Transcript Document

More Than
Low-Hanging Fruit:
Successful Value Analysis,
Phase II
WSHMMA Spring Conference
Tacoma, WA
April 27, 2006
Garrett W. Hoover, MHA, MBA
President / CEO
Nason Hospital
Roaring Spring, PA
and
John E. Siedlinski, MHA, RT(r)
President & CEO
Materials Management Consultants / RPI
Naperville, IL
Geographic Background
Roaring Spring, Pennsylvania
closest to Altoona; 2 hours east of
Pittsburgh
Roaring Spring, middle of the
state, an hour from State College
Hospital has been in business
since 1896 – 109 years
Hospital Background
Nason Hospital is an acute care facility,
licensed for 42 beds with an average daily
census of 27
Medical Staff of 100, representing the
specialties of:
- Orthopedics
- EENT
- Urology
- General Surgery
- Podiatry
- OB/GYN
- Pediatrics
- Gastro-Intestinal
- Ophthalmology - General Practice
Nason has a total of 260 FTE’s,
comprised in head count of 283
The Problem…
NASON Reimbursement Percentages
Like many
Pennsylvania
hospitals,
Nason had
experienced
declining
admissions, a
resurgence to
O/P care and
declining
reimbursement
Payor
Payor
Payor
Payor
Mix %
Reimb.
% (I/P)
Reimb.
% (O/P)
Blue Cross/Blue Shield
33.20%
50.00%
50.00%
Medicare
46.10%
65.00%
40.00%
Medicaid
4.90%
75.00%
27.00%
Commercial: UPMC
49.00%
49.00%
Commercial: Geisinger
41.00%
41.00%
Commercial: Preferred
Healthcare
68.00%
68.00%
98.00%
98.00%
Commercial Totals
Self-Pay *
13.30%
2.50%
100%
NOTE: Self-Pay reimbursement will be reduced by an allowance for Bad
Debt, equivalent to approximately 2%.
The Problem …
70% of Pennsylvania hospitals lose money on
patient care
50% of Pennsylvania hospitals have negative
operating margins
For the first time in its 108-year history,
Nason Hospital was
projecting a
$1.4 million shortfall
Meeting the Problem Head On …..
Discussed a business relationship with RPI to turn
Nason Hospital around
RPI developed Project Plan to address both staff &
supply resource management
Based on Hospital Board acceptance of the Project
Plan and resulting Project Proposal, RPI was given
the go-ahead to proceed
An estimated 5 – 10% was going to be carved from
current staffing costs using RPI’s Management
Control System
Performed a Supply Chain Assessment in Summer,
2003 which listed improvement opportunities &
Road Map for implementation via Value Analysis
Team process
Value Analysis Gets A Green Light
VAT structure & Chairperson is selected
REW Form is developed & tested
Opportunities are tracked through to final
disposition
Cost Savings tools are developed
Cost-Benefit Analyses templates are
developed & implemented
“Got the word out” regarding Value Analysis
Team process
Training scheduled for VAT attendees
First VAT Meeting was scheduled;
VAT staff are trained
VAT Kick-off has begun
The Need for Value Analysis
“There is a silver lining. Trimming Supply
costs is a fairly high impact way to boost
profitability or get a balance
sheet out of the red.
If you increase revenue
$1.00, you might make
5 cents off of it.
But almost every dollar
you save in supply costs
goes to the bottom line
and you don’t have to fire
anybody or lay anybody off.”
Health & Hospitals Magazine, May, 2004 - Richard Kunnes, M.D., Vice-President of Consulting Services for VHA, Inc.
