How to Achieve Quick Wins in Your Hospital 2018/2019 Annual Budget

This article was written by Lisa Miller.

There are only a handful of weeks left in 2018 and many hospitals have asked us for advice on how they can find cost reduction opportunities from now until the end of the year.

You’ll want to follow our Annual Budget Preparation Guide in our latest report titled, “Hospital Cost Improvement Strategy” to improve your hospital operating margins in 2019, but if you’re looking for easy ways to achieve quick wins this year, try these four tips.

Review Merchant Card and Credit Card Procedure Rates

Review your merchant card agreements periodically to see if there is a chance of reducing fees. Since your hospital and affiliates accept credit cards, there might be a promotional discount or other factors that would warrant a reduction in charges. You will also want to look at your bank fees. There could be several opportunities to renegotiate those costs. Do this periodically for both credit card and bank fees to achieve more savings every month.

Find Opportunities in Your Accounts Payable Audit

Run a 12-month accounts payable (AP) report by vendor and by total spend to review your non-clinical and non-labor costs. We categorize these areas as: support services, facilities, finance, HIM, HR, IT, telehealth, telecommunications and administrative. Identify which ones you are overpaying and strategically renegotiate pricing and terms with those vendors.

Do not overlook charges that roll over month after month with no questions asked.

These sacred cows often represent the largest cost savings. Click To Tweet

Review Inventory in the Operating Room

Receive credits for excessive inventory in the operating room (OR) by conducting an inventory assessment to find which supplies can be returned for credit. When applicable, reuse, recycle or repurpose. There’s a myth in healthcare that suggests supplies in the OR must always be disposed of, but with today’s sterilization practices this is no longer an issue. Also, keep a pulse on the things that are owned versus consigned. ORs usually have a tremendous amount of inventory and these two categories are often mixed. Don’t lose track or it will lead to discrepancies in costs.

Evaluate Agreements to Expire in 4 to 6 Months

Evaluate agreements that are due to expire in 4 to 6 months to identify the quickest cost savings opportunities. Your current contracts might uncover pricing or contract terms that can be renegotiated within the next few months, offering cost reduction scenarios that would affect your budget this year and next year. Strategically, this will put your hospital in a more profitable position for 2019. Execute this strategy every 4 to 6 months going forward, and your organization could stand to see more savings in 2019 than it did in previous years.

Looking for more cost improvement tips? Ask for a free copy of our “Hospital Cost Improvement Strategy” report by calling our office at 1-888-484-3332 Ext 500 or email VIE Healthcare CEO and Founder Lisa T. Miller at lmiller@viehealthcare.com, a Healthcare Margin Improvement Expert, to discuss your cost reduction goals.

10 Strategies to optimize hospital purchased services cost savings

In the past few years, there has been considerably greater attention to and focus on cost savings initiatives for hospital purchased services versus traditional medical/surgical items given the somewhat higher savings yield for most hospitals. Nonetheless, there is still an abundance of opportunity and areas of spend within purchased services that has yet to be realized for cost improvement. In today’s article I am going to discuss 10 strategies to optimize your purchased services cost savings that you can start implementing right away.

