyze and validate savings before, during, and after the implementation of a savings project. It does not matter what type of savings opportunity you are working on; there is a limit to the time you can expend on any savings project. Generally, once you have met your savings goals you have to draw the line somewhere, right? You then move on to your next savings project. This is the conventional wisdom on this topic, but is it accurate?
Winter 2012
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Verifying Savings The attitude, “our job is finished when we meet our savings goals” is a big reason why savings reporting is unreliable, understated, and untrustworthy at most healthcare organizations today. You see, usage patterns frequently change with new product introductions, so you can’t rely on historical purchases to estimate your savings. For instance, in the past you may have used 2-3 dressing trays per patient day but with the new dressing trays you are now using 5-8. Or, your nursing staff misapplies the product, ignores new policies, or skips training and your utilization hits the roof. Maybe, you didn’t get the savings you anticipated because your product failed and was replaced with a more expensive or feature-rich product that you really didn’t need or want or consider in your original VA Study. The list of missteps, mishaps, and misjudgments could be endless after you turn over the products to your customers, which could reduce the savings you worked so hard to put into place. One permanent solution to this problem is to start tracking, trending and validating your savings compliance with a utilization management system. This system will automate your savings compliance and enable you to quickly see, or not see, the reductions or increases in your supply chain expenses. For example, if you implement a contract price savings of $150,000 in your general pacemaker implants, then your average cost per pacemaker should decrease correspondingly as shown below. Figure 1: Change in Pacemaker Cost Over a Six-Month Period
WHEN
EXPENSE METRIC
BEFORE Any Change
Average Cost Per Pacemaker
$5,930
PROJECTED Cost with New Average Cost Per Pacemaker Pricing
$4,645
Actual – 6 Months Into New Contract
$5,280
Winter 2012
Average Cost Per Pacemaker
Healthcare Value Analysis Magazine
METRIC COST
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Verifying Savings To demonstrate this concept (show in figure 1) you can see that this hospital did not yet achieve all of the savings in pacemakers (49% slippage in cost per implant, or $73,000 annualized) that they had planned, for these two reasons:
1.
Their cardiologist’s choice of pacemakers could have skewed to more featurerich and more expensive pacemakers than was originally projected on the new contract.
2.
They could have had more acute patients that required higher-end pacemakers or there could have been other factors driving the increases.
This hospital didn’t achieve the savings that they projected but they did have a utilization system (i.e. dashboard) to trend, track and then investigate why “This hospital did not yet achieve all of
the savings in pacemakers (49% slippage in cost per implant, or $73,000 savings goal. The good news is that this annualized) that they planned for and hospital was only into the first six expected”. their savings estimates fell short of their
months of a two-year contract, which allowed them to reel in the costs as projected over time. If they did not have a utilization system in place, they may have lost the full $150K or more because they would have never known there was a problem, so they would have never acted to correct the utilization issues. Don’t make the same mistake! Savings are only savings when they are tracked, trended, and validated before, during and after implementation. To assume that all “so called” savings are hitting your hospital’s bottom line is a luxury that none of us can afford in this new era of reform. We must be just like cost accountants: Assume nothing, verify everything with your own eyes! Winter 2012
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uisition to approval) to value justify all of your
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we can almost guarantee you that your clinical supply trials will be more consistent, credible and exacting.
Winter 2012
it only takes 38 minutes!
www.CliniTrackManager.com
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Value Analysis 101: Price Thinking! Why Price Thinking is Holding Back Big Value Analysis Savings at Your Healthcare Organization! In each issue of HVAM we will provide our readers with the one basic proven and time tested tenet of value analysis to assist you to refine, enhance and advance your value analysis processes. If you have any question on this lesson, please contact us at bobpres@StrategicVA.com.
