Volume 3/Issue 1
Healthcare
Leading Cost and Quality Strategies for the Healthcare Supply Chain
Magazine
A Strategic Approach to Cost Containment in Hospitals Volume 3/Issue 1
HowHealthcare ManyValue C’sAnalysis are&in Success? Utilization Management Magazine
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contents
Healthcare Value Analysis & Utilization Management Magazine Healthcare Value Analysis & Utilization Management Magazine is published quarterly by Strategic Value Analysis® in Healthcare P.O. Box 939, Skippack, Pa 19474 Phone: 800-220-4274 FAX: 610-489-1073 bobpres@ValueAnalysisMagazine.com
9 FEATURED ARTICLE
www.ValueAnalysisMagazine.com ————————————
A Strategic Approach to Cost Containment in Hospitals
Editorial Staff
In today’s economic environment, hospitals are being forced to make some deep rooted cultural changes to succeed.
Robert T. Yokl
Publisher bobpres@ValueAnalysisMagazine.com
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17 CLINICAL VALUE ANALYSIS
Managing Editor
Transparent Processes Use Data
Robert W. Yokl
Value Analysis Facilitators frequently find themselves estimating the impact of a project prior to implementing a change, or even evaluating a potential change.
ryokl@ValueAnalysisMagazine.com
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Senior Editor Patricia A. Yokl ————————————
29 VALUE ANALYSIS 101 How to Select Your Value Analysis Projects The Key to Value Analysis Success is Having the Right Items On Your Agenda Every Time
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Editor Copyright 2015 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.
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From the Publisher's Desk “Leadership is the capacity to translate vision into reality.”
Warren Bennis Robert T. Yokl
You might think that great leadership is some superhuman activity, but it is really translating a vision into reality as author, scholar, and organizational consultant Warren Bennis has come to believe. Jeff Bezos envisioned Amazon as an online general store; Bob Iger, Disney’s CEO, believed investing in creative content, international expansion, and technological innovation was the ticket to Disney’s success; Apple’s late and great CEO Steve Job’s vision was to create products with incredible benefits for Apple’s customers. I’m going to guess that you would agree that all three of these individuals have effectively translated their vision into reality. Great leadership starts with a vision - you need to know where you are going before you can lead others to follow you there. You need insight into your business in order to envision your supply chain organization’s future state. This is best accomplished with a strategic plan which has the following five elements: 1. Perform SWOT Analysis to determine your supply chain organization’s (SCO) strengths, weaknesses, opportunities, and threats. 2. Define your SCO’s mission, which is the purpose your SCO exists. 3. Define your SCO’s vision, which is a description of what your SCO will look like when it is successful. 4. Identify the goals and objectives that are necessary to meet your new or refined vision and mission. 5. Develop an implementation schedule with timelines to measure the achievement of your goals and objectives. In reviewing other strategic planning models I see that some have added steps to clarify strategic issues and clarify activities, etc. which can broaden your strategic planning process. However, I have provided the basics herein so you don’t need to get bogged down in the details. The purpose of this exercise is to provide you with the insight that is necessary to formulate your own SCO’s vision over the next few years. In doing so, you will be able to become a great leader when you translate your vision into reality. Good luck as you move down this path to greatness with the wind to your back. Volume 3/Issue 1
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Finally, A Proven System That Engages Clinical Department Leaders to Save Money in Supply Utilization Why Do Clinical Departments Need Only Clinical Departments Can More Proof Than Just Total Spend? Control Their Clinical Departmental Supply Utilization Supply and Value Analysis Managers have been challenged with providing evidence to show where clinical departments’ supply utilization is running over. Normally, when the utilization overrun is brought to the clinical department managers’ attention in the form of spend totals, their first reaction is that patient volumes or acuity was high for the period. That is where the conversation usually ends and that is where huge dollars are tied up in your hospital’s supply chain. How do we provide the proof clinical departments need when it comes to supply utilization?
Clinical Departments Are Not Cost Management Adverse Clinical departments are not cost management adverse. On the contrary, they will help manage utilization costs but require solid evidence when it comes to their major and minor product category overspends. Supply and Value Analysis Managers have been able to keep costs low for many years with various value analysis and contracting strategies but there comes a time when the clinical departments must learn where they need to do better.