Six Major Categories for Hospital Purchased Services

  1. Utilize a framework to put your services spend into purchased services categories such as:
    • Clinical
    • Facilities/Support
    • Finance, HR, HIM
    • Biomed/Service & Maintenance
    • IT/Telecom/Telehealth
    • Administrative
  2. You must be committed to a thorough historical analysis and purchased services contract performance review before you benchmark pricing. Purchased services spend has a higher invoice-to-contract discrepancy rate than other supply purchases. Performing a contract compliance audit on your purchased services spend will uncover pricing errors and credits due back to your hospital. A historical analysis will also show you utilization trends and opportunities to improve how you access outsourced services.
  3. You must be relentless in reviewing all of your purchased services spend – even “sacred cows” – as these areas of spend are typically not analyzed for cost savings opportunities and represent the largest potential to a hospital but a rationalization has been made as to why the spend shouldn’t be examined.
  4. Explore opportunities to in-source your purchased services as many cost improvement opportunities are missed by not examining this option. Sometimes outsourcing is excessively and unnecessarily expensive and the only reason why it continues is the inertia of “That’s the way it’s always been done.”
  5. Get a second opinion and additional analysis on your larger spend areas. Why would you want to pay more than your peers? When deciding on a consulting resource, ensure you are picking someone who has deep expertise. Choose your consultant like you would choose a specialist – you want the consultant who has performed thousands of purchased services initiatives and has a proven track record for achieving material cost savings.
  6. Formalize and structure a way to track and reconcile, on a monthly basis, your most complicated purchased services from the line item details on your invoices through data analytics.
  7. Map clinical purchased services spend to your reimbursement. Approximately one third of hospital purchased services spend is reimbursable or is tied to revenue. For example, are you paying more than you are getting reimbursed for esoteric lab testing?
  8. If you have older purchased service agreements in place, are you reassessing their structure beyond the pricing for utilization improvement and or unfavorable contract language such as performance incentives that are not equally weighted?
  9. Set firm timelines for project duration and completion and stick to them! Delays in analysis, alignment, negotiations, and legal reviews will cost your hospital “savings” dollars. Many times I have seen purchased services cost savings projects unnecessarily pushed out as much as six months because of internal delays and a lack of urgency and commitment to finalize and realize the cost saving.
  10. Repeat and review all purchased services contracting every two years.

Remember purchased service spend is very different from supply spend in that, when you order supplies, a discrete process is followed:

  1. An item is requested;
  2. A PO# is provided to the vendor with detailed line item purchases;
  3. The products are delivered and verified at the point of delivery; and
  4. The products are then used within the hospital.

Purchased services spend on the other hand is variable and not discretely known to the hospital when the services are put into place. Services are performed and then invoiced to the hospital. A purchased service invoicing reconciliation process must be implemented to ensure pricing accuracy and “proper” utilization of services.

By: Lisa Miller, MHA – CEO; Healthcare Cost Improvement Consultant for VIE Healthcare. Lisa started VIE Healthcare in 1999 and has led cost improvement engagements in one fifth of the hospitals in the United States.

Does your hospital have visibility into all of your purchased services invoice line item details on a monthly basis? If you would like to know how you can achieve detailed line item visibility, VIE Healthcare has a proven system to show you.

To schedule a call to discuss how VIE can support your purchased services cost savings initiatives, email Lisa Miller at lmiller@viehealthcare.com or call 1-888-484-3332 Ext 501. Lisa will also share with you the top 17 hospital purchased services areas that rarely get reviewed yet typically achieve 18% to 33% in cost savings.

VIE Healthcare named to Entrepreneur 360 List

VIE Healthcare named to Entrepreneur 360 ListEach year, Entrepreneur Magazine, the premiere source for American small business news and information, generates its “Entrepreneur 360” list that identifies the top 360 small businesses across the United States that are mastering the art and science of growing a business. Entrepreneur invites companies to apply and evaluates them based on four metrics: impact, innovation, growth, and leadership. VIE Healthcare is proud to be included in the 2017 Entrepreneur 360 list, ranked at #211.

View the Entrepreneur 360 List
View the VIE Entrepreneur 360 Profile
Read the TAPinto online business magazine article

New Corporate Office for VIE Healthcare

 ANNOUNCEMENT:

As of Friday, July 14th, 2017, VIE Healthcare has moved to a state-of-the-art corporate office facility with a triple-layer, enterprise grade protection system, exceeding all HIPAA compliance requirements. At VIE, we handle our hospitals’ and health systems’ private data with the utmost sensitivity. We look forward to continuously evolving in order to best serve our hospitals in today’s ever-changing healthcare environment. VIE is a leader in hospital purchased services.

Learn about VIE’s Supply Chain Business Associate Assessment offerings here.

The Prudent Buyer Principle

Utilize The Medicare Provider Reimbursement Manual with Your Vendor Negotiations

In today’s “tough” healthcare environment, vendors are strongly pushing back in a hospitals effort to reduce costs for their organization by insuring best pricing for products and services they purchase.

Vendors have “pricing committees” that delay cost reductions for hospitals – they hide behind confidentiality language clauses to keep other hospitals from realizing market competitive pricing and I have personally heard vendors say that it is unethical that we provide price visibility to our clients.

Yesterday I was reading the Medicare Cost Report/Provider Manual for another project and I came across this section that Medicare dedicates a significant amount of language to in the Cost Related to Patient Care Section. 

