Healthcare Value Analysis & Utilization Management Magazine |Volume 9|Issue 2

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Volume 9/Issue 2

Healthcare

Leading Cost and Quality Strategies for the Healthcare Supply Chain

Magazine

Featured Article: Hemostat Product Changeover at Huntsville Health: High-Volume Low-Cost Physician Preference Items Can Lead to Significant Cost Savings

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It’s a Fact…. The More Organized You Are with Your Value Analysis Program…

...the More You Save!

CliniTrack™ Value Analysis Manager gives you the automated tools, reporting, and knowledge library to help make the savings game much easier for you and your Value Analysis Teams See how CliniTrack™ Value Analysis Manager can help take your Value Analysis Program to a whole new level!

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Contents

Healthcare Value Analysis & Utilization Management Magazine

4 FROM THE PUBLISHER’S

Healthcare Value Analysis & Utilization Management Magazine is published Bi-monthly by SVAH Solutions®

DESK By Robert T. Yokl

Why Savings Validation is Mission Critical

P.O. Box 939, Skippack, Pa 19474 Phone: 800-220-4274

6 FROM THE MANAGING

FAX: 610-489-1073

EDITOR’S DESK

bobpres@ValueAnalysisMagazine.com

By Robert W. Yokl

www.ValueAnalysisMagazine.com

Back to Basics—Forward to Big Savings

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Editorial Staff

8 FEATURED ARTICLE

Publisher

By Jackie Kraft, Gina Holcombe, and Halit Yapici

Hemostat Product Changeover at Huntsville Health: High-Volume Low-Cost Physician Preference Items Can Lead to Significant Cost Savings

Robert T. Yokl bobpres@ValueAnalysisMagazine.com

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Managing Editor Robert W. Yokl

19 VALUE ANALYSIS 101

ryokl@ValueAnalysisMagazine.com

By Robert T. Yokl

How to Select a Candidate for a Value Analysis Study

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Senior Editor

22 UTILIZATION MANAGEMENT

Patricia A. Yokl

By Robert W. Yokl

How Do You Know if Your Supply Costs are Running High, Low, or Right Where They Should Be?

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Editor and Graphic Design Danielle K. Miller

26 VALUE ANALYSIS BEST PRACTICES By Robert W, Yokl

The #1 Critical Success Factor for Saving Big in the Healthcare Supply Chain

29 PERSPECTIVE By Robert T. Yokl

How Much Are You Saving With Your Value Analysis Program?

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Copyright 2021 SVAH Solutions. 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 e-mail Robert W. Yokl, Managing Editor. Phone: 800-220-4271 E-Mail: ryokl@valueanalysismagazine.com for approval to reprint, excerpt, or translate articles. 3


From the Publisher's Desk Why Savings Validation is Mission Critical Robert T. Yokl

Every value analysis practitioner may tell you that they save money for their healthcare organization, but can they prove it? This is a crucial question since this is what your hospital, system, or IDN plans for when they formulate their supply expense budget. However, our research has shown that less than 26% to 46% of reported savings never materialize for the following reasons:

Our research has shown that less than 26% to 46% of reported savings never materialize.

Things Change and People Change: Anything can happen and usually does over the term of a contract or change in a policy, procedure, or practice. For example, a predicted savings on an electrode is negated because of an upsell, at a higher price, from the original manufacturer to resolve a defect in the contracted product.

Inadequate In-Service Training: If a new product isn’t properly in-serviced, or not inserviced at all, it will often cause the customer to overuse, underuse, or reject the supply item altogether.

Waste and Inefficiencies: New technology that doesn’t work properly leads to inefficiencies and supply waste. We saw this happen with defective point-of-service glucose test strips which required using two strips on every test to obtain one good reading.

Misuse or Misapplication: Sometimes a best practice is not known or is even ignored, like not placing IV time labels on IV sets to inform the next shift that the IV set has been changed. This one oversight could cost your hospital hundreds of thousands of dollars annually on just one product category.

This is why savings validation is mission critical for your healthcare organization to ensure that every projected savings that value analysis practitioners report happens as planned. Just think of validation like checking your bank statement to make sure that the check you deposited today was actually banked. Remember, a savings isn’t a savings until it is validated.