Clinical departments have traditionally managed the supplies that are used for care on their patients but they have been doing this without a solid reporting system to tell them where they can do better based on patient volumes and acuity. With a system in place, clinical departments can now visualize all of their major supply categories and make the necessary adjustments which in turn will save big dollars (11% to 23% supply utilization savings per clinical department) for the hospital.
$3.8 Million for 350-Bed Hospital Recently, a 350-bed hospital reported clinical departmental savings of over $3.8 million. Why so much savings? Because they had never taken the utilization reporting to the department level and thus the savings were low-hanging fruit when it was brought to the clinical department leaders’ attention. Clinical Department Utilization Manager software made it easy to pinpoint the exact category in the exact nursing unit and the exact product(s) that were causing the overspend. Prior to this, they did not have any idea where to look or how to prove the savings to the clinical department leaders.
No More Guessing Where Utilization Savings Are Hiding In Your Clinical Departments
Goes Beyond Supply Budgets to the Actual Utilization for Each Department by Major Supply Category
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Sign Up for A FREE Test Drive Today of the Clinical Department Utilization System
www.ClinicalSupplyUtilization.com A Software-As-A-Service brought to you by Strategic Value Analysis in Healthcare, Skippack, Pennsylvania Volume 3/Issue 1
Healthcare Value Analysis & Utilization Management Magazine
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28 Years as a Trusted Leader in Supply Value Analysis and Utilization Savings Strategies—Making Savings Easy for You!
From the Managing Editor’s Desk New Name with Same Vision for Savings and Quality Robert W. Yokl
You may have noticed on the cover of this issue that we have expanded the name of Healthcare Value Analysis Magazine to “Healthcare Value Analysis and Utilization Management Magazine.” If you are a reader of our past issues you notice that value analysis and utilization management practices intersect in so many ways that we decided to change our name to include utilization management as part of our magazine’s major focus.
Why the Expanded Focus? What we have learned in our industry is that Value Analysis is a great tool and system for reducing costs in many different ways following the classic tenets of value analysis functional evaluations. But what we have found is that the value analysis teams, committees, and initiatives need to have fuel for their engines beyond contracts and new product requests. Where utilization management comes into play in that part of VA’s new role is to help manage the quality, waste, and inefficient use of products along with making sure that you have the right product for the right customer every time.
Utilization Complements VA and Vice Versa Traditionally, value analysis teams start off focusing on a lot of low hanging fruit and have a considerable amount of success with their quality and savings initiatives. But once a program matures and the low hanging fruit is no longer there, we have seen many value analysis teams struggle to get good quality and savings initiatives in place. Brainstorming for ideas and polling members is not really a systematic way for teams to operate and often does not generate the best candidates. Questionable value analysis study candidates can result in lost time and many dry holes which zap the momentum and savings and quality potential of the team. Utilization management is a natural extension for value analysis teams but more importantly it gives a long term funnel of utilization misalignments that are costing hospitals big dollars and which can now be used to generate valid value analysis studies. We look forward to writing so much more about all of the added cost and quality potential between value analysis and utilization management for our readers. Volume 3/Issue 1
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The Future of Supply Chain Expense Management is Now! “Every so often, an idea, innovation, invention, or revolution appear in the marketplace that changes the game forever. We call these breakthroughs game changers or the rules or variations that change the game enough that a new or different game emerges.” Healthcare organizations are now facing big challenges from lower revenues, more patients, and value-based purchasing, to name a few. How can supply chain professionals meet these challenges when their price savings are slowly disappearing? The simple answer is Supply Utilization Management which can open up a >>>>>>>
Volume 3/Issue 1 The
Value Analysis & Utilization Management Magazine Future of SupplyHealthcare Chain Savings—www.UtilizerDashboard.com
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The Future of Supply Chain Expense Management is Now! whole new world of supply chain sav- about utilization management”, not The Rest of The Story ings that you never knew existed. about price. Naturally, this was music This materials manager didn’t know to our ears, so we asked him why he us, our products, or our services beNo Longer a Theory believed this to be true. fore our meeting, but we found ourSupply Utilization Manageselves on the same page with him ment is no longer a theory or before the meeting was over. hypothesis. Our intensive reIt’s no surprise to us that more search, comprehensive studand more materials managers are ies, and hundreds of client enthinking and acting the same way gagements over the last 15 as this supply chain professional years have proven beyond a when it comes to reducing their doubt that Supply Utilization supply chain expenses. Management is a new discipline that all supply chain proSee The Light fessionals need to master if They are letting their GPOs do their healthcare organizations what they do best, reduce their are to continue to achieve acquisition cost, thereby freeing double digit supply chain savup their time so they can focus on ings in the future. utilization misalignments where It’s Time to Innovate their best supply chain savings Better Time Investment opportunities reside. A few years ago, we met for an introductory meeting with a new materials manager at one of our Utilizer® Dashboard client hospitals which we have been servicing with our Value Analysis Analytic services for 10 years.
