Clinical Supply Chain
Management
Optimization
WSHMMA Conference April 24, 2008 Bremerton, Washington Presented by Jamie C. KowalskiThe Perfect Storm
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“Even small healthcare institutions are complex, barely manageable places. . . Large healthcare institutions may be the most complex organizations in human history.”
Futurescan: A Summary of Trends
• Continuing Problems With Access to Care
• Payments Increasingly Linked to Performance • Transparency of Costs, Quality and Service
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Futurescan: A Summary of Trends
• Physicians as Collaborators and Competitors • Nurses as Integral to Safe, Effective and
Efficient Care; in short supply • Consumers
Healthcare Expenditures Growing Rapidly
Source: Center for Medicare and Medicaid Services; industry reporting; Pipal Research analysis
By 2010 … Age 60+ population 23.8% Healthcare Expense as % of GDP 18% Overall healthcare expenditures $2.9 Trillion 1.4 1.6 1.9 2.2 2.5 2.9 2000 2002 2004 2006 2008 2010 CAGR = 8.4% CAGR = 7.4%
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Expense Growth Rates
2002–2004
Expense Growth Rates
2002–2004
“Supplies”*—The Fastest Growing
Expense Category
Source: The Advisory Board Company, 2005 *Supplies defined as total expense for all consumable products
Total Operating Cost Salary Expense Benefits Expense Consumable Supply Expense Supply expense increasing 64% faster
than all other categories
Supply expense increasing
64% faster
The Required Focus—The Supply
Chain, from Origin to Point-of-Use
Deliver to Point of
Use Evaluate,
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The Other Supply Chains
Clinical Supply Chain
The Problem … (or Challenge)
• Who is Managing? How Well? • High dollar item spend and use
• A typical 400+ bed hospital can spend in
excess of $50M annually on clinical preference products
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Clinical Supply Chain Represents Untapped Opportunity; Biggest Piece of Pie
Medical Devices/Implant Market Trends; Fastest Growing Expense Category
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Cardiovascular and Orthopedic
Supplies Driving the Spend Growth
2006 2011
Category $B Spend% of $B Spend% of GrowthAnnual
Cardiovascular Cardiovascular 22.8 28% 42.1 30% 17% Orthopedic Orthopedic 15.2 19% 31.0 22% 13% Disposable Surgical Disposable Surgical 3.8 5% 12.1 9% 24%
Wound Care & Endoscopy
Wound Care & Endoscopy 4.3 5% 5.7 4% 6%
Total Spend 80.0 100% 139.8 100% 12%
Supply Chain Expenses Reaching,
Exceeding 50% of Total Hospital Expenses
25%
25%
Supplies
* Figures based on HFMA estimates. Labor cost includes salaries, wages and benefits based on average of leading hospitals in the U.S. and Others is inclusive of profits to the hospitals. Source: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis.
Total 100% 100% Clinical & General Labor, Other 45% 45% Others 15% 15% Logistics & Distribution 15% 15%
Total Cost Incurred by Hospitals
Total Cost Incurred by Hospitals
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Clinical Supply Chain Performance
Gaps; Metrics, Visibility Not Available
1st Time
Order Accuracy
Lines/
Order Turns Expiration
1.5 2.1x 5% EDI% 25% Charge Capture 75% 78.8% 98% 10 10 0.02% 95% 100%
Source: Sample of O&M customers
Commodity Supply Chain Performance
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Clinical Supply Chain Spend Analysis Drill Down -Supply Intensive Department Focus
Aggregate Annual Spend
• Surgery $11,276,531
• Pharmacy $ 6,910,140
• Cardiac Cath Lab $ 3,748,911
• Laboratory $ 2,205,541
• Radiology $ 661,727
Order
Mgmt Fulfillment Process Delivery Service
Customer Customer ? ? Inventory Mgmt Supplier
Supplier CommonCommon
Carrier
Carrier
Key issues:
Key issues:
•
• Abdication of responsibilityAbdication of responsibility
•
• No strategy/vision for improvementNo strategy/vision for improvement
•
• Lack of visibilityLack of visibility
•
• Intensive resource needIntensive resource need
19 Fi na nce Volume Throughput Outcomes No CDM # No CDM # 2 2 Nursing overtime; Cost, Dissatisfaction Retention Nursing overtime; Cost, Dissatisfaction Retention 6 6 Block time exceeded; MD Dissatisfaction Block time exceeded; MD Dissatisfaction 5 5 Lost Revenue Lost Revenue 9 9 Invoice discrepancy Invoice discrepancy 10 10
Not on case cart; Secondary chain
req’d
Not on case cart; Secondary chain req’d 3 3 Case delayed; Cancelled(?) Case delayed; Cancelled(?) 4 4
Supply Chain Surgery Revenue Cycle
Standardization rebate loss; Staff unfamiliarity; Quality of care Standardization rebate loss; Staff unfamiliarity; Quality of care 8 8 Consignment inventory – new Hip Prosthesis; Reorder failure Consignment inventory – new Hip Prosthesis; Reorder failure 1
1 Item not billed,
Billed late, incorrectly
Item not billed, Billed late, incorrectly
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Projected Annual Expense: $518,000
Source: Health Care Advisory Board Orthopedics Practicum: Best Practices – Demand-Matching Guidelines
Projected Annual Expense: $518,000