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From the Managing Editor’s Desk

Back to Basics—Forward to Big Savings By Robert W. Yokl, Sr. VP, Operations — SVAH Solutions As the major league baseball season has just wrapped up their Spring Training and started their season, this is a good reminder for Value Analysis and Supply Chain Professionals to take a step back to basics in order to move on to big savings. If you look at all major sports, they have a preseason “Training Camp” built into their preparations for the new season. In Supply Chain and Value Analysis, there are no offseason programs or training camps where we can get back to basics with added coaching and special instructors; we are on our own. That does not mean that you cannot go back to basics to reap huge benefits for yourself and the value analysis and supply chain teams you work with. Covid-19 is the Major Paradigm Shift Right Now in Supply Chain, So How Can Basics Help? Yes, I realize that we are in challenging times due to the continued fallout of 2020 with all the revenue, PPE, and other sourcing obstacles that are still ongoing today. We should not fail to realize that by going back to basics, we can overcome these major obstacles related to Covid-19 by using proper value analysis strategies and techniques. Remember, value analysis was born in the mid 1940s at General Electric where resources were scarce or not available at all with many cost and quality issues occurring on GE’s production lines. Sound familiar? The Value Analysis Functional Approach is the Best Back to Basics Approach You Can Apply in Tough Times Just the other day, I demonstrated a value analysis solution to a prospective customer and they started out by listing the functional requirements that they needed the software to do for them. Not only that, but they also listed the two most important elements that our software must perform. This was music to my ears, and I know they were evaluating our solution in the most effective value analysis manner. Normally, when we perform demonstrations we try to ask what requirement or end results are expected from the software, but about 80% of the time, prospective customers do not know or are just looking for new shiny elements to add to their value analysis program. The functional approach applies to all products, services, and technologies, and is the most basic tenet of value analysis today. However, functional requirements are often forgotten and replaced with wants and wishes which could end up costing you lots of money or result in failing products, services, and technologies. The functional approach starts with identifying the Primary Function (a product should only have one), Secondary Functions (what else does this do), and Features (can be added on or taken off the product) of a product, service, or technology. In the software example above, if our software did not meet a critical primary or secondary function that was required, then this customer should have stopped the demonstration mid-stream. Why bother moving forward when the main requirement of a value analysis solution is not being met? With the personal protective equipment and ongoing new product requests, this back to basics value analysis approach can help normalize the craziness and set you back on pace to big savings without missing a beat in how you do business. Volume 9/Issue 2

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Featured Article Hemostat Product Changeover at Huntsville Health: High-Volume Low-Cost Physician Preference Items Can Lead to Significant Cost Savings Jackie Kraft, RN, Value Analysis Manager & Clinical Resource Manager, Huntsville Health Gina Holcombe, RN, BSN, Director of Surgery Main, Third & GMT, Huntsville Health Halit O. Yapici, MD, MBA, MPH, Senior Consultant, Boston Strategic Partners

Copyright 2021 BD - Used with Permission-210112_Image_Avitene_Family_Vertical2.png

Importance of Hemostats and Cost Control Bleeding-related complications occur in around one third of all surgery cases which may lead to higher rates of transfusion, longer length-of-stay, and higher treatment costs.1 Historically, intraoperative bleeding was controlled through suturing, electrocautery, and surgical clips. These earlier techniques were later supplemented by topical hemostats9 which are categorized into four main groups based upon their primary components: (I) mechanical hemostats that form a matrix on the bleeding site and activate the extrinsic coagulation cascade; (II) active hemostats that rely on thrombin to control bleeding; (III) flowable hemostats that contain a gelatin matrix and are dispensed as a flowable structure directly into a wound; and (IV) fibrinogen/fibrin hemostats work

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Featured Article by creating a sealing barrier that prevents the leakage of gas or liquid from a structure.2 One study evaluating 3.6 million surgical cases found that topical hemostats were used in 30% of all surgeries, ranging between 82.2% for spinal surgery to 6.6% for prostatectomy cases. The use of topical hemostats increased by 24% between 2000 and 20103 and the market for hemostats is expected to continue growing at a compound annual growth rate of 6.0% into 2023.4 Creating an optimal supply chain requires close collaboration between clinicians, hospital management, suppliers, and distributors. Supply chain management is particularly challenging in surgical environments, which accounts for 50% of total hospital inventory and 60% of total hospital costs.5 Furthermore, operating rooms have a high number of physician preference items (PPI), which are supplies/devices for which physicians exhibit personal preference.6 Although the hospital is the actual purchaser of the PPI inventory, physicians determine the device for a particular patient and procedure. PPIs often lead to conflict since surgeons’ preferences may be based on factors such as familiarity and convenience while hospitals may prioritize cost containment.7 Copyright 2021 BD - Used with Permission-210112_Image_AristaHandMaster.png Hospitals are particularly sensitive to the costs regarding PPI inventory due to budgetary pressures from shrinking reimbursements (i.e., bundled payments) and increased use/cost of medical devices.6 Volume-based contracts may be a viable strategy to control costs; however, contract compliance can be particularly challenging for the PPIs due to each surgeon’s clear and varied preferences.7 Thus, any initiative that includes PPIs requires utmost collaboration and communication among clinical and non-clinical stakeholders.

