This page contains a Flash digital edition of a book.
Financial Information Systems Finding buried treasure

Overcoming the barriers to better spend management in healthcare. By Krista Fuller


.S. healthcare systems today fi nd themselves in an unenviable position. According to the Healthcare Financial Management Association (HFMA), the cost of supplies is growing at 23

percent annually, while reimbursements and revenues are fl at. Health reform makes the issue even more drastic. Medicare and disproportionate share hospital payments are expected to be reduced by $121.5 billion and $36.1 billion, respectively, on an annual basis. Any other market-driven industry would be out of business facing this imbalance, but healthcare has no such luxury. That means that today it is vital to control supply costs by maintaining accurate purchasing data and signifi cantly improving contract compli- ance. Unfortunately, the norm for healthcare organizations is less than 50 percent compliance with negotiated contracts for purchased items.

The constant challenge of organizational spend visibility

Helping healthcare organizations spend money wisely requires fi rst establishing a comprehensive view of how and where money is currently spent. Improving spending performance and supply-chain effi ciency requires an analy- sis of past spending based on accurate data from across the health system – even the most challenging areas, such as the OR. Recently, technology solutions have emerged that deliver this kind of visibility accurately and consistently and enable organizations to dig deeper into the procurement process and develop a strategy around spending. Detailed, meaningful data allows hospital decision makers to develop a process that ensures savings.

Once healthcare organizations have analyzed and clas-

sifi ed their spend data, they can develop a strategy for improving purchasing effi ciency, improving contract pricing and terms and, ultimately, compliance. However, turning savings potential into savings reality is more complex in healthcare because of the competing interests and hierar- chies inherent to most organizations. Patients, physicians, administrators and insurers all have distinct interests at stake that exacerbate the challenge of cost containment.

Breaking the shackles of physician preference items Keeping the entire purchasing organization in compliance with existing negotiated contracts on every purchase is one of the most diffi cult challenges. When you add clinical

10 May 2011

Once healthcare organizations have analyzed and classifi ed their spend data, they can develop a strategy for improving purchasing effi ciency, improving contract pricing and terms and, ultimately, compliance.

personnel into the mix, things can get downright messy. The most costly goods – such items as implants and medical devices – are often purchased by physicians directly from vendors, one at a time, rather than through a strategic sourc- ing initiative. These are called physician preference items (PPIs) and virtually all of this purchasing exists outside more organized purchasing channels. In fact, up to 61 percent1 of a hospital’s total supply expenditures is for items such as hip implants and stents, which physicians like to select themselves. These PPIs are typically the most expensive supplies in a hospital’s budget.

As businesses, hospitals recognize that when they can choose among competing products, they may have op- portunities to negotiate better prices. However, hospitals’ efforts to help negotiate the purchase of these expensive items may not be welcomed by either the physician or the vendor. The physician has clinical concerns regarding patient outcomes that are not infl uenced by the cost of the device or implant and, in many instances, individual vendors provide services necessary to the physician in terms of inventory management and training. Yet, the goals of reducing costs and providing quality care do not need to be mutually exclusive.

Gaining control of expenditures related to physi- cian preference items is not a straightforward matter of


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36