How to prioritize savings ideas quickly

Value analysis pyramid can speed up, optimize savings efforts

by Robert T. Yokl

All supply chain organizations have big, small and breakthrough savings ideas that they need to implement as fast as possible. However, from my experience, all of these savings opportunities are given the same weight or importance without any thought to prioritizing them for a speedy resolution and optimum gain.

For instance, I have seen value analysis teams give a group purchasing contract for nursing floor gloves with a 3 percent savings opportunity the same ranking in prominence as a 15 percent standardization of surgical implants. Consequently, the value analysis team will take weeks or even months to implement their new nursing floor glove contract while leaving their surgical implant conversion waiting in the wings. This common practice is neither practical, cost effective or time centric.

Value analysis pyramid

A much better way for a supply chain organization to sort out their big, small and breakthrough savings ideas is to envision a pyramid with three levels of value analysis savings opportunities.

At the base are small savings ideas with 3 percent to 5 percent savings potential that can be achieved almost overnight. The middle of the pyramid will be reserved for savings opportunities of 7 percent to 15 percent that will require some time and effort to be properly implemented. At the pyramid’s peak are those vital few breakthrough savings opportunities estimated to be above 15 percent that will need to be artfully executed for maximum results. This system will not only organize your savings ideas, but categorizes them too for immediate action.

To utilize this pyramid concept to its full benefit, it is also important to align your value analysis teams’ activities around the prioritization of your savings ideas that I have just described versus aligning by product line (clinical, surgical, technology and support value analysis teams), which is most common today. This can be best accomplished by having only three value analysis teams: One dedicated to base-level pyramid savings, one assigned to middle-level pyramid savings and a third committed to top-tier pyramid savings. This scheme will not only enable your hospital, system or integrated delivery network (IDN) to quickly sort-out and prioritize your savings ideas, but to harness the appropriate resources to bring about your savings at lightning speed.

Speed and optimization

All healthcare organizations are ratcheting down their supply chain costs in anticipation of the revenue constraining affects of the Affordable Care Act, but too often these initiatives are conducted in slow motion while the marketplace demands immediate and elevated results at hyper speed.

When I look at the Affordable Care Act’s new Value-Based Purchasing (VBP) Prospective Payment System that is being implemented in October 2012, I get the feeling that we in healthcare are rowing our boat in the wrong direction. This is because over a five-year period your reimbursement to fund this new VBP payment system, which includes a minuscule award of 1 percent for complying with 62 new quality measures, will be reduced about 7.25 percent.

In addition, Medicare will reduce its DRG payments starting in 2013 if your hospital readmission rate is beyond 30 days with your patients with heart attacks, heart failure, and pneumonia if they exceed a preset threshold. And by 2015, hospitals that don’t meet the government’s information technology "meaningful use" criteria in delivering their patient care will face further reductions in their reimbursement. Top this off with a new mandate in 2015 that says that hospitals with high rates on selected hospital-acquired infections will receive further payment reductions. If all this wasn’t an actual fact, I would think it was fiction!

What this all means to supply chain professionals is that you will need to save even more money faster, sooner and at a heightened level of optimization to offset these deep cuts that are coming your way. The long-standing ways of doing things won’t lead you down this new fast track path.

Transformative idea

What I’m suggesting here will be considered by some as a radical idea, but transformative to others since it goes against the conventional wisdom of what every healthcare organization is doing now in the country. But if your hospital, system or IDN is looking for a new way to ramp up your savings at an even faster pace I can think of no better way to do so. All it takes to give it a try is for you to realize that the way we in healthcare are triaging our big, small and breakthrough savings isn’t working at the speed or optimum gain that is necessary for your healthcare organization to keep ahead of revenue reductions that are over the horizon. Then it will make sense to you!