Purchased Services Are Key to Financial Predictability & Certainty for Hospital Executives

This article was written by Rich Dormer.

Healthcare executives are constantly seeking financial predictability and certainty before making important decisions to ensure better quality patient care and future sustainability of their organizations. Purchased services are key to that financial certainty.

These decisions encompass critical areas such as:

  • Investments in new services and technologies.
  • Improvements in their physical infrastructure.
  • Expansions into new ventures.
  • Hiring of talent.

Each decision is made within the context of the short and long-term strategic and cultural impact it will have on your organization, but all have a monetary commitment and impact at their core. This is why the reduction in purchased services spend is the key for hospital leaders.

Cost reduction initiatives are more relevant today than ever before because every single dollar a hospital saves goes right to its bottom line.

Cost reduction initiatives are more relevant today than ever before because every single dollar a hospital saves goes right to its bottom line. Click To Tweet

The truth of the matter is that many hospitals operate with only a 2% profit margin.

For instance, $1 million in cost savings would equate to generating $50 million in new revenues.  

While organizations will still look to generate new revenues, the focus on identifying and achieving impactful cost savings without negatively impacting the delivery of care is critically important.

As healthcare margin improvement experts VIE Healthcare® Consulting targets purchased services spend to identify the most impactful cost reduction.

Here’s why.

The cost-saving potential in purchased services spend

Purchased services are any services that are outsourced, ie, not performed in-house by your organization. Typically, they account for 45% to 55% of your hospital’s total non-labor spend.

To put it in perspective, a typical 3,000-bed health system with $4.8 billion in operating expenses will have $2.3 billion in labor costs. Of the remaining $2.5 billion, approximately $1.25 billion of annual costs would be in purchased services.

In order to identify opportunities to find pricing discrepancies, determine the utilization trends, and extract unnecessary costs, an expert would need to obtain and analyze line item pricing and compare that to the contracts.

In theory, this might sound straightforward, but it is an inherent problem with purchased services due to the attention to detail and resources required.

Since 1999, VIE Healthcare® has been successful in helping our clients to identify and secure millions of dollars in savings within their purchased services spend.

Asking the right questions

For your team working on purchased services initiatives, we recommend asking the following questions:

  • “Are all of the services being invoiced on the current contract and are they at the correct price?”
  • “Do we have 12 to 18 months of line-item details to ensure we are capturing all cost reduction opportunities?”

At VIE Healthcare® we have known the answer to both of those questions for some time.

There is a limit to what you can accomplish without having the line item details.

Most supply chain and finance leaders know this, but we still see many hospitals and healthcare systems only use category spend and contract reviews to negotiate purchased services.

Why do this knowing that the right price is not being paid and millions of dollars are left on the table? And, what’s preventing your hospital from identifying the savings in your purchased services spend?

In our experience, these are the key issues:

  • Line item details of your purchased services spend are hidden in your invoices. The only way to extract them would be to commit internal or external resources to manually input the line item details into Excel.
  • Many vendors have so many line-items and items that are non-catalog services that healthcare organizations are unable to enter them into any materials management system and therefore can’t pull them into a report. It takes time, resources, and discipline to systematically map out and review a large invoice set.

Remember, purchased services could represent more than half of your organization’s non-labor spend yet there is no visibility into the actual costs. The previous example would mean that leadership at the 3,000-bed health system would have no line-item details into approximately $1.25 billion of annual spend!

Purchased services could represent more than half of your hospital’s non-labor spend yet there is no visibility into the actual costs. Click To Tweet
  • With limited time and resources, however, supply chain and finance departments use the tools available in the market place, negotiate what they can to the best of their ability, and then move one to the next initiative.

While they hope for the best, they know deep down that they are overpaying on purchased services

Their hope has now been answered!

Invoice ROI™ from VIE Healthcare®

A few years ago, we developed a patent-pending technology to help ourselves and our clients automate the manual invoice process. We call it Invoice ROI™:

  • Reconciliation
  • Optimization
  • Intelligence

With Invoice ROI™ from VIE Healthcare®, our clients now have the ability to view all of the line-item spend on their purchased services on a monthly basis in real-time and can be confident that they are not paying above their contractually agreed rates.