One thing that is totally misunderstood by value analysis practitioners is that value analysis isn’t about price – at all! So, if you are evaluating a GPO contract for price and suitability, you aren’t practicing value analysis. What you are doing is price shopping! Yes, you might shave a small percent off your commodities with price shopping, but you won’t experience double-digit savings, which is the promise of value analysis. In fact, you will usually stop your value analysis study at the point of getting a better price. This is what is holding back big value analysis savings at your hospital, system or IDN; not moving beyond price and standardization when you should instead be moving to performing functional analysis. By definition, value analysis is the study of FUNCTION and the search for lower cost alternatives. Did you see price mentioned in this statement? No, because price isn’t even a consideration in the value equation. Although, as value analysis practitioners we do factor in “life cycle cost” as one of the critical success elements in determining “best value” when recommending a product, service or technology for purchase to our customers and stakeholders. Case in Point! One of our clients, instead of signing off on a new wound care group purchasing contract being offered which would have saved them a few thousand dollars, decided to pursue, with their value analysis team, an investigation of their wound care program with the goal of reducing their pressure ulcer rate. During Winter 2012
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Value Analysis 101: Price Thinking! this initiative, their VA team reviewed its use of patient transfer devices, skin care and incontinent care products, ultra-absorbent pads, and its bed making process. In doing so, this organization uncovered inefficiencies in the use of patient transfer devices, the efficacy of the skin care products, value mismatches with absorbent pads, and lack of consistent process in bed making. Once these inefficiencies were corrected, our client reduced its ulcer rate by 10 percent while reducing its total wound care supply spend by $262,000 annually. The lesson to be learned here is to never stop at your first best savings idea (e.g., GPO contract savings of a few thousand dollars), but instead move on to investigate the family of products and services that surround the product or service under investigation. This way, you won’t leave hundreds of thousands or maybe even millions of dollars on the table – untouched.
On-Site, Fully Customized 1, 2 or 3 Day Advanced Value Analysis Training Program Can Help Your VA Team(s) Increase Savings by 300% or More “This (training) program offers a different perspective on value analysis than the GPO based programs. It can offer a recipe – complete with tools for the development or revitalization of a (VA) program.” Betsy Miller, Value Analysis Manager, Shands Healthcare
www.StrategicVA.com/TrainingOnSite.htm or E-mail BobPres@StrategicVA.com for On-Site fees Winter 2012
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Leadership Interview Value Analysis Leadership Interview Nila Getter, President, Association for Healthcare Value Analysis Professionals The following is an edited excerpt of an interview conducted by Robert W. Yokl, Managing Editor, Healthcare Value Analysis Magazine, with Nila Getter, President, Association for Healthcare Value Analysis Professionals in December 2012 (Background) Nila Getter was hands-on in di- Initially, I started my position with no knowledge of value analysis but saw it as my role to be a liai-
rect patient care as a nurse manager in critical care and an emergency room manager before
son and interpreter for my customers, since I spoke the language of clinicians as well the jargon
she made the jump to value analysis in 2001. of purchasing, materials distribution and supply Nila has been with Kettering Medical Center, chain management. Today, the Kettering value Kettering, Ohio, for over 32 years and says it “Seems like just yesterday that she started
analysis department has three value analysis managers, two of which are clinicians and one has an analytical background. The best part
out”. Nila graduated from Miami University about our VA Program is that we are a team with one important voice for our health system.
(Ohio) with a degree in nursing.
(RWY) How did you get into value analysis and (RWY) What was your view of the healthcare supply chain prior to working in the value analthe Supply Chain Management world? (NG) I moved into the materials management
ysis field?
department of Kettering as a nursing product (NG) As a nurse manager, I had no concept of manager. It was a new position with no job de- what supply chain was all about. To me, it meant scription, which gave me the opportunity to de- you ordered something from purchasing and it velop my own vision of how to best meet Ketter- came to you or you called distribution and they ing’s supply chain requirements. My vision was brought the products to you. I had no concept of to use my own experience as a clinical nurse what was really going on behind the scenes; it manager to be the person that I would have liked was a different world I found myself in. to have had serving my department’s needs when As you know, I got into materials management I was a nurse manager. Winter 2012
before we changed the department’s name to>>> Healthcare Value Analysis Magazine
23
Leadership Interview supply chain. I was enthralled by how they had a listing of every single item that we used in the hospital and how they knew where it was stocked and how many we had on hand. I was just amazed! My big surprise was the lack of standardization. People could just pretty much order anything that they wanted, which of course we don’t do now.
selection process and assist with the resolution of quality concerns. Many AHVAP members coordinate their hospital’s technology assessment committees which engage physicians in the approval of emerging medical technologies that impact the cost of healthcare.