Huntsville Health: A Hospital System’s Experience Huntsville Hospital Health System is a public, not-for-profit hospital system in Alabama. Centered on the 971-bed main campus in downtown Huntsville, the health system includes more than 2,200 patient beds and 15,000 employees. Huntsville Health is the second largest hospital system in Alabama and is one of three Level I Trauma Centers in the state. In addition to a central campus consisting of a main hospital, Women and Children’s hospital, and various outpatient medical facilities, Huntsville Health is also affiliated with eight other hospitals in neighboring counties. As a large hospital system, it has been essential for Huntsville Health to manage inventory and

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Featured Article control costs in order to maintain financial sustainability. With 62 operating rooms and over 150 surgical cases per day at the main campus alone, Huntsville Health has been actively pursuing opportunities to control costs while improving patient outcomes in the surgical setting.

The Initiative at a Glance Before 2018, Huntsville Health bought hemostatic products from a previous vendor for decades. Hemostats are characterized by their low per-unit cost and high-volume use. Therefore, the aggregate financial impact of these items is often overlooked. However, low-cost high-volume items may present a significant savings opportunity in a large hospital system such as Huntsville Health which performs thousands of surgical procedures per year. Starting in 2018, Huntsville Health gradually switched to lower-cost and clinically comparable hemostat products across all facilities in the health system which led to significant cost savings. The successful planning, evaluation, and implementation of the initiative relied on coordination and communication among clinical and non-clinical stakeholders at Huntsville Health, as well as support of the BD representatives. The project team planned for multiple opportunities to receive detailed feedback from clinical stakeholders, which led to significant adjustments throughout the initiative to ensure a smooth transition without harming physician satisfaction and patient experience. Huntsville Health achieved significant cost savings and improved efficiency by switching to lower-cost alternatives, standardizing the hemostat portfolio, and eliminating the need for thrombin.

Championing an Initiative In 2018, Huntsville Health was presented with a significant cost savings opportunity to acquire lower-cost and clinically comparable hemostat products from BD through a volume-based contract. This opportunity presented two unique challenges that set the initiative apart from previous initiatives at Huntsville Health. First, a top-down approach to changing items involving physician preferences was likely to cause significant pushback from the surgeons. Second, a system-wide adoption was absolutely necessary to receive volume-based rebates and realize significant cost

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Featured Article savings. Past experiences at Huntsville Health were bottom-up initiatives where physicians demanded a change in a single surgical department or facility. When the adoption was system-wide, it was mainly commodity items (e.g., surgical gloves) which did not involve products with significant clinician preferences. The project champions recognized that a system-wide adoption of products involving physician preferences would require considerable benefits to offset the expected challenges in implementation. Therefore, they performed a cost-analysis to estimate the potential cost savings which played a key role in gaining support from the stakeholders, including the hospital leadership. To perform the cost-analysis, the team collected hemostat utilization data based on an existing electronic preference card system tracking the type/volume of hemostats used by each surgeon. The analysis results estimated significant cost savings which gave the team the green light to move forward with planning the system-wide implementation.

Planning for Challenges The project team made several key decisions to address the unique challenges previously identified. First, the team placed a strategic emphasis on receiving and analyzing feedback from as many clinicians as possible. Although the project team had detailed information regarding hemostat usage by each surgeon, they lacked qualitative information regarding physician preferences. Therefore, the team planned for multiple phases (i.e., product showcasing, product evaluation) to receive feedback from the surgeons and fine-tune the initiative. Second, the team had to plan for the scale of a system-wide implementation. A simultaneous implementation at all facilities in the health system would stretch the resources thin. Thus, the team decided on an iterative approach, moving from facility to facility within each phase of the initiative. This approach allowed the project team to be fully present in each facility for a sufficient amount of time throughout the three main phases: showcasing, evaluation, and implementation.

Phase I - Showcasing the Product Portfolio During the first phase, the hemostat products from the prospective portfolio were showcased to clinical stakeholders in each facility for over a month-long period. Rooms/hallways in facilities were

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Featured Article used to exhibit the products where surgeons could walk in to observe and ask questions. Furthermore, the project team hosted meetings for entire surgical teams at several facilities to provide information about the prospective product portfolio. There were two main objectives of the showcasing phase. The first objective was to give physicians an opportunity to familiarize themselves with the new products. The second objective was to collect indepth feedback regarding surgeon preferences about the prospective portfolio. Clinicians asked questions, voiced their concerns, and provided crucial information which was reviewed by the project team on a weekly basis. Overall, several stakeholders emphasized the importance of the product showcasing phase, which provided crucial information for successful implementation of the initiative.8 For example, the initial plans did not include flowable hemostat products. After discovering the importance of these products for multiple surgeons, Huntsville Health immediately addressed the gap in the prospective product portfolio by acquiring flowable hemostats in a cost-effective manner from a third vendor. The team also identified specific sizes of hemostat products that were not utilized by surgeons which allowed SKU reduction to increase efficiency. The prospective

hemostat products were evaluated on a surgeon-by-surgeon basis at each facility.

