Transcript Supply Chain - HFMA Region 11 Symposium

Supply Chain
Cost Savings Strategies
Jean Sargent, CMRP, FAHRMM
Director, Supply Chain
University Kentucky Healthcare
Vicki Smith-Daniels, Ph.D.
Professor of Supply Chain Management
Arizona State University
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Agenda
Perspectives on Supply Chain Challenges
The UK Healthcare Story
Next Generating Benchmarking and Performance
Improvement
Engaging Stakeholders in Supply Chain
Improvements
Closing Comments
2
Perspectives on Supply Chain
Challenges
Industry Viewpoint
3
Supply Chain Perspectives
Revenue and Expense vs. Utilization
Charge capture – linking supply chain to revenue
Physician Preference Items – most costly
Processes to track new spend
Value Analysis/new technology processes
Capital expenses
Aligning with vendors for long term relationships
Inventory: turns, carrying costs, consignment,
discounts, freight
E commerce
Benchmarking
4
Consumable Products Expense
Increasing 64% faster
than …
Salary Expense
Benefits Expense
Total Operating Costs
Source: The Advisory Board Company, 2005 – Expense Growth Rates 2002-04
5
Total Supply Chain Expense as a Percentage of Total
Hospital Expense
Supply Chain
Management
Expense
Other
Hospital Operating
Expense
35% to
45%
55% to
70%
6
To a tipping point size slice: >50% of
the budget
Total Cost Incurred by Hospitals
15%
15%
25%
Clinical &
General
Labor,
Other
45%
Others
Logistics &
100%
Distribution
Total
Supplies
Supply Chain
Management
* 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.
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Example: Average, private sector, not-for-profit
hospital with margins <1%
Objective: Improve bottom line by $500K
Options:
Reduce supply chain expense by $500K
Increase revenue by $50 million
Source: HFM Magazine, 2008
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’08: Improving Profitability By
Supply Chain
APPROACHES CONSIDERED or TAKEN
to IMPROVE PROFITABILITY
• Enhancing collaboration with physicians in supply
standardization and expense reduction
1
1
• Identifying appropriate metrics to benchmark the
organization’s supply chain performance
2
5
• Decreasing direct/off-contract ordering
3
6
• Initiating a value analysis process
7
2
• Achieving minimum total expense for specialty/physician
preference supplies (e.g., stents)
6
3
AHRMM Survey 2008
9
Perspectives on Supply Chain
Challenges
Academic Perspectives
10
The Conditions are Right for
a Perfect Storm
11
Forces and Supply Chain Complexity
Complexity
Relentless Pressure to
Reduce Cost
Product Innovation to Drive
Revenue Growth
Pursuit of New Markets
•Loss of control
•Little visibility
•Reduced time to market
•Quality risks
•IP risks
•Shortened product life
cycles
•SKU proliferation
•System integration
Issues on the Minds of Manufacturing Supply Chain Executives
Risks and Pains
• Supply Risks
High
• Technology Risks
• Demand Risks
Severity
• Market Risks
• Disruption Risks
Low
Frequency of Occurrence
Low
High
Responses to Pain and Complexity
Supply Chain
Strategy Integration
Supply Chain
Redesign
Responses
Performance
Metric
Alignment
Integrated Supply Chain
Plan
Deliver
Return
Suppliers’
Supplier
Source
Make
Return
Deliver
Return
Supplier
Internal or External
Source
Make
Return
Deliver
Return
Your Company
Source
Make
Return
Deliver
Source
Return
Return
Customer
Internal or External
Synchronizing material, information and
financial flows both within and across
organizational boundaries
Customer’s
Customer
Enterprise-Wide Supply Chain Management
Revenue
Management
Planning
Evaluatin
g
Selecting
Purchasing/
Contracting
Receiving/
Accounts
Payable
Using
Disposing
SUPPLY CHAIN
MANAGEMENT
Managing
Inventory
Distributing
Processing
Storing
Warehousing
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The UK Healthcare Story
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Engaged at all levels (Inpatient & outpatient settings)
CMO & Associate CMOs (5)
Specialized areas – quality, medical informatics, inpatient
services, throughput, peri-op services, medical affairs and
ambulatory services
Scope includes significant operational responsibilities
Medical Directors (63)
Job description & clear expectations
Linked with administrator, outcomes and/or nurse manager (i.e.