AHVAP has come a long way from an informal network of nurses to sharing information and exWhen I was a nurse manager, cost management perience regarding the best demonstrated prodwas one of my big pushes. For instance, one of ucts and practices that assure safe, effective pamy cost projects was to investigate our lost tient care. charge report which entailed all the products that (RWY) When you got into value analysis, did we didn’t charge the patient or payer that we ac- you imagine that you would become the presitually used on the patient. I said that I needed to dent of the association? fix this and they told me, “Oh, you can’t”. (NG) Oh, I absolutely didn’t think I would beWell, that was the wrong thing to tell me because come president of AHVAP. All of the people in if someone tells me that I can’t do something AHVAP were so knowledgeable and I was not at then I’m going to figure a way to do it. So, I spoke that level of value analysis at that time. So, I just with my director about attacking this problem tried to soak up everything I could from the and she recommended that the most important knowledgeable people in AHVAP. I was so surthing to get people’s attention to what is imprised when I received the invitation to run for portant to you is to talk about it all the time and President-Elect. Although I had joined AHVAP as keep it in front of them at all times. So, I talked soon as they were taking applications, and was about lost charges in staff meetings, posted our their newsletter editor and board secretary for losses and reminded my staff every month of two years, I was truly shocked that they would what our lost charges were costing our hospital consider me to be the President of AHVAP. until we eliminated them totally! This is the type of mindset I brought to the materials manage- (RWY) You recently had your 9th annual AHVAP conference, could you share some of the ment department and is still my mindset today. highlights? (RWY) Could you give us the history of AHVAP (NG) I think one of the primary emphases that and how it is evolving? we had at the meeting was to serve our members (NG) The Association of Value Analysis Profes- and show how being part of AHVAP is valuable to sionals is an organization of nurses and clinical people. With education, we are going to be professional whose expertise bridges the gap be- providing Webinars and continue to have the tween clinical staff and the supply chain process. Quarterly Regional Calls which are great opportuUsing evidence-based data, professional experi- nities for Networking and Knowledge Exchanges. ence, and an understanding of the cost/quality continuum, these professional value analysis fa- Our Keynote speaker, David Ewald, gave a cilitators guide their clinical staff in the product presentation which highlighted examples of great Winter 2012
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Leadership Interview associations around the world and what they were able to accomplish. His main point was that the world works around great associations, and it just brings home the point of how important it is that we have this association with AHVAP.
“We go through life with a certain thought process and unless someone brings to our attention that there is another way to see something, sometimes we don’t. That is why it is important to go to annual conferences and participate in the webinars and conference calls that AHVAP provides because it helps you see things in a different way.
Your presentation, Bob, was very good for me as well (Utilization Management) which made me think about conversions and implementations in Nila Getter, President AHVAP a totally different way. I started seeing another side of it and I actually utilized it in a recent Lathey have the same products and same process, bor and Delivery project that netted big savings. then it makes that transitional change of working (RWY) Like any major discipline, there are at one facility or another that much easier and emerging subset best practices and systems such more clinically effective. This also eliminates the as Evidenced Based Value Analysis and Utiliza- risk of clinicians not having completed the minition Management. Could you tell us how you mum core competency training with these prodthink these new VA best practices will impact the ucts or processes. Standardization allows for betHealthcare Supply Chain? ter clinical processes. (NG) I think we need to incorporate these into everything we do. Decisions should not be made on emotion or because a physician wants the newest gadget. We have to have evidence that standardization, process or a product improves patient care, reduces infection rates or reduces length of stay. Sometimes I have to bring my value analysis teams back to this: What does the evidence say about this process or using this product? My teams know I am going to ask these questions.
(RWY) Is Value Analysis emerging to the next big process in healthcare along the lines of major change processes such as Lean and Six Sigma?
