Getting a handle on supply costs is critical to the effective financial management of every healthcare provider, especially in tight economic times. A series of articles published over the past few months in HFMA’s Healthcare Cost Containment newsletter profiles how three providers have achieved substantial savings through careful supply chain management.
Healthcare Cost Containment, published six times each year, shows how to implement strategic cost management that will reduce labor and supply expenses, enhance operational efficiency, satisfy your patients, and improve your competitive position. The three articles summarized below are being offered free of charge to HFMA Wants You to Know readers on the HFMA web site.
Going Lean: Denver Health System
Denver Health is Colorado’s primary “safety net” institution and has provided more than $2.1 billion in care for the state’s uninsured over the past 10 years. Five years ago, the health system suffered more than $6 million in operating losses and was forced to implement the first employee layoffs in its history.
Denver Health’s CEO and medical director, Patricia Gabow, MD, realized that a radical and sustainable transformation was needed. The health system looked beyond the boundaries of health care to examine best practices from quality innovators in other industries. It ultimately adopted the principles of “Lean manufacturing” that had been perfected by automaker Toyota, and formed an executive steering committee that included both healthcare leaders and leaders from other corporations known for quality and customer servicing.
Fifty leaders within Denver Health were trained in Lean production techniques that could be applied to health care and each month reported the impact of improvements in their areas to the CEO. Each month, the health system also conducted five rapid improvement events, during which a team focused on reducing 50 percent of the waste in a particular process over a weeklong period.
The initiative has paid off. Denver Health has realized cost savings and revenue enhancements in excess of $11 million over the past three years. Today, 120 rapid improvement events are taking place throughout the system, and more than 130 health system leaders have been trained in Lean production principles.
Physician Engagement: The University of Wisconsin Hospital and Clinics
The University of Wisconsin (UW) Hospital and Clinics includes a 471-bed facility, more than 80 outpatient clinics, six intensive care units, seven satellite locations, and an active medical staff of over 800. Supply chain management is necessarily a top-to-bottom organizational priority.
As at other health systems, physicians are the linchpin of effective supply chain cost and control. The UW Hospital and Clinics physicians have led the way in championing successful cost-savings strategies, particularly product standardization efforts in surgical services. Moreover, physicians have become effective, hands-on leaders in negotiating advantageous vendor contracts.
The UW health network has six service lines whose directors are responsible for setting and showing progress on “stretch” cost saving goals. Service lines that achieve their targets are able to earn resources such as additional staff personnel or new technologies and equipment. “Linking the cost goals to resource allocation within the service lines has helped us get physicians’ attention and cooperation,” says Tom Thielke, vice president of professional and support services at UW Hospital and Clinics.
The cost savings from physician input in the supply chain has amounted to millions of dollars for UW Hospital and Clinics. In orthopedic implants alone, the health system had reduced its number of vendors, standardized products, and achieved savings of more than $3.5 million in the past few years.
Leveraging physician support is also a key insight of Opportunities for Supply Chain Improvement, an educational report based on HFMA’s 2008 Supply Chain Survey.
A Team Approach: University of Kentucky
University of Kentucky (UK) HealthCare recently launched a major expansion project for its UK Chandler Hospital. Efficiency, productivity, and cost control improvements were essential as UK HealthCare embarked upon this period of growth.
The supply chain structure at UK HealthCare was fragmented and uncoordinated. Sergio Melgar, senior vice president for health affairs and CFO, led a restructuring of UK HealthCare’s governance structure, including a new value analysis program. The program features an executive-level steering committee and five value analysis teams, each of which is given authority to approve or deny purchase requests up to $20,000 (higher amounts are approved by the steering committee).
Each value analysis team includes a physician representative who reports directly to the chief medical officer. Other team members bring varied perspectives and areas of expertise to discussions, including the impact of decisions on the delivery of care. The team members’ work on common goals helps break down organizational barriers within the health system.
Communication has also been a key to the UK HealthCare program’s success. Staff throughout the organization are aware that when they meet or exceed budget targets, the health system is better able to build new facilities, increase salaries, purchase equipment, and so on. Since 2004, UK HealthCare has added more than $200 million to its payroll and its faculty has grown between 5 to 10 percent annually.
For other examples of a team approach to supply cost containment, see “A Team Approach to Cost Containment” in the April 2008 issue of hfm magazine (subscription required).
Again, all three case studies summarized above are available free of charge for HFMA Wants You to Know readers.
Visit HFMA's web site www.hfma.org for more answers to pressing healthcare business questions.
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If you have questions or comments about HFMA Wants You to Know, contact editor Robert Fromberg at rfromberg@hfma.org