He then said that he had found, after decades as a materials manager, that it was a waste of time for him to haggle with his vendors to save a few pennies off his expense budget when his GPO contracts achieve 98% of the The agenda for this meeting was for savings available on price for his hosus to demonstrate our Utilizer® Dash- pital. board and talk about the value analy- On the other hand, if he invested the sis coaching and training we have same amount of time in uncovering, been providing under our subscrip- investigating, and implementing his tion service. However, this discussion utilization misalignments he could soon spun off in another direction save hundreds of thousands of dolwhen this materials manager stated lars a year. to us, without prompting, that supply chain management today “is all
Volume 3/Issue 1
Take Action If you, too, see your price savings disappearing, now is the time to request a FREE “test drive” of our Utilizer® Dashboard at:
UtilizerDashboard.com A Software-As-A-Service brought to you by Strategic Value Analysis in Healthcare, Skippack, Pennsylvania 28 Years as a Trusted Leader in Supply Value Analysis and Utilization Savings Strategies
Healthcare Value Analysis & Utilization Management Magazine
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Featured Article A Strategic Approach to Cost Containment In Hospitals How Many C’s Are In Success? Maureen Hazen, RN, MHA, Associate Director, Berkley Research Group’s Healthcare Practice
and Robert Andrzejewski, MS, Associate, Berkley Research Group’s Healthcare Performance
In today’s economic environment, hospitals are being forced to make some deep rooted cultural changes to succeed. Leaders take responsibility for the direction of their teams but are also tasked with creating vision, bringing tools, raising accountability, and improving the quality of a team’s output. One of the keys to overall success in completing all of the tasks listed is providing communication. The frequency, potency, and specificity of communication is essential. Hospital staff need to be aware of healthcare challenges but more specifically their hospital’s financial state of affairs. Cascading this information throughout an organization can be both empowering and transformational. When people are “in the know” they are more inclined to participate and feel a part of the team. Staff can be insightful regarding cost containment and should be encouraged to share their ideas and recommendations for cost containment. Providing transparency into specific department costs/operations will allow everyone to understand the big picture and provide motivation to look for ways to lower costs while continuing to provide high quality care to patients. Volume 3/Issue 1
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Featured Article
Maureen Hazen and Robert Andrzejewski With strong leadership, staff involvement and successful teams, hospitals can work to achieve cost containment. Refocusing product review teams to look at consumption and utilization practices will identify many savings that have not traditionally been approached. The key is to monitor and report successes through dashboards.
Hospital Product Review Processes Many hospitals have various avenues that can be used to present cost avoidance, cost reduction, as well as revenue generation ideas. Whatever the name of your hospital cost containment team/process, (Product Review, Value Analysis, Product Acquisition and Management, Utilization Management, Cost and Value, Cost Effectiveness, etc.), they are all vehicles to look at every aspect relevant for assessing the total cost of products, practices, and processes. These teams should not be perceived as a short-term answer but instead a methodology to achieve sustainable solutions.
Identifying All the C’s In a Successful Team Although there are only two C’s in success, when it comes to building a successful team focused on cost containment there are actually several C’s to success. Identifying and applying the many C’s in success into your cost containment processes can assist to create a more dynamic team. When assessing the effectiveness of your team you may want to consider evaluating each of the following components.
Commitment/Contribution Team members are committed to accomplishing a mission and expected outcomes. Team members contribute insight and out-of-the-box ideas.
Competency Competent team members provide trust and credibility that they will deliver quality outcomes.
Communication/Coaching Team members should always be free to speak within the team, ask questions, and seek clarification and to communicate constructively in a positive and respectful manner. Team members must be educated and coached by a committed project champion in order to understand the scope of the project and action items required to be successful.