Source: Health Care Advisory Board Orthopedics Practicum: Best Practices – Demand-Matching Guidelines
Most Technology Tools Not
Integrated, Gaps, Lack Analytics
Inventory
MMIS/ ERP
Clinical Charge
Isolated systems lack integration Overlapping functionality
Classification inconsistencies Clinical staff left to manage
expensive, liable supplies
No vendor visibility
Little, if any, spend analytics or
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What Operators Need
• Clinicians
• Supply Chain
Focus on Opportunities
with Biggest Return
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Clinical Supply Chain
Optimization Objectives
• Reduce Expense: Right Product, Price, Usage • Increase Revenues: Know Cost; Right Cost;
Right Charge; Capture Charge
• Enhance Clinical Staff Satisfaction: Time on Nursing; Supply Chain Works
Begin With Strategic Plan
• Current State: Organization, Processes • Opportunities
• Performance
• Customer Service • Technology
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Optimized Clinical Supply Chain
Management Model
ORGANIZATIONAL ENABLERS / ADMINISTRATIVE SPONSORSHIP (Change Management/Communication/Performance Management/Commitment)
SUPPLY EXPENSE MANAGEMENT VALUE ANALYSIS
(Optimizing Value in Selection, Specification
& Utilization, Including Clinically Sensitive Products) SOURCING CONTRACTING Vendor Relationship Management INVENTORY MANAGEMENT and REPLENISHMENT Forecasting Demand; Requisitioning & Replenishment; Managing Supply Availability and Inventory PURCHASING & PAYMENT CYCLE Order Placement, Three-way Match Accuracy, Timely Payment TRANSPORTATION & LOGISTICS External Logistics, Receiving, Internal Distribution (5) KEY ELEMENTS OF A WELL PERFORMING SUPPLY CHAIN
Optimum Performance = Lower Non-salary Cost, Dependable Service Delivery and Improved Productivity
TECHNOLOGY DRIVERS
Clinical Departments Need Technology Driven Solution – Not Software
Resources (Normalize Data, and
Analyze Spend Data) Inventory
Management (Expiration, Obsolesce and
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Clinical Supply Chain Management;
Comprehensive Technology Tools
REVENUE MGMT INVENTORY MGMT CLINICAL UTILIZATION CONTRACTMGMT SPEND ANALYTICS
• Integrated, proactive service
that enables process standardization
– Technology platform – Resources (on/off site)
• Deliverables
– Clinical utilization data – Contract management – Spend analytics
Technology Platform - Optimum Integration, Interfaces to Other Systems
Clinical System
ADT
Purchasing
Billing
29 Patient-Payor Billing ADT BILLING INTERFACE
• Reduce/eliminate expired product • Manage/monitor par levels
• Reduce overstocks
• Manage freight & contracts
• Utilization data • Clinical use data
Electronic charge capture increases billing accuracy & accountability
Optimization Starts at the Beginning;
Point of Use; Charge
¾ Clinical staff simply waves the product at the Point of Service (POS) reader when used
¾ Product info is simultaneously entered into Technology Platform and clinical
documentation system for proper tracking and billing
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Value Analysis Structure
Project Sponsor Specialty Services VAT General VAT Steering Committee Internal or External Consulting Team Technology Enablement
Hospital & Physician Participation
Physician Leadership Pharmacy CMO CFO COO CNO Focus Teams Non Clinical Clinical Surgical Services, Cardiac Cath Lab,
Women/Child Services Dietary Agency…
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Physician Engagement Required
• Executive Process • Education
• Communication
• Data & Information • Persuasion
• Negotiation
• Motivation (Aligned Incentives)
Utilization Management
• Activity Based Costs; Procedure
• Cost Comparison between Physicians • Connection with outcomes: LOS,
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Contract Management
• Contract Coverage • Contract Compliance
Sourcing and Contracting
• Value Analysis Driven • GPO or Self Contract
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Optimization—Key Performance
Indicators/Metrics
• Monthly KPIs report on
the following by department
– Owned & consigned
inventory
– Inventory turns
– Cost per procedure
– Purchase vs. Usage vs. Case Load – Charge capture – Savings $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 Oct '05 Nov Dec Jan ' 06 Feb Mar Apr Ma y Jun Jul Aug Sep Months 0 200 400 600 800 1,000 1,200 Oct '05 Nov Dec Jan
'06 Feb Mar Apr May Jun Jul Aug Sep
C
a
ses
Total Purchases Usage Procedures
Technology Enables Strategic Plan,
Performance Optimization
• Capture and Display Metrics: Consistent, Accurate, Timely
• Recognize Trends
• Stratify in Variety of Ways
• Avoid “One Indicator” Syndrome • Don’t Measure it, Can’t Manage it
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Discussion, Adjourn
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Selection and Spend Management
• Value Analysis
• Usage Management
• Spend Visibility — How can this be stratified, analyzed?
• Reduce Product Pricing
• Increase budgetary accountability at user level