Nason’s Value Analysis Team Structured for Success
Garrett Chairs each Session
Multi-disciplinary task force
Organized approach; Department
heads interviewed regularly
for staffing, process & supply cost
reduction opportunities
Physicians approached on ad hoc basis
Vendor negotiations woven into VAT process
Successes communicated to
Board, medical staff &
the community
Nason
VAT
VAT Chair Commitment is
Key to its Success
VAT meetings held in Boardroom or Garrett’s
office – Confirms VAT importance
Garrett attends & actively participates in all
vendor strategy / contract negotiation
sessions
Staff attend, on time & are prepared
Garrett sets the tone and the agenda
Garrett reports savings to-date prior to each
meeting and summarizes & assigns
“to-do’s” prior to
VAT adjournment
VAT Opportunity Reviewed: Mobile MRI Services
BACKGROUND
Develop an RFP for
Mobile MRI Services, to
be on-site 3 - 4x/week
Alliance Imaging was
the incumbent Mobile
MRI provider
Met with several local
providers of this service
Leveraged vendors
against each other
Renegotiated new
agreement with Alliance
Imaging
One year
Cost Savings:
$258,700
SOLUTION
Consulted with Medical
Staff regarding pro’s &
con’s of this approach
Reviewed financials and
reimbursement potentials
Leveraged competitor’s
pricing & current
volumes with incumbent
Mobile MRI provider
VAT voted to choose
Mobile MRI service with
the lowest
unit costs
VAT Opportunity Reviewed: Owens & Minor Mark-up
BACKGROUND
Owens & Minor is
incumbent prime
distributor for Med-Surg
products
Leveraged incumbent
book of business against
Cardinal, Burrow’s &
other suppliers
In addition to Novation
Distributors (ADA), also
considered non-contract
ones
Savings Targeted:
$15,000
SOLUTION
Cost-plus mark-up
was verbally agreed
to at 6.5%
a long, long time ago
Negotiated the markup from 6.5% down to
cost + 5%
Negotiated to receive
the full WISDOM
Program, and its
Reports, included at
no cost for 1 year
Phase I - VAT Successes
Alcon Contract = $9,280
Stryker Pain Pump = $2,892
Forcep & Instrument Repairs
= $4,192
Switched from Reglan to
generic drugs = $1,100
Renegotiated Reference Lab
Contract = $33,000
Blood Bank transfer process
change = $11,100
CME giveback days = $2,700
Policy Change - CRNA
monitoring of Epidurals =
$50,000
Cancelled subscriptions AJN
& Respiratory = $145
Switched GPO Food
Service Contract
= $4,367
Employee Pension Plan =
$206,000
New contract for Smith &
Nephew Burrs, Bits, Blades =
$3,500
Examine the frequency of
Bed Changes = $7,306
Better Scheduling of RSV
Vaccinations = $16,413
Orthopedic Prostheses
Standardization = $30,000
Pacemaker Standardization =
$15,000
Phase I - VAT Successes
Electronic Delivery System =
$7,784
Negotiated New Electrode
Agreement = $1,300
Physician Benefits = $5,100
Physician Vacation = $9,500
Wound Care products &
Urologicals = $1,600
Print superbills
in-house vs.
outside = $500
Reduced pricing on Kodak
MRI film = $1,518
Elimination of O.R. Inventory
= $3,663
ACMI: Scope Repair contract
= $2,400
Increased use of
O & M Medi-Choice
(private label) products
= $6,249
Development of BNP test for
CHF (in-house vs.
outsourcing) = $14,000
New contract for General
Lab Supplies = $24,000
Changes to Pharmacy
Formulary (Activase to
Retivase) = $11,000
Learning Harbor Education
(in-house vs. outsourcing)
= $12,000
Office Supply
savings
= $2,000
How Do We Get The Docs
To Play Along?
Meet them on their turf & appeal to their
business sense by showing them all current
financial & quality data
They now understand the importance
that Value Analysis has
We continue to target each
opportunity; “their” products
may be under scrutiny
We make sure they do not
negotiate any contracts outside
of Value Analysis Team process
$1.0 Million Savings Achieved!
On 7/14/05, Nason
Hospital exceeded
$1.0 million in cost
savings by switching
from branded
Rocephin to a
generic product
alternative
(conservative
savings targeted =
$23,385)
Savings Implemented To Date
Phase I Target: 5/03 = $250,000 savings
Savings Identified, Quantified & Implemented to
7/26/05 = $1,008,978
Licensed Beds = 42
Average occupied
beds = 27
$ Saved / Average Occupied
Bed as of that
date = $37,370
Phase II Target: 5/06 =
$1.5 Million Savings
Relative Cost Savings
Actual Cost Savings achieved to date at Nason =
$37,370 / average occupied bed
Millions
$15.88
$16
$14
How much would your Hospital
need to save,
per adjusted occupied bed,
to achieve
similar levels of success?