(NG) I don’t know that it is right now but it definitely could be the next big change process. I think it is necessary for improvement for standardizing policies, procedures and processes, with an emphasis on standardization of product selection where it relates to direct patient care. I think Value Analysis and Lean go hand-in-hand, Lean being more process oriented, and value analysis I am not as familiar with mainstream utilization gets down into the nitty gritty of products, sermanagement but can share with you what im- vices and technologies. portant utilization methods we use at our facilities. Kettering, in the past year, has acquired two hospitals and built a new hospital in addition to our already large multi-hospital system. Stand- Learn more about the Association of ardization of products is very important to us and Healthcare Value Analysis Professionals every opportunity that we have we try to bring products to a standard. The goal behind this is to and all of their educational and network reduce costs by reducing SKU’s, but it also helps offerings at the clinician cross over from one department or facility to another inside our health system. If
www.AHVAP.org
Winter 2012
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World-Class Best Practices 5 Building Blocks of World-Class Value Analysis Understanding the key underlying concepts to propel you forward
Value analysis has its roots in World War II, when it was necessary for manufacturers to develop alternatives to the raw materials (e.g., rubber, steel, tin, copper, nylon, etc.) they were purchasing, since they either weren’t available or were being consumed by our armed forces on land, sea and air. In 1947, a General Electric vice president named Harry Erlicher noticed that GE’s design engineers were forced, by wartime shortages, to substitute materials in their products. Often, the substitutes were as good, or even better, and at a lower cost. This observation gave Erlicher an idea; if the practice of substituting materials with equal or better performance than the originally specified materials (and at a lower cost) could be systematized, it could be a powerful tool to lower GE’s cost without creating quality issues. He gave the job of developing a systematic, repeatable and reliable process (now known as value analysis and value engineering) to Larry Miles, who is recognized by millions of value analysis practitioners worldwide as the father of value analysis and value engineering . Here are five building blocks of >>> Winter 2012
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World-Class Best Practices world-class value analysis, which are the underlining concepts that Larry Miles conceived to help propel you forward with your own value analysis program: 1. Cost is always our enemy, we must always be on the attack: Larry Miles believed if any organizations costs were too high it could be catastrophic for its management and employees causing stress, uncertainty, loss of jobs, and relocation of families. Therefore, Larry believed that a system was required in every corporation (profit and non-profit) to effectively control their supply costs. He named that system value analysis and value engineering. 2. Every
cost
corporation coaches
to
needs
improve
their performance: If you are in professional sports, a business leader, or just want to improve your golf game, you hire a coach. Larry Miles applied this analogy to value analysis; if you want to have the lowest costs, you need value analysis coaches to help your organization stay competitive in the marketplace. That’s who value analysis practitioners are: cost and quality improvement coaches. 3. Value analysis is a problem-solving system: Value analysis was designed as a creative, problem-solving system to identify and then eliminate unnecessary cost, waste, and inefficiencies in an organization’s supply chain. In particular, it means “cost that provides neither quality nor use, nor life, nor appearance, nor customer features” as Larry Miles put it.
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World-Class Best Practices 4. Value is always in-
creased by decreasing cost and/or increasing performance (performance
is
what
a
product, service or technology is required to do to be of value): Larry believed that maximum value is probably never achieved, but you can get close to perfection if you identify, study, and then utilize the value analysis methodology to improve cost and performance. 5. Maintaining the appropriate performance at the right cost is
what the concept of value is all about: It is estimated that 15% to 25% of a product, service or technology’s cost can be reduced without affecting the value to your customer. In fact, in most cases the value can be increased substantially! These are the five tenets that Larry Miles established, encouraged and lived by as he developed and refined his award-winning value analysis system over many years. It is the foundation of “functional analysis� which is the linchpin for opening the door to massive savings and quality improvements for your healthcare organization. By incorporating these five building blocks (think mission statement) into your own value analysis program, you can make a great leap forward in proactively managing and controlling your supply chain expenses to stay competitive in this era of healthcare reform!
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Utilization Management 7 Critical Mistakes of Supply Utilization Management Don’t let these challenges hold back your organization’s big savings! There was a time when utilization wasn’t even in the healthcare supply chain management’s lexicon. Utilization was something that hospitals focused on to reduce their patient’s length of stay, and not how effectively, efficiently, and judiciously the products, services or technologies were employed to get the patient well. Well, the times are changing! Supply utilization is now the biggest cost driver (67% or more) related to a healthcare organization’s supply chain expenses. It is becoming even more important as price and standardization savings slowly but surely disappear. Yet, most healthcare organizations are still just nibbling around the edges of utilization management because of these seven deadly mistakes: 1.