Phase II - Evaluation

The team moved to the evaluation phase after adjusting the prospective product portfolio based on their findings in the showcasing phase. Phase II began at the largest Huntsville Health facilities to evaluate the feasibility of a system-wide adoption. Potential major issues at large facilities (i.e., the main campus) would allow for the team to reconsider the plans for implementation. The prospective hemostat products were evaluated on a surgeon-by-surgeon basis at each facility where the project team was present in the surgical units to provide information, collect feedback, and identify potential issues. Overall, the evaluation phase lasted for two months which was longer than the team initially anticipated; however, it was crucial to give surgeons enough time to try the products and provide detailed feedback. Clear communication between the system-level project champions and local stakeholders was essential to collecting and addressing feedback throughout the initiative. Most surgeons were receptive to evaluating and providing feedback regarding the prospective hemostat product portfolio. The project team reiterated the clinical/economic benefits of the initiative to surgeons who initially were not interested in trying the new products. After the evaluation, the surgeons who had a strong preference for the previous products were carved out from the implementation which permitted these physicians to continue using hemostats from the previous vendor while allowing Huntsville Health to remain compliant with contractual obligations.

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Featured Article Phase III - Implementation After a successful evaluation phase demonstrating overall support for the prospective hemostat portfolio among stakeholders, Huntsville Health moved forward to the system-wide implementation phase. Unlike the evaluation, the implementation started at the smaller facilities which allowed faster implementation (due to lower inventory volume) to realize cost savings sooner. Each facility transitioned to ordering and stocking BD hemostat products while maintaining a small stock for the previous products. Smaller facilities completed the product transition fairly quickly, while large facilities, including the main campus, are improving their compliance gradually.

Sustainability and Outcomes Since the implementation, Huntsville Health has achieved over 80% compliance and significant direct cost savings. The health system has also observed indirect cost savings from improved efficiency due to product standardization/SKU reduction. Unique advantages of the new product portfolio have led to additional improvements in efficiency by eliminating the need for stocking/using thrombin and decreasing the time needed for pre-surgery preparation. The cost savings are expected to increase as facilities are gradually increasing their compliance rates. The stakeholders have not observed any changes in patient outcomes despite decreased costs. Please note that a successful conversion requires persistence and consistent follow-up from the BD sales representative to ensure all parties are following the new policy. Coordination with the Materials Manager is important, and routine check-in to ensure competitor SKUs are not being used. Overall, stakeholders at Huntsville Health are satisfied with the initiative and would recommend similar initiatives to other institutions with a high-volume of surgery load. The project team is currently focused on sustaining and improving the benefits of the initiative. The team is actively collecting post-implementation feedback from the clinical stakeholders which are discussed at bi-monthly meetings to identify/address any new challenges. BD’s involvement has also been crucial to successful implementation and sustainability of the initiative.

Vendor Involvement BD’s collaboration was instrumental in the implementation and sustainability of this initiative. From

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Featured Article the very beginning, BD representatives were a vital strategic resource for the project team. According to key project champions at Huntsville Health, BD representatives were knowledgeable, available, and enthusiastic team members in the changeover process. BD’s support consisted of: • • •

Providing in-depth information on BD hemostats which helped the team identify clinical equivalencies between previous and prospective hemostat portfolios Performing product education/training for surgeons and other clinical staff throughout the initiative and answering any specific questions about the products Ongoing bimonthly meetings with Huntsville Health team to monitor compliance and provide continuing education for clinical users

Key Factors for Success

Huntsville Health

Two interrelated challenges emerged throughout the initiative. has achieved over First, hemostat products are PPIs and therefore, the transition required interactions with numerous surgeons for successful 80% compliance and implementation. Second, the success of the changeover was significant direct dependent upon system-wide compliance due to volume-based cost savings. contracting and the low-cost high-volume nature of hemostats. The challenges related to the surgeon preferences were magnified by the scale and volume of the changeover. In fact, this hemostat changeover was the largest scale initiative Huntsville Health has ever implemented.8 Communication and Feedback The team tackled these challenges by planning for multiple opportunities to receive feedback from stakeholders throughout the initiative. The feedback from showcasing and evaluation phases allowed adjustments to the prospective portfolio to ensure smooth transition and overall success. Weekly meetings with facility-level directors and OR managers helped the project team in addressing roadblocks as they arose. These efforts paid off as many potential challenges (i.e., gaps in prospective portfolio, individual surgeons with strong preferences) were identified and addressed by fine-tuning the implementation plans. Strategic Planning Strategic planning was another key to success due to complexities in logistics. Implementing a product changeover in a large health system with facilities of varying sizes and locations (i.e., rural and urban) was not an easy task. Furthermore, many surgeons performed procedures at multiple facilities within the health system during specific days or weeks. The team had developed a clear roadmap allowing

