Due to financial and operational disruption brought on by the pandemic, the hospital’s C-suite executives call for enormous budget slashing across the board in order for the organization to survive and continue providing patient care service to the community.
Supply Chain faces this scenario routinely. But professionals in the Laboratory feel they’re taking it on the chin (instead of one for the team) by being ordered to cut $5 million in expenses without sacrificing essential services. Naturally, labor, products and equipment and purchased services remain prime targets.
Empathetic, Supply Chain offers to help the Laboratory meet this mandatory goal.
Is such assistance warranted? Wanted? Appreciated? And finally, accepted and used?
The short answer: It depends. Some laboratory departments prefer to operate on their own, so to speak, under the guise that they know their own unique circumstances, processes and technology, regardless of rudimentary skills in contracting, negotiating and procurement.
Protecting turf as part of the corporate line may only go so far as concerns about the bottom line cross the line on maintaining overall operations.
But there’s a way for both Supply Chain and the Lab to toe the line – together.
“If you do these things, while making an effort to learn and understand their environment, your solutions and suggestions will have a better chance of being heard and ultimately adopted,” he closed.
Eric Jurinic, Vice President, Corporate Supply Chain, Accumen, reframes the “trust” issue a bit.
“I don’t necessarily think it’s a trust issue,” he indicated, “[but] more of a second or third set of eyes to ask questions from a different perspective. This also stresses the importance of a cross-functional team who can bring these different perspectives. As humans, we don’t know everything, we don’t know what we don’t know and others can bring a fresh perspective to avoid pitfalls.”
Basic instincts
Executives with lab supply chain experience offer at least a dozen ways for Supply Chain to help Laboratory control, manage and reduce expenses or even areas for Lab to concentrate on its own.
Jurinic starts with the fundamentals.
Revisit all contracts and analyze compliance. “Are you exceeding contractual commitments, are you leveraging boilerplate pricing, are your contracts year-to-year or evergreen [renewed automatically unless canceled by either party]? If so there is an opportunity,” Jurinic insisted. “This sounds like a basic approach but, believe it or not, we see that contracts are neglected more often than not.”
However, if Laboratory negotiated its own contracts and monitored its own compliance how might they know if they even need help in these areas?
“Often times they may not know what to look for, questions to ask, etc.,” Jurinic said. “Supply Chain, Finance and third-party organizations can help. Chances are the Lab is being told by the supplier, ‘this is the best deal I’ve ever seen.’ If you hear that, proceed with caution.”
Look at leases and reagent rentals. “There could be a hidden opportunity for a buyout, lease renewal or other hidden costs,” he advised.
Consider low-cost alternatives. “Many times these are only private-label items but ultimately [from] the same manufacturer you are using today.”
Rethink “big-box closed systems” that require you to use a supplier’s reagents and consumables after buying the supplier’s analyzer. “Many hospital labs who are using ‘the big-box closed systems’ solutions are having supply issues right now because suppliers oversold, thus forcing the lab to send COVID testing out to a reference lab at [higher costs]. Labs can actually turn this into a win to save money by bringing the testing back on site, have redundancy and qualify for the higher reimbursement,” Jurinic indicated. “You do this by adding a higher complexity test on an open channel instrument. Why don’t they? It’s a scary thing that seems to be synonymous with reference labs or academics. It’s actually not that hard and it’s not scary. We are helping to bring up three labs, and the ROI is fantastic – less than a two-month payback. [Costs for big-box closed systems] vary by supplier and quantity, but we’ve seen labs spend anywhere from $100,000 to over $1 million on instruments that still have not showed up, can’t be used to full capacity or even at all because of [COVID-19-related] shortages.”
Jurinic encourages Lab to focus on patient care and leverage Supply Chain without worrying about losing control.
“Make sure Supply Chain is engaged early as they will do the work for you and ‘package up’ all the details so the Lab can do the comparative analysis based on the objective data comparisons of all the various options Supply Chain puts together,” he said. “The process works kind of like this: Engage Supply Chain, identify clinical viable suppliers, go to market. Work smarter, not harder, and leverage your team!”