BENIGN NEGLECT: Ignoring utilization opportunities It is not unusual to discover that a hospital, system or IDN is devoting no time or resources to uncovering their utilization misalignments (i.e. wasteful and inefficient consumption, misuse, misapplication, misappropriation or value mismatches in their supply streams), because it’s not on their radar screen. They aren’t thinking about, concerned about, or considering it a priority. This thinking will eventually effect these organizations’ bottom line. No savings should ever be ignored!
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Utilization Management 2.
UN-BELIEVABIITY: Dollars look too big to be believable I just reviewed a utilization savings opportunity report for one of our clients and the average projected savings per line item was 41% (high 75%, low 22%) on 49 targeted commodities. The total projected savings for these products and services was over $5.4 million annualized. When you think about it, don’t these numbers look too big to be believable? Well, that’s because you have been fixated on price savings for years that appear meager alongside the in-use cost of the products, services and technologies you have been buying. That’s why your focus should be on the total lifecycle cost of the commodities you buy, and then you will realize the price is just the tip of the iceberg.
3.
PLATE TOO FULL: Too busy to save more money We all have priorities in our business life that require ranking of our responsibilities, tasks and duties to organize our jobs. Yet, beyond operational concerns, a supply chain professional’s highest priority should be to save money. That’s the ticket to success, promotions and bonuses. More importantly, supply chain managers should be concentrating their efforts on the areas that can give them the biggest savings yields, not just nibbling around the edges of savings. As stated previously, utilization is your biggest cost driver and can provide your healthcare organization with the highest savings yields (41% on average). Why wouldn’t you want to fit these savings opportunities into your busy schedule?
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Utilization Management 4.
SATISFIED WITH SAVINGS: I’m making my budget every year Who can ever be satisfied with their savings, when there is always more to be saved? In most situations, healthcare organization sav ings’ budgets are too low; just budgeting for the minimum savings -- not the maximum. As opposed to having three major categories of savings: Price/ Contract, utilization and cost avoidance. This is how to squeeze the towel dry
5.
DON’T KNOW WHERE TO LOOK: It might take some investigation Utilization misalignments are everywhere in your healthcare organization, but it requires value analysis analytics (the extensive use of data, statistical and quantitative analysis to identify value analysis savings opportunities ) to uncover them. Some healthcare organizations stumble over these savings but these are accidents, not a strategy to uncover all of their wasteful and inefficient practices all at one time. Maybe it’s time you invest in or develop utilization tools that can do all this hard work for you. A small investment could bring your healthcare organization big dividends!
6.
IT COULD BE RISKY BUSINESS: Staff might not like what I uncover There is no such thing as rewards (i.e., savings, quality and safety improve ments) without risks
in utilization management! Yes, you will need to
step out of your comfort zone to discuss with your hospital staff why their products, services or technologies are out of alignment with their peers. How ever, you will have the security that the data you present is timely, irrefutable and actionable to make your case that a change is needed in their methods and practices. This data driven process will lower your staff’s resistance to change to a manageable level. Making it a less risky business than you might think! Winter 2012
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Utilization Management 7.
TOO TIME CONSUMING: I like quick savings that stick You might think that utilization management is a big undertaking and too time consuming, but this is a fallacy that needs to be debunked. Utilization management should be a natural extension of your value analysis program. You are already targeting price and standardization, now you need to go one step further and attack your utilization misalignments. For example, if you are evaluating a new I.V. catheter, you would logically look at its price, how it fits into your standardization protocol, and investigate your current utilization of this family of products. Do you see how quickly you can up your value analysis game?
Now that you know the seven mistakes of utilization management and why they are holding you back from saving big time, isn’t it time for you to unleash the power of value analysis analytics to uncover and eliminate all of your utilization misalignments? All it takes to do so is to incorporate utilization management into your current value analysis program. This way, you will be attacking all of your cost drivers (i.e., price, standardization and utilization) in your supply streams with a comprehensive approach to supply expense management. Don’t miss this opportunity to rein in all of your costs!
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BREAKTHROUGH GAME CHANGING BOOK IS YOURS FOR FREE! THE FUTURE OF SUPPLY CHAIN MANAGEMENT IS ALL ABOUT UTILIZATION!