dyad/triad)
Creating management triad is an area of active development
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Efficient systems produce better outcomes at lower costs
Highest quality of care (best practices) is also the most cost
effective – do it right the first time
Eliminate unnecessary variation and waste (read supply chain)
Standardize the processes &Implement “best practices”
Wide adoption of the Lean philosophy and tools
…a system in the relentless pursuit to eliminate waste and
non value added activities.
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Philosophy focusing on reduction of the 7 wastes (all highly
related to the supply chain)
Over-production
Waiting time
Transportation
Processing
Inventory
Motion
Scrap
By eliminating waste (muda), quality is improved,
production time is reduced and cost is reduced
If you adopt the Lean approach to improve quality then you
very much care about the supply chain
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Reduce waste and reduce the burden on people and machines!
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Structured
Use of evidence reviewed by peers
Permits trials that requires an evaluation
Transparent
Open processes
Formula driven model to determine capital budgets
Processes are consistent with…
New physician responsibilities for operations
Lean/process improvement thinking
Long term strategy for UK Healthcare
Less discontent
A work in progress (not every one has bought on)
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1.
2.
3.
4.
1.
2.
3.
What works?
Forces more thought about the impact of new supplies
(inventory, higher cost, increased practice variation).
Builds financial discipline into the purchasing process.
Requires multi-disciplinary interchange.
Makes purchasing decisions more transparent (less
backroom dealing).
What opportunities?
Get the small dollar low impact items out of VAT.
Get clinical leaders even more engaged in making it work.
Link more closely the capital equipment process when
new equipment requires supplies.
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VAT process
Members include: physicians, clinical staff, supply chain, finance
Submit electronic REW which contains: current item, new item
information, CPT codes, usage, requestor
Capital process
Submit electronic request
Quarterly review by dollar amount up to $200,000 and over
$200,000
Decisions are based on analysis to include:
Contracted item
Reimbursement
FDA approved
Agreement by all physicians/users to standardize to new
product
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Review of the physician preferences vs.
currently in use
What manufacturer specific products are being
requested
Are these on the formulary/on contract
Is this a new process that is part of the strategic
plan
Is there capital being requested with new
disposables?
Are the costs calculated against the VAT
allowances
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Better care
Less costly
Team driven
Less variability in care
27
UK Healthcare Supply Chain
UK Healthcare recognized as a Top Performer
by UHC (2008)
Managing the process
Department Chairs are involved
Limited $ = limited choices
Physician involvement
Better understanding
Less antagonism
Use of Benchmarking/Analytical Tools
SC Metrix
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Benchmarking at UK Healthcare
Utilization of 3 different programs
Comparing other data to SCMetrix™
Need for Industry standards and definitions
Comparing data to other facilities in the area
Filling the gaps
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Next Generation Benchmarking
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Driving Performance Improvement
Operational
Organizational
SC Structure
Supply Expense
Practices &
Capabilities
Adoption of the Industry Standard
Standard Supply Expense Definition
The net cost of all tangible items that are expensed including freight,
standard distribution cost, and sales and use tax minus rebates. This
would exclude labor, labor related expenses, and services as well as some
tangible items that are frequently provided as part of service costs.