Standardize products, services
Medline’s Krhovsky lists three primary areas.
Consumable standardization. “The hospital lab is notorious for product variation,” he noted. “The lack of purchasing oversight has allowed each individual clinician [his or her] own procurement power leading to a more fragmented sourcing approach. There are undoubtedly areas where high brand preference is excusable and even necessary, but many of the general consumable categories offer prime opportunity for standardization. Examples of these categories range from basics like microscope slides to slightly more complex products like pregnancy tests.
“I’ve consulted facilities in the past that were using 10 different pregnancy tests across their network, and those tests – in instances – varied in price by more than 20 percent,” he continued. “These are scenarios where Supply Chain can step in to help address variation and drive standardization savings as they have visibility system wide and the bandwidth to give these projects focus.
Instrumentation and capital contracts. “Instrumentation, and their subsequent reagents, are typically one of the highest spend categories within any hospital lab,” Krhovsky said. “This includes, but is not limited to, chemistry, immunoassay, hematology, molecular, centralized urinalysis and blood bank. The majority of these contracts are manufacturer-direct, run five-plus-year terms, and amount to spend that can quickly get into the tens of millions of dollars. Incredibly clinical in nature, there is undoubtedly a technical element to these decisions that is rooted in the needs, dynamics and testing requirements for that particular lab. That being said, there is always room for Supply Chain to be involved with product negotiations and contract review. These are elements where Supply Chain has a particular skillset and level of experience that should always be leveraged. And as one of the largest areas of spend, even small, incremental improvements or adjustments to a pending deal can prove to be financially vital.”
Distribution programs. “If you compare lab distribution to the current standard of medical/surgical distribution – where Supply Chain has been an integral partner for decades – the disparity is hard to ignore,” he noted. “And yet the lab is as important as any clinical department at the hospital, so why the lack of change to the status quo? I believe lab clinicians and leaders are busier than ever, and also experiencing the pressure of more impactful outside stressors. Their focus has been on turnaround times, staffing, reimbursement changes and other tangible elements that are paramount to their long-term relevance and viability.
“There is a crop of newer organizations, both regional and national, who are rethinking the models and levels of service around lab distribution,” Krhovsky continued. “That choice and the involvement of Supply Chain in these decisions will have two critical impacts on the market. One, it will raise the competitive level of all distributors in the market including the historical incumbents. Two, it gives hospitals a realistic option to take business elsewhere if it makes sense to their bottom line.”
Deep dive
Iris Jungherr, Vice President, Automation and Diagnostics IT, Siemens Healthineers, homes in on specific lab-centric operations and processes where Supply Chain can be tapped.
“During the pandemic most core laboratories were seeing a decrease in overall test volume and a shift in assay menu mix,” Jungherr observed. “Knowing this information and even predicting these trends can have profound impact on the operations of the lab and hence bottom line. For example, by knowing the menu shift and predicting volume fluctuations, suppliers can advise clients on an improved menu structure between instruments that is better balanced, thereby reducing the time spent performing [quality control] and calibration and the costs associated. Suppliers can also advise on creating a new operating/staffing model based on the new volumes.”
Jungherr recognizes that the shift in menu and volume will impact ordering frequency and associated commodities.
“Solutions, such as inventory monitoring and management, can be adjusted to address the new testing and volume requirements, thereby reducing the potential of over or under ordering a component,” she added.
“Finally, Supply Chain inquiring about the COVID-19 clinical pathway and associated testing schemes can prove instrumental to support laboratory activities that can have enormous impact on length of stay,” she continued. “For example, the cascade of testing and reflexing testing in the clinical pathway can be managed with rules written into a middleware program, ensuring proper adherence to protocol and quickening the decision-making process. Supply Chain supporting the need for digitalized solutions can have an overall impact to the hospital’s bottom line.”