What a novel idea!

Since 1999, VIE Healthcare ® has excelled in the field of hospital margin improvement and we are passionate about delivering maximum cost savings and revenue gains to our clients.

We are pioneers in the reduction of purchased services spend and with Invoice ROI™, we are now able to provide our proven automated process wrapped up in a technology, enabling our clients to achieve the financial impact they need. In turn, this data helps you make the important decisions for your organization with some predictability and certainty.

Visit our Invoice ROI™ page to learn more about it or email me at RDormer@viehealthcare.com.

I look forward to helping you and your team with their 2019 cost reduction initiatives!

For a complimentary consultation, call our office today at 1-888-484-3332, Ext 500 or email us at info@viehealthcare.com.

Managing Costs to Medicare

This article was written by Bryan Covert.

Recently published data from the American Hospital Association (AHA) reinforces how critical it is for all hospitals to be managing costs to Medicare.

Its annual hospital survey, released in January 2019, clearly demonstrates how American healthcare systems continue to be underpaid by the federal health insurance program.

Analyzed from data gathered in 2017, the findings include the following:

  • 66% of hospitals received Medicare payments at less than cost, while 62% of hospitals received Medicaid payments at less than cost.
  • Hospitals were paid only 87 cents for every dollar spent on caring for Medicare patients.
Hospitals were paid only 87 cents for every dollar spent on caring for Medicare patients in 2017. Click To Tweet
  • The annual shortfall for Medicare was $53.9 billion. For Medicaid, the shortfall was £22.9 billion.
  • In addition, hospitals provided $38.4 billion in uncompensated care in 2017. This figure does not include expenditure on other services and programs that your healthcare system may provide to meet the needs of your patient community, for example, population health initiatives.

While hospital participation in both Medicare and Medicaid is voluntary, they must do so in order to maintain their not-for-profit, tax-exempt status. This mandatory requirement makes it impossible for hospitals to choose not to participate in these programs. Furthermore, Medicare and Medicaid programs now account for more than 60% of all care provided by hospitals.

These findings should influence the way in which all healthcare systems look at their costs.

The growing problem of Medicare underpayments

The issue of Medicare underpayment is an ongoing problem which is seemingly expanding. In part, this can be attributed to shifting dynamics in payer mix.

In 2014, the AHA reported that the commercial payers were the primary source of hospital reimbursement at 37.8%. By 2024, it is predicted that Medicare will take over the top spot comprising of at least 40% of all reimbursement.

Medicare payments are typically flat, and do not shift with your costs.

For example, on a Total Knee Arthroplasty, your healthcare system may reimburse a percentage of the amount you bill your patient, or cost of supplies, with an added-on percentage. The total amount depends on your specific contract with a commercial payer.

In contrast, Medicare payments are fixed. Any additional costs cut directly into your hospital’s revenue and negatively impact your overall margin.

For these reasons, hospitals must be extremely conscious of their profitability on procedures in the OR as they relate to Medicare reimbursement.

Recommendations from VIE Healthcare® Consulting

At VIE Healthcare®, we propose the following to help manage your costs:

We strongly recommend mapping OR implant, procedure accessory costs (inclusive of biologics/cement), and supply costs against the Medicare reimbursement rate for that procedure.

Understanding your contribution margin, direct case costs vs revenue, per case type in the OR against Medicare reimbursement is crucial. OR procedures are typically a hospital’s primary source of revenue. These cases must therefore generate sufficient margin to cover hospital overhead as well as subsidize less profitable hospital activities.

VIE Healthcare® recommends that any major or surgical procedure have a contribution margin of no less than 45%.

VIE Healthcare® recommends that any major or surgical procedure have a contribution margin of no less than 45%. Click To Tweet

Once you have an understanding of your contribution margin per case type in the OR, you can begin to understand the drivers and can subsequently leverage this information to identify where and how you can improve your cost management processes.

You can also explore low-margin cases in greater detail such as high-cost implants from specific providers, high-cost case accessories, off-contract bone cement, or improperly submitted claims. Each of these areas carries the potential to incur high costs if they fall outside Medicare’s reimbursement policies.