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Featured Article each facility to have sufficient time to showcase, evaluate, and implement the initiative while giving every surgeon an opportunity to provide feedback. Vendor Involvement Finally, the collaboration and involvement of the vendor was essential to the success of the initiative. The literature highlights the importance of vendor involvement in product changeover initiatives involving PPIs since surgeons’ communication with vendor representatives is often key to forming their preferences and influencing their choices of products.7 In this case, the information provided by BD representatives regarding their products allowed surgeons to make educated decisions to ensure the high-quality and cost-effective care for their patients. Overall, this initiative demonstrated that a top-down system-wide PPI changeover initiative can bring success and achieve significant cost savings. Through collaboration and communication among clinical and non-clinical stakeholders, Huntsville Health was able to reach over 80% compliance in less than two years. With its unique intersection of challenges, this example illustrates effective strategies to adopt a PPI portfolio including clear communication, strategic planning, and vendor involvement. Health systems with a high number of surgeries may consider lower-cost alternatives for high-volume surgical products with relatively low per-unit costs.

Reference List 1.

Stokes M, Ye X, Shah M, et al. (2011). Impact of bleeding-related complications and/or blood product transfusions on hospital costs in inpatient surgical patients. BMC Health Serv Res, 11 (135).

2. Schreiber, M., & Neveleff, D. (2011). Achieving Hemostasis With Topical Hemostats: Making Clinically and Economically Appropriate Decisions in the Surgical and Trauma Settings. AORN Journal, 94(5), S1-S20. 3. Wright, J., Ananth, C., Lewin, S., Burke, W., Siddiq, Z., Neugut, A., . . . Hershman, D. (2014). Patterns of use of hemostatic agents in patients undergoing major surgery. Journal of Surgical Research, 186(1), 458-466. 4. Markets and Markets. (2018). Market Research Report: Hemostats Market Global Forecast to 2023. 5. Ahmadi, E., Masel, D., Metcalf, A., & Schuller, K. (2019). Inventory management of surgical supplies and sterile instruments in hospitals: A literature review. Health Systems, 8(2), 134-151. 6. Burns, L., Housman, M., Booth, R., & Koenig, A. (2018). Physician preference items: What factors matter to surgeons? Does the vendor matter? Medical Devices (Auckland, N.Z.), 11, 39-49. 7.

Montgomery, K., & Schneller, E. (2007). Hospitals' Strategies for Orchestrating Selection of Physician Preference Items. Milbank Quarterly, 85(2), 307-335.

8. Interviews with two Clinical and Managerial Leaders at Huntsville Health and a surgical specialist at BD. In: Yapici HO, ed2019. 9.

Chiara, O., Cimbanassi, S., Bellanova, G., et al. (2018). A systematic review on the use of topical hemostats in trauma and emergency surgery. BMC Surg, 18(68).

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Featured Article

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Value Analysis 101 How to Select a Candidate for a Value Analysis Study Robert T. Yokl, President/CEO, SVAH Solutions

First, I would like to explain the difference between a study and a project. A value analysis study is a detailed investigation and analysis of the functions of a product, service, or technology, and the search for lower cost alternatives. Whereas, a project is a carefully planned endeavor to achieve a particular aim. Hopefully you can see the difference, because to wring the towel on your savings, you need defined value analysis studies to do so.

What Are the Best Candidates for a Value Analysis Study? If you don’t have analytical tools to help you identify the best value analysis study candidates by return-on-investment, here is a list of ideas of how to methodically determine the best savings opportunities: Pareto’s Law of Distribution or 80%/20% Rule: Run a report on your materials management information system on commodities purchased, from the highest to the lowest, by annual dollar

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Value Analysis 101

Robert T. Yokl

spend. Then, create a list of these same commodities that represent the top 20% in dollar spend of items on your master list. This list should approximate about 80% of your annual purchases. This is where you want to focus your value analysis studies, starting with the commodities at the top of your list. From our experience, you should save about 26% overall once you perform value analysis studies on this list of purchases.

You should save about 26% overall once you perform value analysis studies on these purchases.