Roll up your sleeves
Dedicating departmental resources can make a big difference, too, according to Barbara Strain, MA, SM (ASCP), CVAHP, Principal, Barbara Strain Consulting LLC, and formerly Director of Value Management, University of Virginia Health System. Strain has experience in helping Lab apply value analysis to its decision making.
“Assign specific buyer and contracting staff to the clinical laboratory, including but not limited to the Core Laboratory and specialty testing laboratories, [such as] Microbiology, Molecular, Immunology, Toxicology, Pathology, Phlebotomy and Blood Bank,” Strain recommended. “This assures that the supply chain values the laboratory operations and wants to have a firsthand understanding of their needs.”
Together, they should set up a lab-centric inventory management program.
“If one does not already exist, co-designing an inventory management system to guarantee laboratory reagents, test kits, PPE and other products needed for patient testing are ordered and delivered on time every time is key,” she continued. “Supply Chain and the Laboratory might also draw on internal process improvement coaches or use services offered by laboratory supplier contracts to assist in 5S and other LEAN activities to organize workflow and create nearby supply availability locations.”
The laboratory should be included in the organization’s Value Analysis program, according to Strain, and a value analysis coordinator should be assigned to work directly with the laboratory team.
“Laboratories are cautious about doing this as they typically have established meetings to discuss new testing methods, clinical-based evidence, equipment capacity and requirements, make-or-buy lab testing services as well as laboratory information system (LIS) and electronic health record (EHR) enhancements all in an effort to provide clinicians with accurate, timely results to treat patients effectively,” she acknowledged.
Labs that have embraced value analysis, according to Strain, recognize that the process helps to keep initiatives on track by:
- presenting contracting options
- organizing supplier meetings and presentations
- assisting in collecting and providing product evaluation reports
- scheduling end-user reference account calls
- analyzing current versus estimated new costs, ROI and other analytics
- facilitating consensus decision making
- establishing key performance indicators (KPIs) to monitor efforts in meeting their goals.
Supply Chain must up its credit score with Lab
Laboratory executives and professionals either may reach out to Supply Chain for needed expense management consulting and facilitation or Supply Chain simply may extend the offer. Either way, it’s in Supply Chain’s best interests to ensure Lab gets the credit for achieving and exceeding goals. How to make that happen? Five experts with lab supply chain experience share their ideas with Healthcare Purchasing News.
“The key to driving change management and creating both financial wins for a laboratory and stakeholders is making sure it’s a cross-functional effort and not done in a vacuum. Engaging all stakeholders, and doing so early, is the fundamental key to success. By doing so, project success rates will be much higher, [and] there will be less pushback, less rework and overall better outcomes financially and for the patient outcome. Front load the process.”
Eric Jurinic, Accumen
“The first step in this entire process [involves] understanding each other’s individual goals – and then agreeing on separate mutual goals to be achieved together. If those elements are understood ahead of time the chances for success, and the sense of mutual accomplishment, will be more realistic.
“Supply chain collaboration with lab often breaks down in a very simple and obvious way – credit. Many times supply chain executives look to pull laboratory into preexisting distribution contracts where leveraging a particular partner in multiple classes of trade leads to additional financial incentives for the system across the continuum of care. Many times the lab is only given finance credit for line item, but they’re not given due credit for any proportional savings to the system (e.g., rebates, fee reduction) that may have resulted from lab consolidating to said distribution channel. If supply chain and executive and hospital finance departments can find a way to allocate some portion of those system savings to the bottom line of the lab, I am a firm believer that you will find a more willing participant – and partner – in the process.”
Mark Krhovsky, Medline Industries
“Successful value analysis programs work with service-line teams and executive steering committees to set annual goals for the entire program and determine each team’s share of the total based on their budget or other easily determined financial metric. At each executive steering committee meeting a dashboard is shared with progress toward the annual goal and how each team is contributing to the whole.
“Another approach that many institutions take is to proportionately share rebates earned with departments in a method directly attributable to the purchase of goods and services from committed contracts. For example, exam gloves are used by most hospital/health system departments. If the contract for exam gloves includes a conditions clause for rebates – the percent that would be journalized to the laboratory operations determined by their dollar portion of the total spent.