It starts off with a very important sentence that every hospital executive, purchasing professional, physician and all those who participate in the vendor selection and negotiation process should read carefully and utilize in their opening statements to all vendors and it is: “The prudent and cost-conscious buyer not only refuses to pay more than the going price for an item or service, he/she also seeks to economize by minimizing cost.”

In another very important section Medicare details the Application of Prudent Buyer Principle and says:  “Intermediaries may employ various means for detecting and investigating situations in which costs seem excessive. Included may be such techniques as comparing the prices paid by providers to the prices paid for similar items or services by comparable purchasers, spot-checking, and querying providers about indirect, as well as direct, discounts.”

And in another section—Medicare even goes as far as to specifically talk about Blood Procurement utilizing the Prudent Buyer Principle and states” “The development of organizations supplying blood to providers has been such that the charging practices of these organizations vary not only nationwide, but also within limited geographical areas. These circumstances require careful application of the prudent buyer principle.”

I have included the exact language from the Manual in Part 1 Chapter 21 below for you to read and to print out, highlight and utilize in your preparation for vendor negotiations.

VIE has the industry’s only Hospital Vendor Negotiation Planning Manual & System that your executive and clinical team can utilize in all vendor negotiations.  Vendors are trained in skilled negotiation strategies and the most important part is a planning and tracking system with every negotiation. They are utilizing a planning manual and system—are you?

Email Lisa Miller at lmiller@viehealthcare.com to learn more about how your hospital can gain access to VIE’s Negotiation Planner Manual.

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Part 1 Chapter 21 Cost Related to Patient Care

2103. PRUDENT BUYER

A. GeneralThe prudent and cost-conscious buyer not only refuses to pay more than the going price for an item or service, he/she also seeks to economize by minimizing cost. This is especially so when the buyer is an institution or organization which makes bulk purchases and can, therefore, often gain discounts because of the size of its purchases. In addition, bulk purchase of items or services often gives the buyer leverage in bargaining with suppliers for other items or services. Another way to minimize cost is to obtain free replacements or reduced charges under warranties for medical devices. Any alert and cost-conscious buyer seeks such advantages, and it is expected that Medicare providers of services will also seek them.

B. Application of Prudent Buyer PrincipleIntermediaries may employ various means for detecting and investigating situations in which costs seem excessive. Included may be such techniques as comparing the prices paid by providers to the prices paid for similar items or services by comparable purchasers, spot-checking, and querying providers about indirect, as well as direct, discounts. In addition, where a group of institutions has a joint purchasing arrangement which seems to result in participating members getting lower prices because of the advantages gained from bulk purchasing, any potentially eligible providers in the area which do not participate in the group may be called upon to justify any higher prices paid. Also, when most of the costs of a service are reimbursed by Medicare (for example, for a home health agency which treats only Medicare beneficiaries), examine the costs with particular care. In those cases where an intermediary notes that a provider pays more than the going price for a supply or service or does not try to realize savings available under warranties for medical devices or other items, in the absence of clear justification for the premium, the intermediary excludes excess costs in determining allowable costs under Medicare.

C. Examples of Application of Prudent Buyer Principle –

Provider A consistently purchases supplies from supplier R and makes no effort to obtain the most advantageous price for its supplies. Supplier W sells identical or equivalent supplies at a lower cost and is also convenient to A.  Unless the provider can clearly justify its practice of purchasing supplies from R rather than W, the intermediary excludes any excess of R’s charges over W’s charges.

Provider B purchases cardiac pacemakers or their components for use in replacing malfunctioning or obsolete equipment, without asking the supplier/manufacturer for full or partial credits or payments available under the terms of the warranty covering the replaced equipment. The credits or payments that could have been obtained must be reflected as a reduction of the cost of the equipment supplied.

Dr. C, a hospital-based radiologist, purchases radiology equipment which he then leases to the provider where he is a staff member. Costs to the provider in this case are higher than if the equipment had been leased through competitive bidding from an outside source. The intermediary reimburses the provider only for those costs which a prudent and cost conscious buyer would pay. Therefore, those costs which the provider pays for the equipment leased from the staff radiologist which are in excess of costs for equivalent equipment obtained through competitive bidding are denied.

