Clinical Business Strategies

The importance of supply chain data conditioning
As the foundation of purchasing operations, the item file should be kept clean

A number of financial losses in a hospital can be traced back to the inaccuracy and incompleteness of data in the supply item file, the massive file that is the central database of items purchased within a facility. The greatest opportunity for preventing these losses is found in understanding where to begin your search for errors and holes, then analyzing and conditioning the data to improve financial performance downstream.

As materials managers, you know that the item file is the foundation of purchasing operations in your department – or it should be. How much confidence do you have in your item file? Does it contain most of the items you purchase for your hospital? Is the data relatively free from duplicate entries? Are the units of measure appropriate for each item? These are just a few of the probing questions that need answers in order to understand how your item file may be negatively impacting your hospital’s bottom line.

Up to 60-70 percent of many hospitals’ total supply spend is off-item file, meaning the items purchased can not be found within the item file. Notable culprits – as you might have guessed – are physician preference items (PPI) such as cardiac rhythm devices, pacemakers, spine and joint implants. These items are almost never held in inventory, nor purchased through normal purchasing processes. Rather the manufacturers’ rep often bills the hospital after the device has already been implanted into the patient. Other sources of off-item-file purchasing can be non-centralized purchasing practices by various departments, blanket purchase order vendors, capital, or services.

The item file creates a virtual formulary that effectively provides supply chain professionals with a means to control the items that are purchased by the organization. However, in order for this control mechanism to be effective, you need to implement procedures to limit off-item file purchasing.

Off-item-file purchasing creates a "hole" in your supply chain data which creates an inability to aggregate the data necessary to gain maximum benefit from supply chain analytics. When trying to decide where to focus your efforts for cost savings, this "hole" in the item file can skew or impair decision making. Additionally, the information you need is not available to prepare you adequately for negotiations with PPI vendors. You will be unarmed by not accurately knowing your purchasing power and physician utilization patterns, unless you spend an inordinate amount of time manually pulling this data from various sources and then compiling it to create some actionable information. With incomplete information, you also become powerless to provide a solid answer to your CFO when asked why your supply expense has increased or decreased.

Another example of the effect of incomplete and inaccurate item file data is related to the presence of incorrect supply item-to-vendor relationships. Many supply items can be purchased from multiple vendors, and purchasing systems allow these many-to-one relationships to be established. Often, vendors and associated vendor numbers are incorrectly associated with a supply item, based on the manufacturer name and manufacturer catalog number. The item associated with the vendor’s number may be similar to the item in the item file, but it is often made by an entirely different manufacturer. The end results of bad supply item-to-vendor relationships are pervasive inaccuracy in the organization’s supply spend data, difficulty in effectively managing your facility’s adherence to volume commitments with manufacturers, and missed next tier pricing and rebate opportunities.

Other equally consequential errors that lead to poor or misleading aggregated supply data analytics are unit of measure errors, duplicate records, and incorrect prices – just to name a few. These mistakes compromise the quality of aggregated spend data, affect the ability to report on certain key data elements, and can prohibit the auditing of purchasing contracts against purchasing terms.

Maintaining an accurate item file is a monumental task. The volume and fluctuations of the information are staggering. The typical item file, if 100 percent correct on January 1, has a rate of change of 25-40 percent within that year.

Steps to managing your item file include:

1. Identify experts with extensive product knowledge who can review and update the item file and dedicate a resource to this task. Some materials management departments are dedicating a staff member to managing this ongoing process. Outsourcing this function is also an option.

2. Access reference materials directly from suppliers that include correct values for supply item fields – preferably electronically.

3. Limit the ability to add items and vendors to a controlled number of people in order to maintain the accuracy of the data in your item file.

4. Synchronize the operating room (OR) item file with the materials management item file. This will minimize buying errors for many high ticket items.

5. To minimize the negative financial
impact of supply item file errors, link your supply item file with your hospital’s chargemaster. Real time data showing the cost to charge relationship will highlight those items for which you are losing money and those whose charge may pose a
compliance problem. HPN

Eileen McGinnity is president of Aspen Healthcare Metrics, a national clinical service line consulting
and benchmark data firm, based in Englewood,
CO. Aspen is a subsidiary of MedAssets Inc.