“Using leading supply chain practices can assure data and contracts support organizational goals and programs are accurate, accessible and transparent. From item file cleansing, inventory management, ‘the perfect order,’ to reports pushed to the laboratory, key performance indicator dashboards and clinical integration, communication relationships and trust are guaranteed.”
Barbara Strain, MA, SM (ASCP), CVAHP, Principal, Barbara Strain Consulting LLC
“Laboratory often is looking for ways to expand services to generate additional revenue or increase volumes to improve margin. Recognizing revenue growth, absorption of volume without increase in staff, expansion of services (menu) are all vital to the laboratory’s value to the hospital and keeping the testing in-house versus sending to a reference lab. Supply Chain recognizing these efforts and even promoting the success will help ensure laboratory services stay within hospitals and close to the patient. One of the metrics the lab monitors with impact to patient care is TAT metrics and population trending to observe any shifts in results. Additional metrics include shift in the volume of samples received from various clinical [tests] and trends in assays ordered. All of these metrics aid the laboratory to respond like a business, ensuring market trends are visible, inventory is available and staff are trained. Supply chain supporting the procurement of platforms that aggregate and analyze laboratory metrics will support the lab running as a business.”
Iris Jungherr, Vice President, Automation and Diagnostics IT, Siemens Healthineers
Managing contracts, expenses not second nature to lab
by Rick Dana Barlow
Like many clinicians, Laboratory executives and professionals concentrate on carrying out their pieces of the patient care puzzle. Managing finances and operations, while integral to departmental longevity, typically remain peripheral concerns until budgetary edicts descend from the C-suite.
Consequently, Lab may typically lack awareness and understanding of ways to master “back-office” tasks necessary to keep “front-office” responsibilities available and fluid.
Supply Chain can help with that, Laboratory experts agree.
Mark Krhovsky, Vice President of Laboratory Sales, Medline Industries, points to three opportunities for labs to control costs: Distributor choice; general contracting terms, including pricing, duration, out clauses – most notably with instrumentation and reagents; and supply chain logistics and optimization.
“Distribution choice is critical to cost savings for any hospital laboratory,” Krhovsky insisted. “Leveraging a strong distributor to assist with mitigation of freight, product standardization and manufacturer negotiations can go a long way in impacting the bottom line.”
Most laboratorians and medical laboratory scientists did not go to school to review legal terms and conditions, he continued. “Many intelligent lab leaders have established a skillset over time of reviewing legal terms and conditions as they’ve been accustomed to doing things ‘on their own,’” he said, “yet there’s no replacement for contract terms and conditions to be reviewed and negotiated by Supply Chain experts who have a deep level of knowledge and understanding when it comes to the ins-and-outs of product/sourcing agreements. Even the most simplistic of changes to a contract can prove critical down the road.”
Product cost and attributes may represent the dual vantage points on which clinical labs view the issue, but that’s not enough, according to Krhovsky. “That is only one small part of the equation,” he noted. “How products are stocked, handled, shipped and distributed from point of origin to point of use is a factor that is often overlooked by clinical staff. Yet those details play as big, if not a bigger, role in the overall cost of doing business. This optimization of the product supply chain is an area where our purchasing partners within the hospital can step in as consultants to lead their labs in a better direction for future success.”
Standardization, fair game
Standardization for the sake of standardization can be a crutch, according to Eric Jurinic, Vice President, Corporate Supply Chain, Accumen.
“Sometimes different products make more sense both operationally and financially,” Jurinic said. “So many times we see laboratories, both small and large, using the exact same equipment and automation. This is a recipe for waste of reagents, labor and workflow. I know it sounds counterintuitive to what we’ve all been taught, [but] it also happens more often than not.”
Jurinic acknowledges that standardization sometimes can generate better leverage, but insists that “sometimes the savings can be far greater than that lost leverage,” he added.
Decentralizing tests for convenience can be a challenge, too, according to Jurinic.
