Dan DeLay
VHA Senior Vice President, Supply Chain Analytics
When Toyota or Ford tells its engineers that consumers want a car that costs $19,999, not $20,999, their engineers can look at materials costs, labor costs and process costs and typically find ways to squeeze costs out of the car. In health care, when administrators tell managers that a payor wants all hip and knee [replacements] done for $4,000, it's a challenge for staff to find ways to produce the desired result. For one thing, the processes used in health care are much more fluid and obtuse than those used in assembly lines. The few tangible parts of the process are the supplies used by caregivers. That being true, it's more easily said than done to reduce product costs. Products also carry delivery, storage, usage and disposal costs, and outsiders, like physicians, influence purchasing patterns. This differs from other manufacturing environments. Ford doesn't allow drivers to step into the process and suggest more expensive seats while the inside team is redesigning the car.
Nevertheless, health care needs to catch up with other industries and apply the science of analytics to help reduce costs. We can't afford the type of health care system we have in America, where everyone wants it, everyone buys it differently, and no one is accountable for fixing it.
We need to acknowledge and address a few things:
First, the cost management aspect of health care purchasing lags behind those used in other industries.
Second, hospitals need to have insight into what they are spending in order to effectively control supply costs.
Third, hospitals need access to detailed purchasing information, not just whether they are buying on contract. They need information - down to the purchase order and the item level - so they really know how they are spending their money.
It is difficult for hospitals to track expenses because items are paid for differently (i.e. purchase order, credit card, etc.) and because check requests are not always entered into the hospital’s IT system. We need to do more than simply acknowledge that hospital expenses are hard to track. I know that if I spend $4 per day on latte at Starbucks, these purchases will add up ($20 per week or more than $1,000 per year). I can stop drinking lattes, but health care never stops - but it can become more efficient at monitoring the money it spends.
We'll never fix health care until we do.