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Emerging Strategies Why Supply Utilization Management is Significantly Different Than Value Analysis There is a 500 pound gorilla in our supply chain that represents huge savings we are not addressing because of this misunderstanding Value Analysis has been around for years, and has evolved into being the premier product evaluation process in the healthcare industry, yet, with all of its merits, it is not structured to manage and control your supply utilization - where your biggest savings now reside. Over time, value analysis has evolved to attack savings opportunities, on a project-by-project basis, that are spawned by group purchasing contracts, internal requisitions and new contracts whereby a study is then performed by value analysis committees, VA teams or VA coordinators. Therein lies the gap between Supply Utilization Management (SUM) and Value Analysis Programs (VAP)! Value analysis is the engine to drive out the unwanted, unnecessary and wasteful costs of the products, services and technologies you are buying. However, supply utilization management is a continual process of tracking, trending, managing, benchmarking and controlling the day-to-day consumption of all of the commodities that you are buying for your organization. Winter 2012
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Emerging Strategies If value analysis teams are to optimize their savings, they need to tap into all sources of savings (i.e., price, standardization and utilization) available to them. However, most value analysis teams don’t have the tools to evaluate (e.g., value analysis analytics) their utilization misalignments. As a fall back, most value analysis coordinators, managers, and directors depend on their spend analysis to determine their appropriate utilization patterns and trends for their products, services and technologies, which isn’t the most trustworthy indicator. Based on our experience, any and all consumption analysis should be based on the activity-based cost of your commodity groupings. This is the only way to accurately measure the favourable and unfavourable variations in your supply streams which can give you actionable results. Don’t be deceived, supply utilization management is not value analysis; they are both independent systems inside your supply chain operations that need to be developed to drive out all of the waste and inefficiencies in your supply streams. To this end, a credible supply utilization program will track, trend and develop activitybased cost ratios that will act as triggers for your value analysis teams/committees to investigate. Yet, supply utilization management and value analysis actually complement each other. Supply utilization management is the mechanism to track, manage and control utilization, whereas value analysis is the engine to develop lower cost alternative solutions to the utilization misalignments that are uncovered. The 500 lb. gorilla in the room is supply utilization management in the form of overspend that we, as a healthcare industry, are not systematically attacking in our supply chain operations. We evaluate, select, and contract for a product, service or technology and then we turn it over to our hospital staff who use too many, >>>>>> Winter 2012
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Emerging Strategies employ the wrong products, choose feature-rich products, unknowingly waste products, or vendors upsell new higher-cost products inside your new contract. It’s not about price any longer, but reducing your healthcare organization’s total cost from acquisition to disposition. That’s what utilization management is all about! The reality is that value analysis is not a process that is designed to track, trend and then identify inappropriate utilization misalignments. Yet, value analysis can go a long way to harness the power of a strong utilization management program to eliminate these unwanted, unnecessary and costly supply chain expense practices. In tandem, these two powerful systems will absolutely reduce your supply chain expenses to the lowest possible levels, if you are ready to up your value analysis game to the next level of savings performance!
Employing Value Analysis Analytics to Get Your Way Using stats, figures or value analysis analytics to garner support for your supply chain ideas or initiatives should be a first, not a last tactic, to get your way in the supply chain business. Why? Stats, figures or analytics resonate better with busy people than just lofty words or general information! For instance, if we told you that your hospital’s exam glove usage had increased over the last four quarters, you would probably yawn at this information. However, if we showed you a chart that reveals graphically how your floor glove usage had escalated from $1.59 per adjusted patient day to $2.62 (a 65% jump) over four quarters, I can assure you that we would get your attention. This is because using stats, figures or value analysis analytics satisfies the human need for clarity, precision and concreteness.
usage would be about .95 cents per adjusted patient day. In our example above, this would mean that this hypothetical hospital is really 176% higher in their glove usage than their peers. Now, this is a statistic that will get anyone’s attention, wouldn’t you agree? To summarize our point here, the main reason for you to employ stats, figures or value analysis analytics is to help you to start a dialog (e.g., who, what, when, where and why their practices are different) with your department heads and managers on their utilization misalignments. Its purpose is not to win the war of words and information, but to have them investigate these anomalies in their supply streams.