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Featured Article
Maureen Hazen and Robert Andrzejewski
Cooperation/Collaboration Work together to achieve a common goal. Team members should be able to figure out ways to work together to solve problems and accomplish the end goal. Collaboration is working with others to complete a task and achieve shared goals.
Culture/Celebration Team members share beliefs and goals. Recognize team members for hard work and contributions.
Clean Data Clean and accurate data is a key factor when analyzing and making recommendations based off of numbers. Data must be checked for quality prior to analysis, otherwise you run the risk of “garbage in, garbage out.” Once data has been proven inaccurate you have lost your credibility with key stakeholders.
Balancing the C’s can assist you to build a highly effective team. Taking an idea from conception to implementation with the end result of success is a great team motivator. The key is to involve the staff and include utilization initiatives to assist in bringing savings to the hospital’s bottom line. What type of ideas should your teams be looking for?
Approaching Consumption/Utilization Practices Driving down prices on medical supplies has historically provided good savings but often, vendors offer their own strategies for providing cost savings. An example is rebates which can often go unnoticed at hitting a department’s bottom line. A bigger and bolder step, which many hospital cost containment teams have not jumped into with both feet yet, is evaluating the appropriate consumption and utilization of products. Why is cost effective utilization so elusive? The thought provoking question to cost containment team members is: Do we have differences with consumption and utilization practices with products? Are products being used incorrectly or carelessly? Do we need to brainstorm with the team as to what products they perceive have different utilization practices and tour units and interview and shadow staff and physicians to understand the differences. Look for the for utilization
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key to open ideas initiatives.
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Featured Article
Maureen Hazen and Robert Andrzejewski
Below are some examples of different utilization practices that have been observed in hospitals. We need to determine which of these is a best practice.
Usage of Large Disposable Underpads Placing multiple pads versus one on a patient bed Placing a large pad under an extremity for a blood draw instead of a smaller pad Lining bedside table draw Cleaning up spills
Usage of Disposable Pulse Oximetry Probes Inappropriate sensors are placed on areas in an attempt to get a more accurate reading (i.e. forehead sensor placed on finger). All areas of the hospital do not have the same type of sensors, therefore, if a patient is transferred a new sensor may need to be placed.
Blood Utilization Defining “appropriate” criteria for determining blood product transfusion action Ordering many blood products prior to a procedure Transfuse one unit RBC’s then reassess ongoing blood loss
Accurate Data and Dashboards Accurate data rules when demonstrating the value of monitoring utilization practices. It provides actionable information. The challenge with many hospitals has been to identify then monitor utilization patterns. Presenting utilization data at the departmental/service line level provides the details that managers need to influence change. Trend lines need to be monitored. Most importantly, the analysis must quantify how the wasteful practices are financially impacting the hospital.
Software exists that the vendor states possesses the capability to identify and quantify products that are being over utilized. If purchasing software is not an option, models and tools for monitoring and tracking trends can be created using spreadsheet software such as excel. It will not identify the practice but can be used to trend the practice. For example: When creating a dashboard that can be used to monitor and track savings for a utilization initiative, be aware of two things: What is the key performance indicator (KPI) to be used for calculating savings and what is the hospital benchmarking itself against? A KPI is a quantifiable measurement that can be used to track the savings and progress of an initiative.
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Featured Article
Maureen Hazen and Robert Andrzejewski
Determine:
The optimal KPI for a particular initiative
What patient population is being impacted? All patients, inpatient, outpatient, specific type of patients, etc?
What is the appropriate denominator that should be applied to calculate savings? Adjusted patient days, patient days, patient admissions, etc?
In regards to benchmarking, if a hospital does not own software that provides industry standards for utilization practices, then the best course of action is to benchmark against past performance and strive to improve upon that. Below is an example of a dashboard used to track and monitor blood product utilization. Tools like this can clearly and effectively help a hospital be aware of how its product utilization is trending and validate savings.
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Featured Article
Maureen Hazen and Robert Andrzejewski
Conclusion A results driven cost containment process should include the many C’s in success. Starting with a strong foundation of communication and incorporating the C’s into the team’s guiding principles is the key to building a sustainable process. Focusing your hospital’s cost containment process to having the team use the C’s in success, evaluating utilization practices, and monitoring/tracking initiatives will help you to achieve significant and sustainable long-term outcomes.
