In point of fact, from our empirical experience it requires a systematic approach to reducing your healthcare organization’s supply chain expenses to get it right. This concept is analogous to what the insurance industry calls BLANKET COVERAGE, a single unifying policy that covers any and all of your risk or exposure to unforeseen calamities. This BLANKET COVERAGE idea holds true with “Healthcare Expense Reduction”; To get it right you need to cover all of your supply expense categories of purchase – all at one time. 

To get you started on this journey, we have listed seven core elements of a successful “Healthcare Expense Reduction” unifying system. We advocate these core elements for you to obtain the highest return-on-your-investment of time, effort and resources in order to attack ALL of your supply expense savings simultaneously.

You will notice that these seven core elements described herein are actually interconnecting programs which you should have in place which cover the total spectrum of your “Healthcare Expense Reduction” efforts as follows:

1.   Utilization Management Program

2.   Value Analysis Program

3.   Contracts Administration Program 

4.   PriceCheck™ Program

5.   Inventory Management Program

6.   Linen Management Program

7.   Forms Management Program

As this list suggests for your “Healthcare Expense Reduction” to be effective you need to have complementary and synergistic expense reduction programs in each of your supply chain disciplines, not one-time events. This way you can be assured that you have “Plugged all of the leaks” in your supply expenses before they become mile-high gushers or raging rivers.  

This isn’t just a theory, but the actual system that we have employed ourselves over the last 23 years to assist hundreds of healthcare organizations in reducing their supply expenses to absolute minimums, and then to keep their expenses under control — going foreword.

Utilization Misalignments

Just because you have the best price for your purchase service contracts doesn’t mean they are cost effective. You also need to eliminate all waste and inefficiencies in their value streams. Just like one of our clients found when they looked at their telecommunication invoices only to find they were being slammed with thousands of dollars of phone charges annually they hadn’t authorized. So don’t stop searching for additional purchase service savings because you think you have best price, when there literally is hundreds of thousands of dollars of new and better in-use savings that are just waiting for you to harvest.

Specification Overkill

When I read a purchase service contract that hasn’t had its specifications revised, improved or amended in a number of years, I can always find small or big savings opportunities because our customers don’t need everything that is included in the contract to perform the service that is described. 

For example, how many times does your hospital’s windows need to be cleaned in any given year? Have many times a year does your high and low-tech equipment really need to have preventive maintenance? How many rent-a-guards do you need on each shift?  Do you get the idea?

In-Sourcing Opportunities

For many years it becomes such an ingrained habit to outsource a particular service for many years that we overlook the possibility of in-sourcing these services again when the timing and conditions are right to do so. Food service or environmental service outsourcing are good examples of this happening. It’s been my experience that these departments generally aren’t outsourced for lower cost alone. It’s usually quality issues too, that drive the decision to outsource these departments in the first place. Therefore, it’s my suggestion that when any purchase service contract comes up for renewal it should always be considered a MAKE or BUY decision, not just a contract renewal decision.  This way you never-ever leave any purchase savings dollars on the table – untouched!

As more and more supply chain managers take on the responsibility of sourcing, bidding and negotiating their healthcare organizations’ purchase service contracts, just remember that your purchase service contract price is just-the-tip of the iceberg! Your greatest purchase service savings are actually to be found below the waterline. This can represent as much as 26% in aggregate purchase service savings annually for your healthcare organization in the first round of value justifying your purchase service contracts.  Don’t you think this is a much better way to shave your purchase services cost, than just attacking your price alone?

• Creating shared services centers for material management and finance, to reduce business processes, control of spend and improve working capital.  
• Training material management staff in negotiation, finance, analytics, quality, and lean where there was more value needed from their current employees.
• Outsourcing of non-critical operations as long as it wasn’t core to a supply chain activity.
• Working with suppliers to identify lower-cost-alternative (i.e. value analysis) products, services and technologies.
• Developing green packaging and re-furbishing products to avoid waste going into landfills. 

