Process offers better information, decision making and control

That’s where value analytics comes into play. It’s the new activity-based science for measuring unfavorable trends, patterns and variations in utilization in your supply spend to quickly identify your best VA savings opportunities.

Why is this important today? Since every hospital utilizes its products, services and technologies at a different velocity (or speed, rate or rapidity) it is of critical importance to conscientiously track, trend and then analyze unfavorable changes (up or down) in your utilization for the utmost control of your supply spend, especially now that your price savings are slowly disappearing.

Simply put, if you organize your supply spend by description (e.g., intraocular lenses, dressings, office supplies, Oxisensors, transcription services, etc.) and then match these same commodity groups to their related activities (e.g., patient days, procedures, tests, square footage, etc.) you can then accurately measure these same products, services and technologies consumption velocity against your peers. The result will be new and better VA savings opportunities that will become crystal clear to you.

We recently measured the performance of one of our client’s custom operating (OR) packs utilization by dividing its 7,406 operating room cases (case-mix adjusted) into its annual purchases of $251,624 and found its total pack cost per case was $33.98. We then benchmarked our client’s packs against its peer group and found that our client had a negative variance of $5.98. This meant that our client’s custom packs utilization cost (not price) was $44,289 higher than it should be – all other things being equal.

This anomaly was brought to the attention of this client’s value analysis team leader who then assigned a VA project manager to investigate why this utilization misalignment was happening. The result of this VA study was a $40,929 savings due to their 26 custom pack products not being used at all, a larger basin being replaced with a smaller one, and moving from brand name to generic products in their custom packs.

It’s not an accident that we uncovered this big custom pack savings and 42 other utilization misalignments for this same client. It was because we employed value analytics to do the difficult work for us that never would have been uncovered by the naked eye or even intuition.

Because some of our clients have employed value analytics for several years, we are able to trend their purchases during long periods of time to identify additional savings opportunities. Since "things change and people change," this always brings about new savings opportunities and some surprises, too.

This was the case with a 98-bed hospital we worked with that reduced its contrast media cost by $42,632 the first year after we identified this utilization misalignment. Then the hospital had to revisit this same commodity two consecutive years thereafter when its contrast media utilization cost spiked repeatedly.

The reason was that the radiology staff members kept falling back to their old habits and had to be reeducated about the best practices that were keeping costs in line in the first place.

That is why it’s a worthwhile effort for you to refresh and trend all of your purchasing data on a quarterly basis to ensure that your utilization trends are within acceptable limits and have not spun out of control. The reversal in your supply performance metrics can easily happen, especially when your hospital’s census has a large variance.

If you are looking for better information, better decision making and better control over your supply chain that goes beyond spend management and are looking for deeper and broader utilization savings then you need to embrace the new science of value analytics.

Supply chain managers’ spend management efforts have been focused almost solely on obtaining the right price, with the right group purchasing organization contract, at the right tier level and then monitoring contract compliance – going forward. As comedian Jerry Seinfeld would say, "Not that there is anything wrong with that," these price savings are just the tip of the iceberg! In fact, I consider a supply chain manager’s job only half done if this is the only tactic they are employing to control their total supply chain expenses.

In today’s healthcare environment where every dollar counts, supply chain managers now need to expend an equal amount of time weeding out the millions of dollars of wasteful and unnecessary consumption, misuse, misapplications and value mismatches in the products, services and technologies they are buying annually.

These huge savings opportunities (7 percent to 15 percent of your total supply spend) that I’m talking about can’t and won’t happen for you without you filling in your data gaps and then applying activity-based measurements to track the trends, patterns and variations in your purchasing data to give you even deeper and broader visibility into your supply chain. This is where the future of supply chain expense management is heading! Are you ready and able to take on this challenge?

Robert T. Yokl is president and Chief Value Strategist of Strategic Value Analysis In Healthcare, which is a leading healthcare firm in supply and process value analysis. Yokl has nearly 30 years of experience as a healthcare materials manager and supply chain consultant, and also is the co-creator of the Utilizer Dashboard that extends beyond spend management for deeper and broader utilization savings. For more information, visit www.strategicva.com. For questions or comments e-mail Yokl at bobpres@strategicva.com.