Many times, high-cost implants, accessories or off-contract items go unnoticed if:

  • A vendor contract contains expensive items which have a less costly alternative.
  • If a doctor prefers an item for a medical procedure without knowledge of its Medicare reimbursement rate.

Physician Preference Items (PPIs) constitute anywhere between 40% and 60% of a hospital’s total supply costs.

Improperly submitted claims to Medicare are another area to check for financial leaks. Claims must be submitted properly to Medicare to avoid delayed reimbursement – or even denial – due to Medicare’s strict claim submission policies.

So much is at stake when a hospital relies heavily on Medicare reimbursement. Margin improvement is possible, however, with the help of cost reduction experts who have knowledge of Medicare policies and procedures for reimbursement in both clinical and practical areas.

Our team of experts at VIE Healthcare® implements sustainable processes in your hospital’s supply chain to successfully manage your costs. We identify the weaknesses in your process to drive sustainable margin improvements.

For a complimentary consultation, call our office today at 1-888-484-3332, Ext 500 or email us at info@viehealthcare.com.

3 Reasons Hospitals are Missing Out on Cost Savings

This article was written by Carol Turano and co-authored by Lisa Miller.

Almost one in five US hospitals are ‘in bad shape’ financially, or at risk of closure, a situation exacerbated as many hospitals are missing out on cost savings which could drive margin improvement.

Most have been unable to address the rising cost issues across the healthcare sector and have been closing at the rate of 30 per year, according to the American Hospital Association. Many have highly negative margins and hospitals in rural areas are identified as more likely to be at risk of closure.

Most hospitals are unable to address rising cost issues in healthcare and have been closing at the rate of 30 per year. Click To Tweet

Driving Margin Improvement

Real strategies and solutions are essential to combat the relentless rise in expenses, as well as government and payer constraints which contribute to the flat revenues that we are regularly seeing across the sector.

VIE Healthcare® Consulting has been optimizing hospital operating margins and patient care through non-labor cost reduction strategies since 1999. We understand that the healthcare world is constantly in flux and apply our expertise to leverage change as an opportunity for growth.

One of our specialities is cost reduction and our process has significantly improved the operating margins and overall economics of our clients, saving them millions of dollars. Our experts navigate your procurement pitfalls while you stay focused on your core business and delivering quality patient care.

In the course of our work, we have identified a number of trends in the areas of margin improvement and three key reasons that means savings are often missed.

Product Creep

Product Creep occurs when your vendor launches a new product and the savings your hospital was expecting are booked onto the product it is replacing.

For example, technology is rapidly evolving and disrupting healthcare as new products and systems emerge on a regular basis. As the new technology is implemented, it is often accompanied by a price increase which was neither planned for nor expected by your hospital.

As another example, let’s say a hospital negotiates and agrees on price points with a vendor. The vendor then continues to innovate or enhance their product by incorporating new and innovative materials. This allows them to bypass the existing contract price points or shift utilization towards higher cost items. A good example of this is the use of Vitamin E treated liners/inserts in total joint cases. Typically, these are priced upwards of 40% higher than non-Vitamin E materials.

Essentially it is the same product, but the vendor is now charging a higher price and your hospital does not receive a higher reimbursement from Medicare, nor does it save costs or receive any benefit from the change in price.

In situations like this, Product Creep offers vendors a way to circumvent agreed pricing and charge more for a product that is of no additional benefit for your hospital.

Utilization

In our experience, hospitals often incur new utilization that they haven’t accounted for.

An in-depth analysis of your hospital’s utilization costs can achieve major cost savings. However, this requires a deep dive into up to 12-18 months of invoice data against your contracts. Despite the significant and achievable cost savings it adds to your margins, hospitals are often unwilling or unable to take that step and analyze the detail.

For example, a total knee replacement comes with standard components but sometimes requires a revision component in a primary knee. In our work at VIE Healthcare®, we are seeing that 30-40% of primary knees have a revision component which is only used around 10% of the time, according to the doctors we work with.

We highlight this because a revision component is more expensive and often used by the vendor to charge for a higher priced item that is not required.

Another example we frequently see is in IT when a hospital purchases 2,000 licenses, but only uses 700.