Maureen Hazen, RN, MHA
Maureen is an Associate Director at Berkeley Research Group’s Healthcare Practice. She has thirty years of clinical, managerial, education, and consulting experience. Maureen specializes in supply chain/product utilization and value analysis from identification through implementation of ideas. She provides thought leadership and subject matter expertise to support her client consulting engagements. Contact Maureen via email mhazen@thinkbrg.com
Robert Andrzejewski, MS Robert is an Associate at Berkeley Research Group’s Healthcare Performance Improvement practice. Robert’s expertise includes analytics, performance improvement, and supply chain. His experience consists of implementing cost savings and revenue enhancing initiatives for academic medical centers and children’s hospitals. Contact Robert via email randrzejewski@thinkbrg.com
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Healthcare Supply Chain Best Practices Podcast
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Listen online at www.StrategicVA.com/podcast.htm Or Find Us On ITunes Volume 3/Issue 1
Healthcare Value Analysis & Utilization Management Magazine
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Clinical Value Analysis Transparent Processes Use Data James Russell, RN-BC, Value Analysis Facilitator, UF Health at Jacksonville
Value Analysis Facilitators frequently find themselves estimating the impact of a project prior to implementing a change, or even evaluating a potential change. Using data and metrics can keep the project balanced and fair. It may sound simple but it isn’t always and can require some explaining. Imagine a project originating with a staff nurse. She works at more than one hospital and uses what she describes as a better peripheral IV catheter at her other job. She completes a Product Request Form asking for the “better” product to be evaluated. You get to facilitate the project.
Goal The project’s etiology is clinician preference. The project’s sponsor just likes one better than another. However, we need a better argument than that for measurable goals. There are 3 questions we ask the sponsor to answer in every project and sometimes they need a little help with the wording. In this case we get the following: 1. What’s the problem(s) we’re trying to solve? Missed PIV starts, requiring more attempts. Practitioner needle sticks. Practitioner blood exposure from PIV’s. 2. How will this new product help us solve it? Volume 3/Issue 1
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Clinical Value Analysis
James Russell
It has a passive safety mechanism to prevent needle sticks. It has a valve to prevent backflow of blood.
3. What data will we measure to evaluate the project’s success? PIV catheter usage per adjusted patient day (APD). Employee health data to note the new product’s effects on needle sticks and blood exposures. Practitioner surveys to gauge their opinions post conversion.
Process The beauty of having a consistent process is that the project will follow a prescribed path toward a decision. The first step is to create a grid with baseline data on the current products. The existing PIV catheters will be benchmarked in terms of pricing and utilization. How much do we spend? How many do we use? How many do we use per APD? This last question is important. For products that are only used in an inpatient setting (i.e. heart valves), the statistic “products per patient day” can be used. However, PIV catheters are used in the outpatient setting as well, so the patient days statistic must be adjusted with an outpatient factor. This metric is important in comparing our facility to others. Let’s presume we use 200,000 PIV catheters annually. Is that a lot? Who knows? Let’s further presume we have 300,000 APD’s. That gives us a rate of 0.67 PIV’s/APD. Very generally, this means each day a patient is present at the facility, they have a 67% chance of getting a PIV. Now we can benchmark this rate against other facilities and see if we are on the high end, low end or somewhere in the middle in terms of utilization. This statistic normalizes our data and we can be compared to other facilities regardless of their size. Again, this is important to know as we will want to compare how this number changes to assess increases or decreases in utilization if we convert to the requested product. The new product will have to be benchmarked in terms of pricing, GPO contracting, FDA approvals, recall history, etc. The company being evaluated will need to sign a liability waiver and provide products to be evaluated at no cost. They will be required to provide some type of pre-evaluation Volume 3/Issue 1
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Clinical Value Analysis
James Russell
education, reference materials, and disclosure of any relationships with members of the facility’s staff. In this way, all projects are treated in a transparent manner and they follow the same steps and must meet the same requirements. Our grid will also tell us the spend and usage deltas should we decide to convert to the new product (assuming a successful evaluation). Is the new product more expensive or less as an “each” price? The new product claims to decrease PIV attempts (due to the blood flash). If that’s accurate, could we end up utilizing fewer “eaches” while paying a higher “each” price? Estimating the effect on our annual volume and spend is important. Let’s presume we spend $2.00 on each PIV we buy currently. At our 200,000 each volume, that’s an annual spend of $400,000. Let’s further presume the new product costs $2.20 each. At a 1:1 ratio, we would estimate a new annual spend of $440,000, or a $40,000 increase in supply costs for the new item (10%). If the new item boasts it will decrease “missed attempts” by 10%, then our estimated utilization will be 180,000 “eaches”. At $2.20 each, our new spend will be $396,000 or a $4,000 decrease in annual spend (2%). If the product is as good as it boasts, we could pay more for each item and still save money!
