September 2, 2009
"Continual improvement is an unending journey," say management gurus Lloyd Dobyns and Clare Crawford-Mason. Hospitals seeking to make long-term reductions in costs should take these words to heart.
That's the conclusion of Your Strategy for Continuous Supply Savings, a new educational report from HFMA. Pressure is mounting on hospitals to not only reduce direct costs, but also increase efficiency, improve margins, and support-revenue driving functions, year after year.
The report, which was sponsored by MedAssets, outlines three keys to continuous improvement processes in your supply chain: track and benchmark what your spend should be, analyze supply use by service line, and link supply chain to revenue cycle.
Tracking and Benchmarking Supply Spend
Data-driven decision making is the foundation of any continuous improvement initiative, says Vicki Smith-Daniels, a professor of supply chain management at Arizona State University and author of "Supply Chain Strategies in Troubling Times," a feature article in the most recent issue of HFMA's Healthcare Cost Containment newsletter. Tracking and benchmarking key metrics help you identify gaps in performance and opportunities for improvement.
At the macro level, supply chain tracking includes such ratios as supply cost per adjusted patient day. Supplies as a percentage of operating expense and as a percentage of net revenue are also important. Diving deeper, case-mix adjusted factors should be included, as well as the performance of specific product categories, such as medical-surgical supplies. Finally, a third tier of data focuses on adjusted supply cost ratios at the service line level.
Data gleaned from tracking gain real value when benchmarking is employed. John Mateka, materials management director for South Carolina's Greenville Hospital System, finds it most useful to first engage in benchmarking against past internal performance. And it's important to continue tracking and benchmarking to monitor actual outcomes, even after an initial objective such as a lower supply price is achieved.
Analyzing Supply Use by Service Line
Overall supply spend measurements offer a useful view of supply chain performance. But it's necessary to dive directly into where supplies are used—the service line—to uncover any problems and know where to implement solutions.
There are two keys to ensuring continuous supply spend improvement at the service line level. First is accountability. "Although a strong central supply chain needs to provide overall continuity, you can't drive performance improvement if you don't make someone accountable at the service line level," says Smith-Daniels.
The second key is to go to physicians for help with devising and implementing solutions. As users of supplies, physicians are the real leaders in the supply chain. Dennis Maher, vice president of supply chain for Sutter Health in Northern California, often works with the vice president of medical affairs to gain physician buy-in. But most persuasive for physicians, he notes, is benchmarking data broken down by service line.
This year's HFMA Revenue Cycle Strategies Conference held November 5-7, Chicago, IL, includes site visits and case studies from proven high-performing organizations, as well as practical guidance for revenue cycle efficiencies and preparation for likely payment reform initiatives. Find out more and register today.
Linking Supply Chain to Revenue Cycle
When pricing supplies, a key consideration should be level of reimbursement. But it's important to remember that revenues are not only a function of optimizing reimbursement, but also of how assets--including supplies--are used.
A surgeon may be able to take on an extra case per day and generate additional revenue only if higher-priced supplies are used. If higher-priced materials can generate more profit, then it makes sense to purchase them.
Many hospitals also need to better link their revenue cycle and supply chain departments, which often use different tools, have different staff members, and report to different executives. Florida's Orlando Health adopted a tool that allows revenue integrity and materials management information systems to share data, enabling both revenue integrity and supply chain staff to compare charge and cost data. The result is quicker, more informed decision making and better opportunities to identify potential process gaps.
The link between revenue cycle and supply chain departments should form a core relationship within your organization. Learn more about core relationships and functions that impact the revenue cycle at the PFS Bootcamp, an HFMA-exclusive session being offered at HFMA's 2009 Fall Seminar in Chicago, Dec. 7-9.