I realize at first glance that some if these ideas might not appear to you to be translatable to the healthcare supply chain, but I see that every one of these ideas to be transferable.  For example, I know of a number of healthcare organizations that have centralized their material management and payables departments under one roof to improve their efficiency. So you can cut and paste the ideas you like to fit your own supply chain environment.  You don’t need to implement in whole cloth as they are stated herein.  Your goal should be as Tom Peters, the management guru once said, is to “Steal from the best with pride”, since most of our healthcare best supply chain ideas have come from other industries anyway.

Large Dollar Expenditures - Products, Services or Technologies with an annual value of $25,000 or more.

Vendor Recommendations – Review brochures, catalogs, samples from vendors to cull new savings ideas.

Magazine Articles On Savings Opportunities - Call article authors to find out exactly how they did it.  They will be happy to help you out without a fee.

New or Changes in Regulations - Most new or proposed changes in regulations costs can be reduced through Value Analysis.

New Clinical and Administrative Employees – Interview new employees for savings ideas they have been exposed to at other healthcare organizations.

Benchmarking – What are other healthcare organizations doing to save money?

Any Disposable Product – Can you return to a reusable product?

Any Type of Custom Kit or Tray – Contents of kits and trays should be fully investigated for their value!

New Technology – In addition to the cost of the new technology there is always add-on cost of labor and supplies that must be value justified.

High Utilization – Any Product, Service or Technology that has a high utilization cost is a candidate for study.

Product Recalls – Value Analysis Team(s) should be empowered to investigate why the product was recalled and the corrective action required to bring into conformity.

Bundled Products – Products like IV Starter Kits, Admission Kits, etc., need to be value justified.

Old Technology – Old technologies tend to be wasteful and costly and should be evaluated for appropriateness.

If you have any additional savings pipeline ideas, I would love to hear from you (bobpres@strategicva.com), since there is still time for me to add them to my new book. Naturally, if your idea is used in the book I would give you attribution for your idea.  I’m looking forward to hearing from you.

___________

* “The Healthcare Value Analysis Bible: The Ultimate Savings Resource” will retail for $29.95, plus $5.98 for shipping and handling (pricing subject to change in the future).  If you would like to pre-order this A-Z blueprint for establishing, refining or re-energized your supply value analysis program we are now offering a 10% discount on the retail price of the book, if you pre-order by February 26, 2010.  You can e-mail your order (with your name, title, organization, phone number, e-mail address, and shipping and billing address) to bobpres@strategicva.com. You will then be the first to receive this important breakthrough must-read book no later than May 2010.

I have followed this same advice in my own career where I have proposed big business changing savings ideas at every healthcare organization I have worked in my supply chain management employment. For instance, I have proposed (in writing) a new supply value analysis program at every healthcare organization that I have worked and NEVER once have my proposals been turned down by senior management, customers or stakeholders.

I once decentralized the centralized buying function that had been in place for 46 years at my multi-hospital system and then replaced it with a GPO model based on a written business case for change that saved my healthcare corporation millions of dollars — almost on day one.

I proposed in writing, and eventually received approval from my board of directors, to move forward with a group purchasing program for their 27 long-term care facilities where I was Vice President of Support Services. This reinvented the way they had done business for decades.

I’m sure you get the idea! Developing a written business case for change in order to introduce, test the waters and then to gain approval on your big and even little supply savings ideas is a powerful instrument for the changes you believe are mission critical to your healthcare organization.

Here’s how it works! This business changing and decision-making instrument begins with a written document that would give the background of the problem or opportunity and description of what you want to accomplish. It would describe how it benefits your organization, how it fits into your organization strategic plan, the risk and rewards, the resources required, the responsibilities and the timing and the operational and financial considerations.

Your business case for change doesn’t need to be elaborate, but it does need to be thorough, concise and well thought out. Most importantly, it needs to be your tool of choice that you employ when you want to “change the way we do things around here”.

Let’s say this exercise shows that your hospital is on the high side of this metric. Does this information allow you to make decisions or take action to reduce your supply cost? The answer is no!  This metric is only directional. Meaning, it only shows if your hospital is going in the RIGHT or WRONG direction on your supply expenses. However, it doesn’t tell you why or how you can change the direction you are going if results are unfavorable.