Categories of Purchase That Are Over Budget: All you need to do is obtain a copy of your healthcare organization’s non-salary expense budget overruns from your CFO to target your best VA savings opportunities. New Technology Purchases: We have routinely found that new technologies that require supplies (e.g., point-of-service test, laboratory equipment, radiology equipment, etc.) are frequently defective, thereby, utilizing more supplies than needed. New technology is always a good candidate for a VA study after 90 days of being in use. Old Technology: On the other end of the spectrum, we have discovered that old technology (e.g., I.V. pumps, laboratory equipment, radiology equipment) that has reached the end of its useful life can cost thousands per year in unnecessary supply costs. With the help of your finance department, you can identify these aging technologies so you can conduct a VA study on them. Although we prefer that you utilize analytical tools to identify your best value analysis study candidates to save time and resources, we can assure you that the recommended sources above will yield substantial savings for your healthcare organization.

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Utilization Management How Do You Know if Your Supply Costs are Running High, Low, or Right Where They Should Be? By Robert W. Yokl, Sr. VP, Operations — SVAH Solutions

At this point in time, it is safe to say that we are well beyond using gut feel as a way of measuring our supply chain cost levels based on activity levels of our supply chain department, value analysis teams, and group purchasing compliance levels. When I work with hospitals and health systems throughout the country, I see all the major group purchasing programs in action. There is parity in many of them and advantages to all of them as well. At the end of the day, pricing does not matter as much as what the end cost of doing business is in all your 750+ major categories and 500+ minor categories of purchase.

Price and Standardization Are Now the Smallest Element of Supply Chain Savings What good is saving an extra 7% on pulse oxisensor pricing when your cost per adjusted patient day is 111% higher than your closest peer cohort and 48% higher per adjusted patient day than you

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Utilization Management

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were the previous fiscal year? This means that this health system is using over twice as many pulse oxisensors per adjusted patient day as their cohort peers and their costs are almost 50% higher than they were last year. If you put that into specific terms, your peer cohort hospital is paying $7.50 for a disposable adult sensor for a two-day patient stay, while your organization is paying over $15 per two-day patient stay. Taking 7% off that is nice, but you have got to come to the realization that something more is going on in your organization and you need to take appropriate action.

Price Success Can Blind You to Savings Beyond Price Most organizations only look one-dimensionally to reduce costs, and that is with pricing and standardization (standardization is a pricing device, by the way). There is a major variable cost factor that is the driving force of your purchases and that is the quantity that you purchase times that almighty price which equals your end cost. Yes, price is a factor in what you pay, but I have seen organizations that did not have superior pricing yet had great utilization costs in all major categories. The quantity purchased is the major factor that now needs to be looked after if we are to even consider managing our total cost of ownership of supply chain savings. This is what the end customer consumes on a daily, monthly, quarterly, and annual basis that we need to always be aware of. When these costs venture too high, we need to mitigate the risk to the bottom line.

The Group Purchasing and Custom Contracting Success Factor When things are going great with contracting, we tend to ignore other areas that could result in additional savings; they are left untouched and unattended because of the multitude of successes with contracting initiatives. More importantly, the perception is that the whole of a great pricing and standardization program will make up for all shortcomings that may arise from cost increases from utilization management areas. This is not the case, as contracts run over a period of years but utilization occurs every day, every week, every month, etc. If your cost per case or patient day is increasing after a contract that was supposed to save big dollars, then you really need to investigate these further, otherwise you are leaving money on the table. Even worse, these unforeseen utilization increases are more than likely negating the price and standardization savings that you put in place.

Activity-Based Costing is the Answer The best way to measure the total cost of your products from purchase price to the quantity you

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Utilization Management

Robert W. Yokl

consume is to use the age-old accounting reporting known as activity-based costing. Each product category should have a metric assigned to it in order to track the cost per metric (i.e., pulse oxisensor cost per adjusted patient day, cost for EP mapping catheters per EP Lab case, lab reagent cost per billable lab tests, etc.). This type of reporting factors in the volume swings within all the major departments of a healthcare system and allows you to see if your costs are going up, down, or are right where they should be. These measures can be used to establish a baseline that you can use to compare your hospitals within your system and create historical reports such as fiscal year to date reports or quarterly reports. You can even use this data for cohort peer comparisons, either with a regional cooperative group or within your health system. They can also help you accurately track when you make positive changes that result in major savings. Many of these are unknown to you now and you are not getting credit for these.