What better way than to get your department heads and managers engaged with the stats, figures and value analyNow, if you can combine stats, figures or analytics with sis analytics, rather than have them fight you needlessly benchmarks, you now have an all-out winning formula. and endlessly on principle, opinion or their beliefs, when Back to my example; a typical benchmark for exam glove the numbers can lead the way to success. Winter 2012
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Evidenced-Based Value Analysis
Show Me The Evidence Dee Donatelli, RN, BSN, MBA, Sr. Vice President, Provider Services, Hayes, Inc.
“Insanity is doing the same thing over and over again but expecting different results." Whether we should attribute this maxim to Ben Franklin, Albert Einstein, or Rita Mae Browne is debatable. What is clear, however, is that when it comes to supply chain and value analysis, we’re completely insane. For years, we’ve been doing the same thing—relying on contracting and standardization strategies to reduce costs by finding ways to limit the variety of products used for the same clinical application, which, in theory, eliminates wasteful and inefficient consumption or misuse. Granted, these approaches to the purchase of consumables, devices, and in particular, physician-preference items have been effective ways to drive down utilization costs and improve efficiency. But the question we need to ask is, “Are the products purchased really superior to others on the market with regard to patient outcomes and safety?” Without an evidence-based comparison of competing products, the products and health technologies we use may not be the best ones from a clinical performance perspective. If we truly want to optimize patient outcomes and realize significant cost savings throughout the supply chain, then it’s time we started using clinically based criteria to make decisions about the items we use in the course of delivering medical services to our patients. The missing link in all traditional value analysis models >>
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Evidence-Based Value Analysis has been any consistent and structured consideration of the clinical effects of the purchasing decision. Using evidence-based value analysis (EBVA) to assess and compare the clinical value, as well as the operational and financial impact, of new and existing health technologies advances traditional value analysis to the next level. In the current marketplace, most organizations are already adept at factoring physician preference, costs, and operational considerations into their purchasing decisions. However, very few have taken the leap to include clinical evidence in the process. By incorporating unbiased evidence of efficacy and safety, operational impact, and return on investment, both clinical and financial, it is possible to change the purchasing of products and services from a price-focused, nonclinical approach to a fact-based, objective, clinical quality focus. This type of EBVA process results in high-quality medical care and physician buy-in. More importantly, EBVA enables institutions to achieve cost savings that are sustainable over time, even as new products enter the marketplace. How do we formulate an evidence-based process? Here’s a radical idea. Let’s take value analysis out of the supply chain and move it further upstream with the clinicians, so we can begin by assessing clinical effectiveness and safety (Figure). Let’s move away from vetting contracts and negotiating discounts and start by asking an important, perhaps the most important, question, “What does the evidence show us?”
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Evidence-Based Value Analysis In this advanced value-analysis model, it is only after we determine the clinical value of a health technology that other factors such as utilization, cost, and physician preference come into play. In other words, show me the evidence first, and then we can discuss operational and financial considerations. Keep in mind, although the dual objectives of EBVA are clinical and financial, clinical quality and safety form the foundation for any purchasing decisions. From a clinical perspective, EBVA seeks to:
Facilitate a consistent approach to the adoption of safe and effective medical technologies that will result in improved patient outcomes.
Establish an evidence-based approach to product acquisition and utilization that is embedded within a larger “Keep mind, although the dual objecstrategic planning process. tives of EBVA are clinical and financial,
clinical quality and safety form the Promote delivery of new and inno- foundation for any purchasing decisions.” vative approaches to healthcare in a cost effective manner. From a financial perspective, EBVA aims to improve the institution’s bottom line by:
Evaluating the financial impact and cost-effectiveness of new health technologies, including PPIs.
Determining, prior to purchasing, whether new health technologies will be reimbursed and, if yes, whether reimbursement will be commensurate with the technology’s total cost of use.