That’s why you also need to have ACTIONABLE metrics that will help you make informed decisions and take immediate action to correct the defects in your supply chain.  For instance, we just had a quarterly review with one of our Supply Dashboard clients where we talked about how his lab reagent metric (total reagent cost/Billable Lab Tests –CMI adjusted) has been going up. He then told us that he picked up this fact on his supply chain radar screen too. After some research, he found that he had a few reagents that he was buying that weren’t under contract that was causing this anomaly, which he said has now been fixed.

That’s what ACTIONABLE metrics can do for you (enable you to make informed decisions and take immediate action) vs. generic metrics that ONLY tell you that you are going off course.  For this reason, if you want to make positive change happen at your healthcare organization you will need to establish ACTIONABLE metrics at the ground level to greatly enhance your supply chain decisions.  Otherwise, you will be nibbling around the edges of your supply chain expense savings when a windfall of savings is just waiting for you to take action.

Specifically, the article states that “Hit by financial crisis, (Toyota) last year launched a “Value Analysis” program to cut the cost of producing existing models.  I believe this is the same financial crisis that healthcare organizations are facing today: reduced reimbursement, lower census and increased bad debts?  There is no doubt in my mind that Toyota has “got it right” when they decided to utilize the time-tested value analysis methodology as their tactic of choice to push to return to profit after a very bad year.

Do you see the similarity with healthcare? Our industry faces the same challenges as Toyota: slow growth, reduced profits and an uncertain future.  That’s why value analysis is more important than ever before. 

Our industries’ price savings are slowly disappearing, but there are still billions of dollars in value analysis savings still available in the healthcare industry.  This could be uncovered if we as an industry focus on the wasteful and inefficient consumption, misuse, misapplication and value mismatches in our supply streams.

Bottom Line: If you aren’t vigorously applying the techniques of value analysis to discover your next big savings opportunities, then you are losing out on this gold mine of new and better savings for your healthcare organization. As I see it, if healthcare organizations are to be profitable, viable and thriving in 2010, they need to take a lesson from the Toyota playbook and accelerate cost-cutting efforts with value analysis.

Become a Savings Magnet

Read this book and in a few weeks save more
money than you have in years. Sounds unbelievable? Robert T. Yokl
and Robert W. Yokl, healthcare’s leading authorities in Supply
Utilization Management, have helped hundreds of hospitals,
healthcare systems and integrated delivery networks to saved close
to a half billion dollars by employing the same utilization
management strategies, tactics and techniques that they will teach
you in this book.     Click Here for the Special Report

Steering Committee

If you don’t have a value analysis steering committee, chaired by the highest level of management you can recruit for this position, who will guide, monitor and arbitrate disputes in your VA program, then you are missing a key ingredient to your VA program’s success.

Balanced Scorecard

What is visualized and measured happens should be the mantra for your VA program.  This is best achieved with a balanced scorecard that measures in real-time your savings vs. goals, milestones, meeting attendance, team and project status, etc.

Executive Champion

No real progress can be made with your VA Team(s) without an executive champion being assigned as an administrative representative to your VA team(s). This individual’s job is to represent senior management, guide VA process, arbitrate disputes, remove road blocks and smooth the road when political impasses arise.

Extensive Training

Team leaders and team members need extensive training in value analysis (it is a real discipline like LEAN Six Sigma that has a defined process, practices, tactics and techniques), or your VA team leaders and members will just WING IT, resulting in poor or unrealized savings and quality improvements. 

Project Management

All team members need to be accountable for their results.  This can only be accomplished by assigning VA studies to individual project managers who then are responsible for defining, planning, investigating and implementing VA savings opportunities. 

As you can see by this checklist, value analysis isn’t a group of individuals meeting monthly to discuss new product introductions, GPO contracts, or product failures.  It’s a formal and disciplined process that requires executive management leadership, continuous measurement, monitoring and control, extensive training and stringent project management to be successful. 

If you are missing any of these ingredients, you are forfeiting the opportunity to be the “best” of the best in value analysis.  Don’t leave these success elements to chance, but instead incorporate them into your current VA program so you can be assured of success – not failure!