Practices and Capabilities Assessments
Perceptual Assessments
• Supply Chain Integration
• Supply Chain Capabilities
• Product/Supply Governance
• Physician Supply Incentives
• Process Improvement
• Performance Measurement
• Contract Management
• Supply/Supplier Management
• SCM Information Quality
• SCM IS Integration
• Process Automation
• Electronic Ordering
• Trading Partner Relationship
• Supply Chain Informants
• Clinical Informants
Case Study
Pursuit of the Single Best Metric
Sun Devil Hospital
175 Bed Hospital in Southwest U.S.
Facilities are 20 Years Old
40% Revenue from Outpatient Services and Surgery
CMI
Other Top Revenue-Generating Service Lines
Cardiovascular
General Medicine
Orthopedics
Respiratory
Frequently Used Metric:
Supply % OE
Assessment
• Often Used for Budgeting
• Can Be Used to Detect Changes
• Need Detailed Information on Peers
Common Reasons for Poor Performance
• Higher Physician Preference Items
• Higher Patient Acuity
• Lower Labor Costs
• Supply Chain Needs Improvement
Sometimes Used Metric: Supply % Rev
Assessment
• Often Used for Budgeting
• Can Be Used to Detect Changes
• Need Detailed Information on Peers
• Talks the C-Suite’s Language
Common Reasons for Poor Performance
• Poor Reimbursement Levels
• Higher Inpatient Services than
Outpatient Services
• Higher Physician Preference Items
• Supply Chain Needs Improvement
Frequently Used Metric: Supply per Adjusted Patient
Day
CAUTION
Reasonably good benchmark when peer
group has
a. similar bed size
b. similar outpatient to inpatient revenue
ratio
c. similar output of high supply intensity
services
Common Reasons for Poor Performance
• Higher Physician Preference Items
• Higher Patient Acuity
• Wrong Benchmarking Peer Group
• Supply Chain Needs Improvement
Sun Devil’s Issues
How to explain wide discrepancy in
performance to c-suite?
Select a single metric?
Hold on…. what about looking at dept/service
line metrics?
Low Labor Costs Impacting Performance
Recall…….
And,……
Very likely
Sun Devil has lower
labor costs than
the other
hospitals in the
peer benchmarking group
Supply in Line with Revenue
Recall…….
Impact of Physician Preferences?
Need to investigate Pharma utilization reports!!!
Impact of Patient Acuity
Consider another benchmarking peer group with
higher CMI??
Best Metric ?
Recommendations
Top Picks
Supply Expense per CMI Adjusted Patient Day
Supply Expense per CMI Adjusted Discharge
Serious Consideration
Pharma Supply % Total Supply Expense
Surgical Supply % Total Supply Expense
Supply Expense as a % of Revenue
Case Study
Rightsizing Your Supply Chain
Organization
Supply Chain FTEs
Need more SC FTEs!! What type of FTEs?
Where should they focus their attention?
Product Delivery FTEs
Consider More Product Delivery FTEs!
What about other areas?
Contract Opportunities
Hire Additional Contract Personnel to Focus
on Self-Managed Contracts?
Building SC Capabilities
Hire FTEs to formalize and centralize SC policies
Recommendations
Hire additional FTEs
Self-Managed Contracts
Working with physicians
Formalize SC policies
Additional Product Delivery (consider options from
distributor first)
Engaging Stakeholders in Supply Chain
Improvements
Supply chain is strategic aspect of providers’
business, success
Supply chain optimization imperative
SC Leader must facilitate future vision, strategic
plan, education, communication, metrics
SC Leader must ensure it is achieved
Executives recognize, understand, promote
supply chain opportunity, impact, role
Use of standards
Use of benchmarking tools
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Practices and Capabilities Assessments
Perceptual Assessments
• Supply Chain Integration
• Supply Chain Capabilities
• Product/Supply Governance
• Physician Supply Incentives
• Process Improvement
• Performance Measurement
• Contract Management
• Supply/Supplier Management
• SCM Information Quality
• SCM IS Integration
• Process Automation
• Electronic Ordering
• Trading Partner Relationship
• Supply Chain Informants
• Clinical Informants
Move to Action
Strategic
Integration
Change
Masters
The New Measurement Paradigm