Application of the Prudent Buyer Principle to Blood Procurement

2125. BLOOD

Blood is unique among provider furnished items, because unlike other items, it can be replaced by patients or by persons acting on the patients’ behalf. The development of organizations supplying blood to providers has been such that the charging practices of these organizations vary not only nationwide, but also within limited geographical areas. For example, within a local geographical area, one blood supplier may charge a provider both a processing fee and a charge for the blood, while another supplier may charge only a processing fee. These circumstances require careful application of the prudent buyer principle.

In applying the prudent buyer principle under these circumstances, the provider must look to the net charge for the blood. For example, assume the following facts. A provider has a choice between obtaining blood from Supplier A for a processing fee only of $30 per unit, or obtaining blood from Supplier B for a processing fee of $10 and a charge for the blood itself of $25, a combined charge of $35 per unit. Supplier A allows no credit for blood replaced; whereas, Supplier B allows a credit of $25 for blood replaced on a unit-for-unit basis. The provider anticipates a usage of 2100 units of blood for the upcoming contract period. Experience of local blood suppliers has shown an average of one-third to be the prevailing replacement rate in the locality (i.e., on the average, one out of every three units used is replaced). Putting all these facts together, the provider’s anticipated blood costs for the upcoming contract period would be $63,000 (2100 x $30) if obtained from Supplier A. However, the provider’s anticipated blood costs would be $56,000 (2100 x $10) plus (1400 x $25)1 if obtained from Supplier B. The provider, in seeking to minimize its costs under the prudent buyer principle, would obtain the blood from Supplier B.

 

How Does A Vendor Implant Recall Affect Your Financial Performance?

Richard Dormer,MHA

November 4, 2014

Under Stryker’s recent settlement, Stryker will provide a base payment of $300,000 to patients that received the Rejuvenate or ABG II hip systems and underwent revision surgery by November 3, 2014, to remove and replace the devices. (READ MORE HERE)

When we see news releases such as this from a major orthopedic reconstructive vendor, we always ask – how does this impact hospitals? These are the following questions hospitals must consider:

  • Do you have a policy in place that addresses recalls?
  • Do you have a communication plan to speak with Physicians and Manufacturers?
  • Do you understand reimbursement implications?
  • Do your managed care contracts exclude payments for recall surgeries?

If your hospital is impacted by an implant recall please call VIE, as we have a validation process to ensure that you are not financially negatively impacted. VIE can also provide your hospital with talking points for a manufacturer discussions to ensure your hospital is not losing revenue which can impact your profits. Call (732) 359-7646 Ext. 503 to speak with me today.

VIE & Daniel Burrus Innovation Meeting

Daniel Burrus, one of the world’s leading technology forecasters and innovation experts, joined VIE on August 5th for an Innovation Meeting in Eatontown, New Jersey.  Daniel worked with Lisa Miller, Founder & President, Jacqueline Oberst, CFO, Richard Dormer, COO, as well as other VIE leaders to explore present and future issues and opportunities surrounding the healthcare and higher education industries.

Many of the concepts that appear in Daniel’s New York Best Seller, Flash Foresight, were discussed. The VIE team was able to quickly identify hard trends, soft trends, and predictable problems facing the industries. Furthermore, various solutions and opportunities were discovered for the industries and VIE.

The VIE team is excited to apply this new knowledge to their current client work.

Management of Your Hospitals Paid Subscriptions

Annual Subscription Costs

An Investment or Growing Expense?

Annual paid subscriptions comes in all forms and called by various names – they provide your hospital with new information, provide benchmarking services, gives your organization access to peer networking groups and provides analytics for your hospital in different departments.

Many of these annual subscriptions provide value to your organization. However, many are not being used at all, forgotten about, underutilized because the user is not fluent in all aspects of the subscription and also underutilized because the entire organization isn’t aware of the subscription and in this case you could have duplicate subscriptions from different providers.  And each year, these subscriptions grow because we now live in an information based society. On average, a 200-bed hospital spends $1.7 million annually on subscriptions; that is $8,500 per bed for annual “subscriptions.”

Is this a cost that should be reviewed each year?  I say definitely Yes!

