By Robert T. Yokl,
Chief Value Strategist, Strategic Value Analysis in Healthcare, www.utilizer-dashboard.com
Most healthcare organizations have value analysis teams (if you don’t, you have a bigger challenge than what we will be discussing in this article), but are they structured for results in this age of value-based competition?
By value-based competition, I mean, are your value analysis teams capable of reducing your supply expenses by 15 to 20 percent, while improving your quality, over the next few years to meet or exceed your competitors’ cost and quality? This is because your competition will be bidding on the same value-based contracts as your healthcare organization. Further, your hospital, system or IDN’s survival will depend on your healthcare organization winning a preponderance of these value-based contracts and then controlling your cost and quality going forward to ensure you make a profit.
Unfortunately, too often, value analysis teams have been increasing their hospital, system or IDN’s cost of goods sold by as much as 28 percent in any given year. This phenomena happens when new products and services you are approving for purchase costs exceeds the savings you bring about through your value analysis team’s efforts elsewhere. This is why we recommend that hospitals, systems and IDNs not only keep a running tally of their value analysis savings in any given period, but also any increases in their cost of goods sold. You will be shocked at the disparity of these two numbers.
Guard the gate
To reverse this trend, we see an urgent need for value analysis teams to curtail their approvals of new products and services at the speed they have been doing so for years (as much as 25 percent increase in SKUs per quarter) to lower their cost of goods sold. This is easier than it sounds, since most new products and services requests are just your customers tweaking their products or services’ features without changing their primary or secondary functions. Meaning, most customers can live with their existing products or services without causing any cost or quality issues. Remember, value analysis teams are, by definition, gatekeepers; once value analysis teams open the floodgates too wide they are encouraging higher supply costs.
It’s also mission critical in this age of value-based competition that value analysis teams focus at least a third of their time on their supply utilization misalignments (wasteful and inefficient consumption, misuse, misapplication and value mismatches in your supply streams) if your value analysis teams are serious about bending your healthcare organization’s supply chain cost curve. This is where the biggest savings opportunities (7 to 18 percent) exists in reducing your supply chain expenses. To ignore this savings source can make the difference in your healthcare organization’s profit or loss in any given year.
It looks like value-based purchasing is here to stay; it’s not just a passing fad. Therefore, your value analysis teams must be more strategic with their savings goals, objectives and targets of opportunities. But above all else, your value analysis teams must hold the line on all new purchases. This is where they can make the biggest impact on your healthcare organizations’ supply chain costs. For if you don’t buy it, you will never incur any cost now or in the future! You won’t find a better cost containment technique than this tactic!
AS the hospitals and health systems continue to sign Value Based Contracts for reimbursement, manufacturers need to begin developing Value Based Contracts for their products, that meet the clinical and financial expectations of the customer. I am not sure that everyone is aligned yet in this endeavour.
Value Analysis and P and T Committees need to start working collaboratively in hospitals and health systems to assure that core measures/quality metrics are tied to new products being evaluated for use but also, to go back retrospectively on certain items, to make sure the Value is seen. I still see a lot of old school consulting, where companies come in and make suggested recommendations to lower cost, but there is no measurement of impact on quality/outcomes, safety, patient satisfaction, etc. which is how hospitals and physicians are getting reimbursed. If I cut $500K, can I loose $1M in actual revenue?