That’s what I’m hearing from the marketplace; it doesn’t take a lot of money to incentivize your doctors to save.  All you need to do is to find out what products, equipment, training, technology, staff, etc., that they desire to do their work more effectively and productively, but don’t have these resources now. Then offer to purchase or obtain one or more of these “wish lists” items as an inducement for them to save money for your hospital, system or IDN on a particular initiative that you are proposing, such as, orthopedics, neurosurgery, cardiology, etc. 

The operative words here are that these incentives must effectively and productively improve your hospitals operations.  You don’t want to give away incentives that are just NICE to have but are not required. They must actually be beneficial to your hospital and your physicians to be a win-win scenario for all involved parties.

Naturally, these “Pay for Performance” programs can’t be arbitrary, ill-defined or unverifiable. To the contrary, they must be highly organized, truthfully measured and value-based. For example, you might find that your cardiologists have been requesting a new piece of equipment in their capital budget valued at $28,396, but it has been denied for years.  Your task then is to have your cardiologist agree — in writing — that they will be required to save three times ($85,188) the value of this equipment by assisting you in the evaluation of your hospital’s pacemakers and difibrillator’s cost, product mix, and applicability for this new equipment to be approved for purchase.

Considering you would have a minimum return-on-investment for your hospital of 200% for this hypothetical project, I believe that this is what I would call “savings on the cheap” when you consider doing nothing is costing your hospital hundreds of thousands of dollars a year in lost opportunity costs.

So don’t be apprehensive about incentivizing your physicians to save (it’s a good business practice), since it is one of the best investments you can make with your hospital’s money. Keep in mind, your physicians have no incentive to save money today — unless you give them the incentive to do so!

Hospitals have always been the “kings” as loss leaders, when it comes to buying anything.  Their justification or logic in making these decisions has always been that we will make up for these losses on volume or on some other procedure(s) that a particular physician will be performing at our hospital –so what’s the BIG problem! 

The problem is that your hospital NEVER really ever makes up for these losses (big and small); hospitals just eat them on the promise of future profitability in some other area of their operations. As an illustration, the average pacemaker total procedure reimbursement from Medicare (supplies, pacemaker, labor and overhead) is about $10,000, so if you are buying pacemakers that cost you $9,000 (or 90% of your reimbursable fee), I can guarantee you that you just lost money on every pacemaker procedure you perform.  You will never make it up with volume – your losses will just get worse.   

So what progressive supply chain professionals are doing to eliminate this extreme misadventure is to add the criteria of profitability to each and every one of there value analysis studies that they perform. This way, if your executive management wants to buy a product, service or technology that NEVER is going to make or save them money at least they know these undisputable facts from the get go. This is the only hope we have for our healthcare organization to self-correct this flagrant practice.

Instead of pointing fingers, becoming defensive or accepting the uninformed opinions of others, a much better way is to trust a statistical methodology such as Supply Six Sigma® to identify and address the real source of the problem.

For example, I just read about a hospital that realized that their cardiothoracic unit (CTU) cost per discharge for supplies was $66.11, which they identified as too high. But they didn’t RUSH to judgment on why this was happening. They instead formed a team to define, measure, analyze and improve this situation with the goal of reducing these costs by 50%.

Once this cross-functional team was formed it developed a high-level process map of their CTU discharge process to understand the current system and then gathered baseline performance statistics for analysis. Based on their statistical studies the team found after counting the supplies that were discarded on 52 discharges that on average 67 unused items were discarded, ranging in price from pennies to more than $1.00 per unit.

They also found that medications that were stocked in the CTU’s lock box and which should never have been discarded unused were being discarded.  It was estimated based on these statistics that were compiled by the team that this wasteful practice of discarding unused supplies and drugs was costing their hospital $55,185 annually.

The team’s observation and investigation found that there was no uniformity or consistency on how the CTU staff pulled and restocked supplies, confirming that this was the root cause of this excessive cost.  The team and CTU staff decided to institute a supply cart system for all CTU patient supplies that would be restocked daily and any unused supplies discarded.  It was calculated that after buying seven additional carts, that the ROI on this project was 163 percent!

This is what an organized, methodical and step-by-step statistical approach to your supply chain challenges is all about: No short cuts, no guessing, no opinion just accurate and precise measurements to uncover the root cause of the problem being addressed and then implementing the right solution for sustainable and measurable results.