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Evidence-Based Value Analysis
Encourage clinicians to reduce hospital supply chain costs through the
The Ultimate Value Analysis System has saved tens-of-millions for SVAH’s Clients
standardization of procedures, implants, and consumables. It’s time to stop the insanity, especially in light of the paradigm shift being driven by the Affordable Care Act (ACA) and its component value-based and ACO initiatives. In the future, when U.S. hospitals will receive payments for inpatient services that are based on the quality of the care rather than the quantity of services, it will be possible to align clinical objectives with fiscal realities. EBVA is the key! Ms. Donatelli has more than 30 years of experience in the healthcare industry, with expertise in the areas of supply chain cost reduction and value analysis. Before joining Hayes, Ms. Donatelli was Vice President of Performance Services at VHA, Inc., where she provided executive leadership and direction for VHA’s consulting services, including Clinical Quality Value Analysis. Hayes, Inc. (http://www.hayesinc.com), an internationally recognized leader in health technology research and consulting, is dedicated to promoting better health outcomes through the use of evidence. The unbiased information and comparativeeffectiveness analyses it provides enable evidencebased decisions about acquiring, managing, and paying for health technologies. Dee can be reached at ddonatelli@hayesinc.com for questions or comments. Winter 2012
Discover what you can use right now to become an expert in Value Analysis and double, triple (or even quadruple!) your savings results with this insightful and easy to use Savings System It is clear to see that Value Analysis is now a best practice, yet there is no clear cut "COMPLETE HOW TO" system that you can rely on (until now) in order to raise your organization to the next level of supply chain expense savings performance. More and more organizations are hiring full time staff totally dedicated to Value Analysis to attack "SAVINGS BEYOND PRICE" which is the next level of major savings opportunities for healthcare organizations. Make sure you have this VA system to make your job easier!
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Benchmarking
Benchmarking Still Drives Savings Industry embraced a simple idea in the 1980s. The idea was that it was possible to search for the best practices that will lead to superior performance by comparing cost, time or quality of one organization to another. This process is called benchmarking and it has been immensely successful in all industries—including healthcare — for almost three decades! Here’s the rest of the story! One BIG gap
take that we have seen many times but the
that we have found in healthcare benchmarking
benchmarking was able to show them they had a
practices is that this technique is not universally
problem.
applied to the identification of supply expense savings opportunities. Yet, healthcare organizations that are benchmarking their supply expenses systematically have found that benchmarking
How would this hospital have known this important fact if they weren’t continuously benchmarking to improve their performance? The answer is they wouldn’t have
is “what drives savings” for
known unless they had stumbled
their hospital, system or IDN.
over this anomaly in their supply No longer do these pro-
chain by happenstance. Then it
gressive healthcare organiza-
would be too late to recoup their
tions need to guess where their
big losses!
supply savings are hidden, they If you want to be on top of
now know precisely what to tar-
your supply chain game, bench-
get for their next savings opportunity since their benchmarking has illuminated
marking your supply expenses shouldn’t be ignored or be a “one time event”. It should be a
the way.
regular (we recommend quarterly), systematic For instance, one of our dashboard clients measuring of your healthcare organizations’ supdiscovered that their hospital wasn’t recycling
ply chain expenses against those who are recog-
their Compression Sleeves at the level that they
nized as best-in-class practitioners in healthcare
should have been reprocessing, thereby losing
or even in other industries. In this way you can
$62,655 in annual savings. What happened was
make certain that you are the best of the
the storeroom manager forgot to order in the re- best in ALL of your categories of purchase. processed sleeves for a 6-month period, a misWinter 2012
Healthcare Value Analysis Magazine
41
The Final Frontier for Supply Chain Professionals The introduction to the wildly popular Star Trek TV series and eleven movies, “Space…The Final Frontier: These are the voyages of the Starship Enterprise…to boldly go where no man has gone before” has much in common with supply chain management of the 21st century. We as an industry, having conquered the world of price and standardization, are now looking for new worlds to conquer!
“It can be quite scary
Like Captain James T. Kirk, whose job was to find new worlds and new civilizations, we as supply chain professionals need to seek out new savings sources to maintain our hospital, system or IDN’s competitive advantage in our marketplace.
out there searching for new and better saving sources”
Utilization management is the NEW FINAL FRONTIER to be conquered! Let us help you with our Utilizer® Dashboard. The only all-in-one power tool that will absolutely and positively increase your savings yield by as much as 7% to 15% — almost overnight!
Dashboard to the
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rescue!
Utilizer®
UTILIZERDASHBOARD.COM Winter 2012
Healthcare Value Analysis Magazine
42