“In a world where time is critical, there are some tests that can be performed at up to 80 percent less cost if centralized,” he noted. “If you are a health system with 13 sites and all of them are performing tests not deemed ‘turnaround time-critical,’ then centralize what you can and what makes clinical sense. Work with pathology and physicians to identify what can be a candidate for centralization. Also, while you have the attention of pathology or physicians, figure out what tests may be obsolete.”
Finally, host a strategic sourcing event or vendor fair.
“If you have a supplier who has been [with you] for 15 years, it’s always good to take the business to the market and let the data speak,” Jurinic advised. “Take the emotion out of the transaction and use data as a weapon for your negotiations. Sometimes it may make sense to have an unbiased third party to do this for you for the sake of relationship preservation. At the end of the day though, you can do all this in a very diplomatic way. It’s just business, and the laboratory is a support business of the larger healthcare continuum.”
Jurinic recognizes that strategic sourcing events take some work and coordination to set up, but Supply Chain can help with it.
“Many times we find that the stakeholders learn new things they didn’t know,” he said. “Recently, one of our clients wanted to re-sign with their incumbent, so we offered to coordinate the process of [requests for information] and [requests for proposals] so the stakeholders and leaders could see what options are out there. Technology is changing fast. In the end, they changed vendors and saved money.
“Most organizations outside of healthcare have policies in place that mandate a comparison of bids when possible – above a certain dollar threshold – every time a contract is coming up for expiration,” Jurinic continued. “In cases where the higher-cost vendor and/or no bid is performed, there is also a requirement to submit for justification and approval at which point a committee will evaluate. Fun fact: You may be surprised to know that most, if not all, of the major lab suppliers have similar policies in place for the raw materials used to make the reagents, consumables and instruments you purchase.”
Data, QC specificity
Supply Chain’s assistance can help the lab extend beyond the routine and emergent nature of their work, according to Barbara Strain, MA, SM (ASCP), CVAHP, Principal, Barbara Strain Consulting LLC, and formerly Director of Value Management, University of Virginia Health System.
“Using Supply Chain data, such as purchase history by supplier, department and ordering pattern, can lead to creative contract construction and other leading supply chain practice improvements,” Strain suggested. “This approach may free up lab [full-time equivalents] who may be performing non-technical duties like supply chain-related functions and help to lower overall costs, including hidden costs like inbound and outbound shipping and special packaging and handling fees.”
Minimizing, if not eliminating waste may be another aim.
“Laboratories often order temperature-sensitive perishable supplies that often may be wasted and require new supplies to be ordered,” Strain indicated. “Partnering with Supply Chain to understand the root cause may be as simple as updating [materials management information system] delivery locations or assuring monitored freezers and refrigerators are available at the point of receipt if delays of any duration may prevent immediate delivery.”
Strain targets reference laboratory testing as a particularly costly area.
“The laboratory develops policies outlining who can order tests, at what frequency they can be ordered during the same course of illness and other utilization guard rails,” she noted. “What they may not realize is how a supply chain, value analysis and finance approach can be a coupled to the clinical methodology or specific reference lab to effectively contract for services to yield a win-win for patient care and the bottom line.”
Iris Jungherr, Vice President, Automation and Diagnostics IT, Siemens Healthineers, believes Laboratory executives typically have a handle on day-to-day expenses, including analyzing opportunities between sending out testing or retaining testing in-house based on monetary and quality justifications.
But she acknowledges one area where they could improve or require support is “monetizing the value of an instrument feature or assay specifications throughout the contract life cycle.”
Jungherr cites a quality control parameter as one example.
“If a quality control parameter can be done one time per system versus one time per module, analyzing the overall costs associated with running QC could show to have a large monetary difference between two supplier solutions,” she said. “Likewise, higher specificity can reduce false positives and unneeded and potentially costly reflex testing, not to mention the time to get results back to the clinician and the potential impact on the length of stay of the patient. Therefore, tying features to quantified laboratory impact would assist with the justification for new equipment or methods.”
Rick Dana Barlow | Senior Editor
Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].