Value Analytics

The New Science of Savings

Learn the advanced methods and strategies to analyze your utilization trends, patterns and variations in your supply spend categories so you can move to the next level of savings performance beyond price.

Webinar Overview

• Are You Flying Blind?

• Why Value Analytics?

• What is Value Analytics?

• A Road Map for Success

• 5 Key Elements for Precision

Thursday,
November  12th – 1:00pm Eastern

All
Registered Attendee’s Will Receive a Copy of the Webinar Slides and
Audio Replay at No Cost to You!

Register Here

Strategic Supply Chain Webinar Series Leader – Robert T. Yokl,
President/Chief Value Strategist
and Robert W. Yokl, VP of Operations, Strategic Value Analysis in Healthcare

It has been proven beyond any doubt with our own clients that if you incentivize your value analysis teams to save MORE by giving them rewards and recognition you will increase your savings yield by as much 300+ percent. However, in the 22 years we have been working with healthcare organizations in the value analysis arena only one in eight of our clients has opted to do so.

The question is why? After thinking about this question for some time now, it seems to me that there is a “cultural Bias” in healthcare organizations against incentivizing any of their teams (LEAN, Six Sigma, value analysis, quality improvement, etc.). They believe that team members are already getting paid a salary to do this work so why should we give these individuals any extra incentive to do what they are already being paid for?

What is missing from this decision “not to incentivize teams” for their new, harder, different and time sensitive work (that they are assigned to do beyond their normally assigned duties) is that this work is a HUGE distraction from what these hospital employees think they are getting paid for. The result: Most staff members only give 40% of their time, energy and effort when assigned to teamwork – not 100%!

Change the paradigm! If you want to change this pattern of behavior in teamwork, you will need to change the perception of this work as burdensome by emphasizing that it is important, mission critical and essential to the financial health of your hospital. This is accomplished by incentivizing all of your hospital’s teams, including your value analysis teams, with rewards and recognition when they reach predetermined goals and milestones.

Believe it or not, by doing so you will quickly discover that your staff members will line up to become members of your value analysis teams (and all other teams), not avoid them. Better yet, it won’t cost your hospital a whole lot of money (about 3% to 5% of the savings) or time to establish and manage a team rewards and recognition program.

You will be repaid for your efforts with new and better savings that will generate as much at a 35:1 ROI on your investment. Doesn’t this sound like something your hospital and thousands of healthcare organizations around the country should have been doing for years? If not, why not…

What does this technical lingo mean to you? Most supply chain organizations are only capable of analyzing one-third of their data, at best, to uncover hidden utilization savings opportunities. Just imagine what you could do if you had ALL your data analytics steps in place to uncover these new and better savings.

Just the other day a supply chain manager told us that his spend manager didn’t give him the visibility into his supply spend vs. our Utilizer Dashboard, since our Value Analytics™ went deeper and broader into his supply chain than his spend manager did.  The bottom line was $7.7 million in utilization savings that were hidden from his view since he was looking at only one-third of his data

So if you want to move to the next level of savings performance beyond price I would encourage you to implement these seven steps:

1. CLEANS your data so that it is usable and defect free.
2. HARNESS the latest technology to make your job easier. If you tried to perform these analytic studies without software your job would never be done.
3. DEVELOP or use a third parties’ Value Analytics™ methodology to hone in on your utilization misalignments.
4. ANALYZE the data that your analytics system spews out.
5. ESTABLISH and/or utilize your current value analysis teams to ferret out the savings you have identified.
6. FIND an executive sponsor or sponsors to champion your initiative and to remove the roadblocks you will encounter along the way.
7. INCENTIVIZE your team members to keep them at peak performance.

I know that you are thinking to yourself that “this seven step roadmap is a tall order when you consider I’m already swamped with work.” However, these seven steps only look overwhelming to you if you try to do everything I’m suggesting — at once.

It took Strategic Value Analysis in Healthcare almost 10 years to be able to have them fire on all eight cylinders. What we would recommend you do to get started with your own Value Analytics™ Program is test the waters, since Value Analytics™ in my opinion is the future of supply chain expense management.