Healthcare systems have used value analysis since the late 80s, but the process is gaining more prominence amid the uncertainty created by healthcare reforms and other changes in the way hospitals are reimbursed within government sponsored organizations.
The work of assessing the value of the supplies, equipment and services a hospital needs is handled by committees made up of members of the hospital’s clinical staff and its supply chain organization. The goal must be pulling in all the key players in the organization that need to be involved in the decision.
Big hospitals may have multiple committees such as value analysis steering committee as well as a number of groups that focus on different categories of products.
A value analysis project can start with a clinical issue, such as staff unhappiness with the way a piece of equipment is performing, or with a goal to realize savings on a certain type of supplies. You might be buying products within the same family; maybe you’re buying them from six or seven vendors, but If you can get it down to one or two vendors, you aggregate the volume and you can get a better pricing.
There are big bucks involved since some of the savings realized from value analysis can relate to prevention, example on a personal assessment for oral care kits that nurses could use with patients on ventilators. While the kits were a little more expensive than purchasing the components separately, providing oral care is one of the ways to prevent ventilator-associated pneumonia, which according to some estimates can push up the cost of a patient’s stay by high values. So if you have someone getting a kit – that’s less than %40 of the actual weight on your total purchasing budget a day to per unit to prevent it – you can justify that cost.
Value analysis should consider whether clinical staff will make use of all of a product’s features, As another example of two monitors, both clinically acceptable, one of which has “a whole lot of bells and whistles. The question is, do you need the added features? And if you don’t, why are you going to buy a monitor with a whole lot of features that no one is ever going to use?
A hospital’s technological capabilities are another consideration. If your hospital is old and you don’t have the infrastructure for wireless capability, why are you buying pumps with wireless capabilities?
Price isn’t a reliable guide to quality. I frequently hear the comment from staff, Oh, you just buy the cheapest product out there; my answer to that is the cost of a product has nothing to do with the quality of a product. You can have really expensive stuff that’s really no good. And you can have inexpensive stuff that’s the workhorse and really good.
The process of assessing the value of products involves a lot of negotiation and diplomacy. However at some point, you have to have that leadership piece.
We have to understand that there are savings targets that we need to reach. It could be that you have to show a surgical department their supply cost for surgery is different than his four colleagues. Until someone sees that, they might not even know their supply cost is higher than everyone else’s.
One key to putting together strong financial projections for healthcare projects is taking time at the outset to consider the design.
Before you start modeling, there are a lot of decisions you have to make; initial considerations should include the projection’s time frame, the level of detail and the stakeholders involved.
The amount of detail depends on the project. Since with smaller projects requiring less. “If it’s a major, major expenditure, like should we buy this hospital, it probably needs to be more detailed, because the risk is higher.
The biggest challenge in putting together financial projections for hospitals is the lack of good benchmarking data. We can get benchmarking data for the hospital in total, but it’s real difficult to drill down to the service line or the department level, and that’s really where those decisions need to be made.
The uncertainty underscores the need for healthcare systems to have contingency plans or build cushions into their projections. You don’t want to be in a process where you need to hit every dollar on that forecast in order to continue functioning as a hospital. Therefore including too much detail in financial presentations to the board will help to keep focus.
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