Utilization Savings Opportunities Are Easier to Attack than Pricing Savings For years I have heard a collective groan from long time contract and price-focused supply chain directors throughout the country Utilization when we mention utilization management or savings beyond price. management is I always find that interesting because we are not changing cona search to find tracts, or in many cases, products, when we uncover these savings opportunities. It is more of a search for what is happening that is the cause of causing the costs to increase, such as a nuance with the product beincreasing costs. ing opened that is causing it to break and thus causing additional cost increases in quantity used. Or did the conversion to the new contract specify a feature-rich product to replace your relatively low-featured previous product which is now increasing your cost per instance? A quick change to a lower cost, equal quality product with just the right features could be just the fix. Rarely do these adjustments require major efforts such as changing an entire vendor to a new vendor that many of these contract savings require today. What may seem complicated is not. All the data points are there, they just need to be brought together in some simple reporting to show the activity-based costing within your health system. You can then address the increases with whatever methods you feel fit such as value analysis, vendor audits, strategic sourcing, etc. Because this reporting should be done on a continuous basis, you can see the results of your changes right away. You will not have to wait until the next contract period to realize that the savings you allotted for that previous contract happened or that nothing went sideways during the term of your contract. This will enable you to make positive changes that are measurable to your CFO’s requirements which are based on an activity-based costing budget program, by the way. Utilizing the same methodology but taking it a step further into the categories will help you win big at the next level of savings beyond price.

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Imagine Losing Up to 17% or More of Your Overall Annual Savings Implemented from All Sources The $5.2 Million in Projected Savings for Your Hospital is Now Only $4.3 Million - Net Loss of $884K to Your Bottom Line

The $12.5 Million in Projected Savings to Your Health System is Now Only $10.4 Million - Net Loss of $2.1 Million to Your Bottom Line

How Could This Be Happening? Because 96% of All Supply Chain Organizations Are Only Tracking Savings on the Front End After Implementation and Not Tracking Them Any Further for Actual Real Time Results Throughout the Year Find Out How You Can Fix Your Leaky Bucket Scenario

www.SavingsValidator.com Volume 9/Issue 2

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Value Analysis Best Practices

The #1 Critical Success Factor for Saving Big in the Healthcare Supply Chain By Robert W. Yokl, Sr. VP, Operations — SVAH Solutions

The most important first few hours you can spend on any value analysis, supply utilization, or even major organization-wide value initiative is to “plan it out.” Think of the old business mantra, “A business without a plan is a plan for no business,” which holds true for savings initiatives in healthcare. A savings initiative without a plan is a plan for little or no sustainable savings! Planning works and is key to successful and sustainable supply chain savings initiatives.

Be Careful of the Price Savings Easy Button Trap I know it is easy to fall into the contracting mindset of immediately scanning for lower pricing. Price is only one element of the total cost of the product to your organization, so why only focus there? There are many reasons why costs are high and many areas that need to be focused on.

You Must Be Organized to Save Big We have had a long running mantra at our organization which is, “You must be organized to save big.”

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Value Analysis Best Practices

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This not only is an internal mantra but an external battle cry when it comes to working with hospitals and health systems throughout the country over the years. Organizations typically have all the pieces of the operational/talent puzzle, but like a great team of talented athletes in any sport, you need a coach/manager to set a strategic direction for success. This is part of the being organized to save big mindset that should not be ignored as you are working on your next level of supply chain savings to curb the Covid-19 downturn and PPE cost overruns.

What to Plan for and How Much Time it Will Take Recently, I was tasked to work on a Laundry Linen Value Analysis Project with a client. I have written many value analysis planning initiatives and best practice documents in this area over the past 29 years in working with clients. I had been down this road before, but I did not just do a copy/paste and use past boilerplate documentation for this client. I realized that they were unique and different. Using a simple six-step process for value analysis, I wrote a totally new project planning document for this initiative that was customized to them. The best practice document was there as a guide, but there were certain elements that would not have pertained to this client and others that did. By customizing the approach using a standardized but flexible six-step process, this client had their own unique plan for their Laundry Linen Initiative. Nothing was set in stone. This is a living document that can be adjusted, updated, and further developed until the initiative is completed. They will have this document for future use, as Laundry Linen will arise again; it always does.

The Plan is the Shortcut to Big Savings I cannot tell you how many times I trained value analysis teams in proper value analysis strategies and processes which included planning out value analysis and utilization management initiatives, only to have them forgo a simple plan for their initiative they are assigned. Inevitably, they try to shortcut any learned process and run with the first best idea they hear from a customer or vendor representative, which usually does not pan out to the savings they intended. How did they become lost? Because they failed to plan and ran down the value analysis rabbit hole too fast which resulted in no savings. Inevitably, they want to stop the analysis or don’t know what to do because they are stuck. Luckily, with a little coaching and mentoring, we assist these clients to see that they jumped

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Value Analysis Best Practices

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from starting a value analysis study to step four in a six-step process. When we plan out their next steps and give them a path for savings that includes all areas of savings opportunities to uncover (price, standardization, utilization, etc.), they truly understand the power of what planning can do.

