'Bench'
warmers want into the game
by
James M. Berklan 
As challenges become more complex for material managers, they must fight
back with more detailed knowledge of their facilities, says a prominent
industry official. He and supporters agree that a combination of internal
benchmarking efforts and flex budgeting is a material "must" for the
future.
"Knowing costs at the gross level leads to management by generalization.
While that served well enough in the past, it is no longer acceptable,"
said Afshin Fatholahi, administrative director of materials, Cottage
Health System, Santa Barbara, CA, and president of the Health Care Resource
Management Society, Cincinnati. "We will be required to know our costs
at the detail level."
That will require closer relationships with clinical users to develop
measurement indicators, Fatholahi added.
To that end, he accumulated a list of 45 benchmarking opportunities
- covering financial, labor, activity, department and satisfaction performance
indicators - that can be used for internal and external comparisons.
First
step needed
Admittedly, most providers will have a tough time finding resources
to calculate benchmarking information, but Fatholahi believes a start
must be made.
"Some
of these indicators are not hard to figure out, but they have never
been made available to a senior manager," he said. "Material managers
should always strive to get these out and let their CEOs see them so
they're not always asking where the data is."
The
key section contains nine financial and labor performance indicators,
he said. They include such markers as: supply cost as a percentage of
operating revenue, supply cost per case mix index adjusted discharge,
and materials management supply and HCFA wage adjusted labor cost per
adjusted discharge.
Fatholahi admitted he has not done activity-based costing, such as how
much it would cost to move a certain supply from one area to another;
however, he has pinpointed supply and services costs for major consumption
areas, such as the operating room, outpatient centers and cath labs.
"You
can start with small steps. The cath lab is probably an area where you
can come up with a good understanding of the cost of supplies," Fatholahi
said.
Cautious
comparisons
Above all, he cautioned providers, pay attention to benchmarking methods
and parameters among participants because comparisons can easily become
invalid. If participants are measuring even slightly different ranges
of activities, data can be skewed.
Mary
Byrne, director of material management at Swedish Covenant Hospital
in Chicago, agreed.
"Part
of the challenge is identifying good benchmarks and then having the
time to find the resources to benchmark against," she said. Like many
of her peers, she regretted not having enough department resources to
do much benchmarking activity.
"Activity-based
costing ratio analysis is out there. People just never used it," noted
Fred Crans, director of material services for Genesis Health System,
Davenport, IA. "Times have never been tough enough."
Crans recommended material professionals identify benchmarks that are
important to their specific facilities and calculate measurements themselves.
"A
lot of material folks don't want to know these things," he said skeptically.
"They still want to be directors of purchasing. The pitfall in that
is, much more is demanded now, much more is required."
He also noted that inappropriate comparisons sometimes are made since
no two healthcare organizations are identical. That gets material managers
acting defensively, he said.
Another material management veteran noted there is another potential
problem to be aware of when comparing practices: "You become more of
a monitor with your customers, and they're not thrilled with you."
Explain
the flex
Fatholahi's
push for flex budgeting is necessary, he said, because many administrators
inflexibly look only at budget overruns, ignoring corresponding rises
in revenue.
"We
need to tie expenses to a parameter that's causing the fluctuation to
the supply budget," Fatholahi said. "A previous CEO asked why costs
were so high. I told him we were using more stents but were producing
more revenues. But it was, 'No, I don't want to talk revenue.'"
HPN
Click
here to read Fatholahi's
report "Health Care Resource Management 2001 - Key Issues," which contains
45 performance indicators and explanations about benchmarking opportunities.
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