The questions I pose to my clients are:

  1. Do you know how much your hospital or health system is paying in annual subscription costs?
  2. Have you mapped your subscription costs to a department(s) and are they using this subscription to its full capability?
  3. Have you performed a thorough review of your subscriptions to see if other departments could utilize them?
  4. Have you gone to the marketplace to evaluate other subscriptions or services that may be better for your hospital?
  5. Have you performed an assessment of value of each subscription – a true ROI?
  6. Could you receive these subscriptions at a lower cost or even at no cost? Have they been negotiated so that you are receiving competitive market pricing?
  7. Do you have an independent way of assessing your subscriptions?

Here is an example of one of the many hidden subscription costs that may exist in your hospital:

GPOs provide subscriptions to hospitals in different areas like peer benchmarking within their membership, quality analytics or service line analytics and these annual memberships are between $50,000 to over $200,000 annually.  You don’t see these on your AP spend because they are “hidden.”  They are deducted from your administrative fees – dollars that you receive annually from participating in a GPO. The payments from your GPO are reduced by paying for these subscriptions.

My recommendation is that you review your GPO agreement to see what subscription costs are being paid by your administrative fees and have a thorough understanding of these subscription costs.  Many times, hospitals are surprised to see that hundreds of thousands of dollars are not coming back to them from their GPO as they thought because these dollars are being used to pay for subscriptions that are not needed, not being used or being under-used.

What if your organization could reduce your subscription costs by 50% without any change to your hospital operations?  That could mean an immediate $500,000 to $750,000 or more  to your annual budget that you could use for new programs, technology and capital improvements.

And -with better visibility to the entire organization, your subscriptions will have maximum optimization that will deliver operational and financial results.

Healthcare reform requires us to look at every opportunity for cost savings and most importantly, on-going disciplined cost control.

VIE has a proven system to uncover all of your annual subscription costs, assess their value with your stakeholders, compare other subscriptions in the marketplace and ensure you are paying the best price for these subscriptions.

Email Lisa Miller to learn about VIE’s subscription review.  It is self-funded, requires no upfront costs and it is completed within 30 days.

Lisa Miller – lmiller@viehealthcare.com

Founder & President VIE Healthcare

www.viehealthcare.com

VIE ATTENDS HFMA’S ANNUAL MEETING

Last month, eight VIE Healthcare team members traveled to Las Vegas for 4 days to represent VIE Healthcare at the Healthcare Financial Management Association (HFMA) annual meeting.  The event draws thousands of healthcare leaders, and VIE Healthcare was joined by more than 350 companies exhibiting at the conference.

During 4 open exhibit hall sessions, the VIE team attracted C-suite leaders with a bright, professional booth. The exhibit hall gave conference-goers an opportunity to decompress after lectures, and many were drawn to VIE’s display.  The sales and executive leadership team, including Chief Customer Officer David Dean, and Founder & President Lisa Miller, engaged attendees in discussions about strategic cost transformation, supply chain excellence, operating room optimization, and pharmacy opportunities.  Analysts Rich Dormer was also on-site, talking numbers and providing concrete details about VIE’s client successes.

If you missed us at HFMA this year, VIE is already planning for next year’s HFMA annual meeting in Orlando, where our team will be meeting members of the healthcare community and taking questions at Booth 1801. But you don’t have to wait until next year – you can still find out all about VIE’s services by visiting www.viehealthcare.com or calling (732) 359-7647 to talk to a VIE team member today!

Private ACOs Show Early Promise

Accountable Care Organizations (ACOs) are designed to shift the burden of excess costs to providers, by challenging them to provide better, more coordinated care to a large group of patients at the lowest cost possible.

Lowering the cost of care for any population is most effective when patients with frequent Emergency Department (ED) or hospital inpatient visits are targeted.  These patients, often called super-utilizers, represent the highest costs in the system, and have higher healthcare costs than larger segments of the population. Super-utilizers typically have multiple chronic diseases that are poorly managed, providing ACOs with an easy place to focus.

While Medicare ACOs show mixed results, some privately-run ACOs show early promise in lowering the cost of care for a targeted population.  In California, WellPoint’s Anthem Blue Cross and HealthCare Partners teamed up to cover 55,000 patients, and saved $4.7 million in just the first half of 2013. These savings are the result of reduced hospital admissions and ED visits, shorter inpatient stays, and fewer lab and radiology tests, as compared to a control group of patients.  Patients in the ACO also had better health indicator outcomes, including lower LDL cholesterol among diabetic patients – indicating that patients in the ACO did not receive less care, but received better, more effective care in comparison to the control group.