Evaluation The evaluation (or trial) will involve several different units with different needs to get varied opinions. The PIV project is clinically intricate in that it requires hands-on training by the vendor. Once the clinicians perform their evaluations and give their opinions, the tally will show what to do next. Let’s presume the project is successful and the intent is to convert to the new products.
Conversion The clinicians will want the new PIV’s as soon as they can get them. They’ve already evaluated the new products and decided they were superior. They don’t want to hear about MMIS issues with the item master, distributor stocking requirements and lead time, drawing down of the “old” product to decrease the waste when the conversion takes place, par level issues for each individual unit or contract negotiations with the vendor. They want the item you told them to look at. Don’t even think of telling them they can’t have it because the vendor won’t come down enough on their price. You should have done that way before the evaluation! It’s too late once the clinicians decide they like it…your leverage is gone! Volume 3/Issue 1
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Clinical Value Analysis
James Russell
Return on Investment (ROI) After conversion, usually on a quarterly basis, we will run the numbers on the new product. This is where the 3rd of our three questions comes back into play. What’s happened with our utilization of PIV catheters? Did our PIV’s/APD increase, decrease or stay the same? Remember, we were hoping for a decrease to justify the increase in the “each” cost. Did it happen? What’s happened with blood exposures and needle sticks? What were the results of the survey we sent out? All of these things require follow up and can provide great insight into a fair evaluation of the project’s success (or lack thereof). Let’s presume our PIV’s/APD have decreased by 5%. Let’s further presume our blood exposure and needle sticks from PIV’s have decreased. Using this data can provide both our clinical and operational customers with the details to determine the project’s success from both their points of view. As facilitators, we shouldn’t have to interpret the data for them, they can make up their own minds. We just need to be fair and balanced when presenting it.
Jim Russell is a Value Analysis Facilitator UF Health at Jacksonville and has more than 25 years of nursing experience, specializing in critical care and psychiatry. He has been a Staff Nurse, Charge Nurse, Clinical Coordinator, Nurse Manager, Director, and Chief Nursing Officer. He worked for many years in the for-profit community healthcare sector and also has several Academic Medical Centers on his resume. Jim sat for 5 years on the Nursing Advisory Board for a HealthTrust, performing Value Analysis for nursing related products and represented more than 70 hospitals. He is currently on several Advisory Councils and Special Interest Groups for UHC and Novation. When not at work, he can be found rolling around with his hyperactive rescue Husky. You can contact Russell with your questions or comments at James.Russell@jax.ufl.edu Volume 3/Issue 1
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UTILIZER® DASHBOARD More Time
Faster ROI
Less Work
Proven Savings
An Advanced System That Puts You Right on the Cutting Edge of the New Savings Horizon— Utilization Management!
Volume 3/Issue 1 Healthcare Value Analysis & Utilization Management Magazine 21 LEARN MORE WITH A FREE TEST DRIVE WWW.UTILIZER-DASHBOARD.COM
UTILIZER® DASHBOARD More Time
Faster ROI
Less Work
Proven Savings
An Advanced System That Puts You Right on the Cutting Edge of the New Savings Horizon “Utilization Management” The Utilizer ® Dashboard System won’t let you get caught up in the endless maze of lost opportunities and dry holes with your utilization management and value analysis savings programs. You need a winner now! Why reinvent the wheel when a proven utilization system has already been developed for you? Avoid typical mistakes that can destroy your credibility with your customers and stakeholders. U tiliz er® gives you the guaranteed r esults you w ant!