$13.08
$12
$10
$7.47
$8
$6
$3.74
$4
$2
$1.01
$0
Targeted Cost Savings
27 bed
100 bed
200 bed
350 bed
425 bed
Phases of Value Analysis
PHASE I
Lowest hanging fruit
Product
standardization
Vendor
consolidation
Inventory reduction
Consignment
implementation
GPO portfolio
maximization
Reimbursement
optimization
PHASE II
Contract renegotiation
Extensive GPO
assistance &
intervention
Changes to practice
patterns
Drastic culture changes
Product usage
Ultra-sensitive products
Formulary effectiveness
Most time-consuming &
difficult
Phase
Losing The Momentum
Why Most Value Analysis Teams
Never Get To Phase II?
Waning Executive or Administrative Support
Not enough Cost Savings soon enough
Little direction; sense of purpose
Initial efforts failed
Perceived lack of interest
No financial incentive
Do not know how to
get there from here
Changing membership
Too many priorities pulling staff in other directions
No GPO / Distributor support
for change
VAT burnout
NASON Hospital VAT Milestones
PHASE I
PHASE II
5/03 = $0.00
7/14/05 = $1,000,000
12/03 = $425,000
7/26/05 = $1,008,978
(2005 AHRMM
Presentation)
8/04 = $836,357
(2004 AHRMM
Presentation)
3/05 = $963,000
12/05 = $1,250,000
(estimated)
5/06 = $1,450,000
(estimated)
Phase II VAT Opportunities We’re Pursuing
Novation’s Orthopedic &
Interventional Radiology Assessments
All Health to target other cost-saving
opportunities
Additional staff reductions using the
Management Control System
Reprocessing of S.U.D.’s / Recycling
Demand-matching for
Orthopedic prostheses
Linen loss & inventory shrinkage
Product usage
Supply Formulary
Strict, Closed-Door
Drug Formulary
Phase II VAT Opportunities We’re Pursuing
Service Contracts: Capital Equipment &
Maintenance
Applying Supply Chain leverage &
Purchasing synergies via Pennsylvania
Mountain Hospital Association (PMHA) - A
local consortium of like-minded hospitals
Benchmarking Hospital & Materials
Management operational statistics
New & Emerging Technologies
Placing “Unprofitable” service lines
under the microscope
Further stock reductions M/S products & Pharmaceuticals
VAT Tools: What Will Help
Us Get There?
Meeting frequency changed to Monthly –
More time to identify new opportunities
Accounts Payable annual spend list, sorted
in descending order
Discussions with All-Health/Novation,
Owens & Minor, McKesson
Leverage from Pennsylvania Mountain
Hospital Association
Ongoing Education & Communication
New MMIS & ORMIS
VAT Tools: A/P Annual Spend List
- Now What Do We Do With It?
Contact the Accounts Payable Supervisor or
Controller; obtain 12-month list of who was paid in
an MS-Excel format
This list should include the Vendor #, Vendor Name
and 12-month spend
Sort Excel spreadsheet in descending $ amount;
eliminate vendors spent < $25.00
Look for vendors with the greatest spend
Sort on Vendor name; add duplicative vendors
together to obtain one total
Add Vendor category for each entry in column to the
right (i.e., Bank, Legal Service, Pharmacy
wholesaler, Lab, etc.)
Sort spreadsheet so vendor
types are together & totaled
VAT Tools: Accounts Payable
Annual Spend List
Cut & paste the Vendor categories so they’re all
together on one page each
Hand out Vendor category lists at your next Value
Analysis meeting with the questions:
1.
2.
3.
4.
5.
6.
Do we know who these vendors are?
Is the amount we spend with each of these vendors
a surprise or is it expected?
Can we standardize these vendor’s products with
another manufacturer’s products?
If a service, do we need the service these vendors
provide? Can we perform these services ourselves?
Do we have current contracts for
purchases from these vendors?
It there any way we can reduce our
annual spend with these vendors?
Lessons Learned
Without full Administrative support, you will
have limited success
The better due diligence you perform on each
cost saving opportunity, the easier they’ll be
accepted and implemented
There’s no such thing as a “Sacred Cow”
Question everything; nothing stays on table
The reimbursement picture should be
examined for each opportunity; if not, you’ve
only got half the picture
Outside eyes helped us keep the
VAT’s on track & target, while
challenging the status quo
Lessons Learned
Keep your Board regularly informed via
Agenda item
The #2 item in your hospital’s budget may not
be as well-controlled as we’d like to think
If we’ve tried it before, let’s look into the
opportunity again - due to a changing
environment
Materials Management needs support to do its
job properly
You cannot communicate enough
– at ALL levels
We did it - you can do it, too.