You Don’t Have the Time Not to Plan It does not matter whether you are starting a single value analysis evaluation or creating a systemwide value analysis program. You need a set plan in place that works and takes into consideration all factors of savings, organization inertia, key customers, and stakeholders. Most of our plans at my firm are based on solid data that points the way to savings before you even begin to get into the value analysis process. Most department heads and managers require proof that there is a solid reason to change operations of their department’s products and services. If you have solid data points to prove your case for a value analysis review, it gives you and your senior leadership confidence that the initiative will be a success.

Do Not Overthink It Be careful with your planning. I have seen organizations go the With a planning other way with planning and form 15 corporate teams and another 20 hospital-based value analysis teams, without really knowing if system in place, there are sufficient savings opportunities for these teams to work you can sustain through their agendas. Do you really need to have a Respiratory your savings Therapy Corporate Value Analysis Team? I have found little or no programs, while savings over the years in Respiratory Therapy and I do not recommend that a Respiratory Therapy Team be formed at organialso providing zations I work with. Finding a team to put the respiratory products short-term into scope is a better strategy; less is more. Do not over-team the results. teaming process in your planning. It may sound great on paper, but forming additional teams chews up a lot of human capital that may be best served on other more effective and higher dollar initiatives.

The Name of the Game is Sustainable Short and Long-Term Savings – So Plan for It Ahead of Time! Once upon a time, a hospital or health system could easily form an initiative team and give them a simple goal to “go save money” on a particular category of purchase. Yes, they would come up with some savings on obvious low-hanging fruit objectives, but then sputter out when the low-hanging fruit falls off the agenda. With an ongoing planning system in place, you can push past limiting bottlenecks and challenges and sustain your savings programs over the long term, while also providing short-term results.

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Perspective

How Much Are You Saving With Your Value Analysis Program? Robert T. Yokl, President/CEO, SVAH Solutions

The established purpose of value analysis, created by Larry Miles in the 1940s at GE, was to look for lower cost functional alternatives to the products, services, technologies, and processes your healthcare organization is employing now. Is this what you are accomplishing with your VA program, or has value analysis been transformed at your institution into a new or renewal group purchasing organization (GPO) contract and new product vetting process? If so, you are missing an enormous savings opportunity with your value analysis program. Let’s look at how you can turn your VA program around to be more cost effective.

Annualized Supply Savings Calculator Shows You The Way Most value analysis programs only calculate and report their GPO and new product, service, and technology savings as opposed to calculating (Figure 1) global savings (less any budget increases) to give a realistic picture of how value analysis is contributing to your healthcare organization’s bottom line.

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Perspective

Robert T. Yokl

Figure 1: Annualized Global Value Analysis Savings Calculator Utilization Management

$1,572,386

Price/Contract Savings Cost Avoidance Less: New Product, Service, and Technology Budget Increases Total Annualized VA Savings

$1,321,000 $1,031,000 $882,160 $3,045,226

As this savings calculator denotes, if you aren’t categorizing your savings in this fashion, it highlights that you aren’t attacking your organization’s savings opportunities in all areas of your supply streams. Of particular note, if you aren’t subtracting the new product, service, and technology budget increases from your savings totals, you are distorting your savings calculations. Remember, value analysis is all about saving money, not adding additional costs to your healthcare organization’s budget. To this end, most new products, services, and technologies aren’t that new, different, or required to meet your customers’ basic functions.

Your Customers Don’t Need Everything They Are Requesting Most healthcare organizations’ value analysis managers receive hundreds of new product, service, or technology requests annually, yet might not realize that their customers might not need everything they are requesting. From our experience, your customers are specifying their requirements based on a catalog, webpage, and/or sales rep suggestion, which frequently produces product, service, and technology over-specifications or under-specifications in too many circumstances. That is why performing a functional analysis is so important in evaluating new product, service, or technology requests. For example, if a new cardiac catheter is requested with three ports, you can request your customer to define the functions of each of these ports. This will test the validity or necessity for the need of these ports. Commonly, you will find that they don’t need all the ports they are requesting. This is how to test whether your customers need everything they are requesting. You will be amazed at how many functions your customers don’t really require to meet their stated purpose. Functional analysis is your first line of defense to ensure that your customers absolutely, positively need everything they are requesting. This value analysis technique can save you tens of thousands of dollars in unnecessary requirements in a very short time. Keep this value analysis technique in mind the next time you receive a new product, service, or technology request.

Where Can You Achieve 7% to 15% More Savings Beyond Price and Standardization? Volume 9/Issue 2

Healthcare Value Analysis Utilization Management Magazine CLICK HERE TO &LEARN MORE

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FAST-TARGET SAVINGS ASSESSMENT Value Analysis 101

Robert T. Yokl

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How Is Your Organization Managing the Purchased Service Hot Potato?

Advanced Purchased Service Analytics Average $2.1 to $4.1 Million in Savings Per Hospital

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