Shrewd Supply Chain Leaders realize that the Savings and Quality game is rapidly changing every day. Demand for newer and bigger savings is paramount, but to deliver these results you need an advanced system that will put you in the lead right away. Utilizer is that System! Volume 3/Issue 1 Healthcare Value Analysis & Utilization Management Magazine 22 LEARN MORE WITH A FREE TEST DRIVE WWW.UTILIZER-DASHBOARD.COM
Value Analysis 101 (Basics)
Robert T. Yokl
How to Select Your Value Analysis Projects The Key to Value Analysis Success is Having the Right Items On Your Agenda Every Time
How are you selecting your value analysis projects? Is it organized, systematic, and foolproof or is it left to others to decide? It is our goal with this article to give you a framework to select the best projects for value analysis so you can almost guarantee savings or quality improvements on each and every value analysis project you undertake. Here are 9 triggers that we recommend to our clients to select their best value analysis projects. 1. GPO Contracts First, we like to say that all new or renewal group purchasing contracts should be selected as projects for value analysis. The reason for this is twofold: a. GPO contracts tend to involve high dollar purchases thereby providing an opportunity to shave at least 5% in imbedded costs on every new or renewal GPO contract. Over $262,000 (or 10%) annually was saved by one of our clients who reinvented their wound care program instead of just renewing their GPO’s wound care contract. b. GPO contracts could be costing your healthcare organization thousands of dollars annually unnecessarily since they may not be the appropriate product to meet your customers’ requirements. We see this in product selection all the time. Your customers are buying higher priced products (within your GPO contract) than are medically indicated. Volume 3/Issue 1
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Value Analysis 101 (Basics)
Robert T. Yokl
To ensure that you have an opportunity to perform value analysis studies on all of your new and renewal GPO contracts, be sure to give your value analysis team 90-days lead time to get this work done.
2. Large Dollar Purchases An ABC Analysis Report should be run annually to determine what products, services, and technologies are costing your healthcare organization. Then the highest 20% would be selected as value analysis projects. For instance, some time ago we identified a form for one of our clients that was costing them $185,536 annually. A value analysis study identified $91, 542 in savings or 50%. This is why you need to always review your top 20% (in dollars) purchases every year to ensure that there are no savings to be squeezed out of these large dollar purchases. By the way, the top 20% tend to change each year.
3. New Purchase Requests It goes without saying that all new purchase requests, over $25,000 annually, need to be put under the value analysis microscope to weed out inappropriate products and to also search for lower cost alternatives to lower your acquisition and running cost. This is where substantial savings can be achieved since your requisitioners generally don’t look for lower cost alternatives when making their requests.
4. Magazine Articles Often, you will see a magazine article touting a savings opportunity that was achieved by another hospital. This is a perfect opportunity to bring this to the attention of your value analysis team, so they too can investigate this savings opportunity.
5. Contract Renewals Contract renewals are the ideal time to investigate savings opportunities since many times poor supply chain practices have crept into your contracts. A few years ago we reviewed an IV rental pump contract for one of our clients and found that they used 2,252 more IV sets than originally estimated, yet didn’t get a price break for doing so. We also noted that their pump set cost increased 28% during their fouryear contract period, but no one questioned it. This is why you can never take your eye off the ball even after you have signed what you believe to be a very cost-effective and value-justified IV rental pump renewal contract.
6. Price Increases Any time you receive a price increase on a product, service or technology, you should immediately
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Value Analysis 101 (Basics)
Robert T. Yokl
place it on your value analysis agenda to search for a lower cost alternative. This is because with few exceptions there is another product, service or technology that will meet your requirements at a lower cost. Also, chances are once you inform your sales rep that the commodity is going to be re-examined by your value analysis team, they will cancel their increase.
7. Product Failures A product failure could mean that value analysis didn’t get it right the first time, so it is crucial that your value analysis team review why a product failed. It’s the only way we know of to get feedback on your VA decisions so you can improve on them.
8. New Regulations
Be protective of your value analysis agenda items as you can chew up a lot of committee/team resources on items that don’t amount to much savings or quality improvement at all.
We have found that new regulations can cost you more money than they should if they involve product changes. Therefore, value analysis should be interpreting the new regulations to make sure cost effective decisions are being made by your hospital staff. Many times we have found that new regulations open the door to buying more than is required.
9. Utilization Misalignments One of the newer and biggest areas of opportunity is in utilization misalignments. This can be anything from over consumption, waste or use of feature rich products that should not be used in a department or procedural area. There is good news and bad news when it comes to these savings. When you find one of these, they are more than likely to be a bonafied savings opportunity that will net good results for your VA Committee/Team. The bad news is that these are not that easy to uncover since you must have a system to compare your spend to the volume metric for each of the product areas such as cost per adjusted patient day for exam gloves, oxisensors, etc. You can do this with a spreadsheet if you happen to be focusing on that product study but more than likely you will need additional reporting to aid you if you are to track after utilization more diligently.
There are many ways to find new savings and quality improvement opportunities for your value analysis team’s agenda; these are just a few of the best elements we have found to be successful throughout the country with our clients and colleagues. A word of caution would be to be protective of your value analysis agenda items as you can chew up a lot of committee/team resources on items that don’t amount to much savings or quality improvement at all. In value analysis, you have to be on the lookout for the big fish as they will fill your savings and quality goals and objectives that will become more and more important to your organization’s bottom line.
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The Last Word
Robert W. Yokl
What Does Value Analysis Mean to You? When you think of the term “value analysis” (VA) as it relates to the healthcare supply chain, what does this mean to you? I have heard hundreds of different definitions of value analysis in articles, presentations, white papers, and conversations with supply chain and value analysis professionals that make me ponder. Can a term mean so many different things to different people and organizations throughout our industry? Is “value analysis” a true process or is it a term we use when we refer to anything related to cost management in the healthcare supply chain?
high costs and availability of raw materials and parts to make the products that their customers ordered. Larry created value analysis/engineering to focus on the function of products, not their price, overall cost, brand or features. This enabled him to clearly define specifications for the engineered products and to meet the engineered specifications with the right product. If I had to hypothesize about why we have so many definitions of VA, I would bet it relates to the word “value” since it is the focal point to what causes us to stray from the true meaning of value analysis. For example, one of the most ubiquitous definitions I see for defining value is Cost/Quality = “Value”. But how do you define quality? Quality, like the term value, is subjective to the standpoint of the evaluator’s judgment. Let’s change our value calculation; take away quality and replace it with Exact Functional Requirements (Cost/Exact Functional Requirements=VALUE). Now you can clearly define what value is.
One of the first questions that I ask prospective customers is about their value analysis process. Inevitably, I get answers to this question along the lines of, “Yes, we have a well-defined value analysis process” or, “We have value analysis committees in many different aspects of our business such as general med/surg, cardiology, etc.” I am always encouraged by the fact that they do acknowledge value analysis as a strategy but my mind always turns to the question, are they really practicing value analysis as the founders and developers of value analysis envisioned? By changing our calculation to meet exact specifications instead of a benign call for “quality” we can I have been steeped in value analysis over the last then ensure that our quality and patient needs are 23 years through my father and CEO, Robert T. met by meeting exact functional specifications that Yokl, who for the past 40+ years has followed the can be evaluated, added or taken off products. classic tenets of value analysis learned from the With this new definition in hand you can start to father of value analysis, Larry Miles, If you are not educate your VA teams, senior management and familiar with Lawrence “Larry” Miles, he was a Val- line staff to the true meaning of “value analysis” ue Engineer who worked for General Electric right which aligns perfectly with the classic tenets of valafter World War II, when General Electric was ue analysis and will get you bigger, better, and fastbooming with production and innovation. With er results. this boom in business, GE was challenged with
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A Powerful Toolbox that Frees Up Your Teams to do their Best Work! Low Cost — High Value — Less Work —Better Results Why a Savings Toolbox Now? Realizing that the Supply Chain World, and more specifically, the Supply Value Analysis World is forever changing, we wanted to make sure you have the opportunity to receive the most up to date information, tools, evidence and resources that are essential over the long term for their value analysis and supply chain success. Now you too can benefit from this technology.
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The Ultimate Supply Chain Radar System! The Most Comprehensive Tool for Controlling Utilization Costs in the Market Today FINDING THE NEXT LEVEL OF BIG SAVINGS DOESN’T HAVE TO BE DIFFICULT WITH THE RIGHT SYSTEM TO DO THE HEAVY LIFTING FOR YOU!
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