In essence, utilization savings mean getting clear about what you really need and carrying out an exercise to validate exactly what items you really use – and how frequently.

Pricing Errors

Without line item analysis of your invoices, pricing errors may be missed. Click To Tweet

We know that analyzing vast amounts of data is both time and labor intensive. If this analysis is not carried out, however, it becomes expensive and can have a tremendous, negative impact on your margin and revenues.

Reliance on manual systems is also prone to human error.

For instance, when analyzing purchased services, we frequently find flat out mistakes on purchase orders (POs). These errors include adding items that weren’t previously there, duplicating charges or invoicing for products that the hospital had never had or used.

In one example, we examined a client’s invoice for implants that required specific screws. For each screw, the client was charged $825. When analyzing the line item details, we discovered that the hospital was charged twice for the screw.

VIE Healthcare® offers an unparalleled dedication to line-item analysis with its unique Invoice ROI™ process.

Our unique invoice reconciliation, contract optimization, business intelligence, and analytics platform offers real-time contract reconciliation and benchmarking performance provided on a monthly basis for outsourced purchased services.

Identify your missing cost savings and drive margin improvement with VIE Healthcare®

VIE Healthcare® stands at the forefront of healthcare innovation and optimization.

Since 1999, VIE Healthcare® has been providing leading-edge hospital performance improvement services including cost savings, financial, and operational consulting.

  • Our team of experts analyzes the past 12 months spend of your 25 highest used items/or 50 highest cost items to provide you and your team with the data to capitalize on the savings available. Alternatively, we can carry out the work for your healthcare system to enable you to focus on delivering quality patient care.
  • Our mastery and expertise have already saved our clients over $500 million implementing exclusive strategies to improve hospital operations, profitability, and patient satisfaction.
  • Always ahead of the industry curve, we rapidly address your organization’s priorities using our proven methodology. As your trusted partner, VIE Healthcare® maximizes your profits and optimizes performance, so you can focus on delivering exceptional patient care.
  • VIE Healthcare® can support your contract reviews and assist with agreement renewals of your outsourced services with the nation’s leading price benchmarking and contract analysis services.

VIE Healthcare® guarantees margin improvement with Invoice ROI™.

For a complimentary consultation, call our office today at 1-888-484-3332, Ext 501 or email Lisa Miller at lmiller@viehealthcare.com.

The 7 Components of Establishing an Agile Cost Transformation Structure for Long Term Sustainability

This article was written by Lisa Miller.

Establishing an agile cost transformation structure is essential for long term sustainability of any healthcare organization.

As CEO and founder of VIE Healthcare® Consulting, I have identified seven key components to achieve this.

Component One: Appoint a Dedicated VP of Cost

Like growth and other strategic priorities, cost-improvement should be a pillar of leadership, with a single leader guiding the charge.

Call it a “Cost Czar,” a “VP of Cost,” or a “VP of Cost Transformation,” a leader must first be appointed. That leader should report directly to the CEO and work with the supply chain Chief Medical Officer, Chief Nursing Officer, COO or CFO to pull all the components together for successful execution of your plan.

This VP of Cost must be fluent in working throughout the organization. They will need to know about the journey of a cost, which includes the following steps:

  • Buying a product or service.
  • Going into the item master to the charger master.
  • How that gets mapped to reimbursement.
  • How different people within the organization are using it.

Component Two: Culture

Cost-transformation must lie at the heart of your organization’s DNA. From top to bottom, every employee needs to understand that cost-transformation affects them and that every person examining cost has the ability to impact patient care.

As a leader, you should use transparent and meaningful verbal or written communication to let employees know how you’re analyzing cost on a day-to-day basis – and not just in the big areas like outsourcing dietary or EVs – but across the board.

Component Three: Centralize Cost Improvement Projects on a Project Management System

All cost initiatives should be centralized and maintained on a single platform, accessible by the VP of Cost, the CEO or the C-Suite in order to track progress.

This platform should track and monitor the status of all cost-reduction or improvement initiatives, such as outsourcing, GPOs, and individual department initiatives. It is integral to a successful short-term and long-term plan.

Component Four: Invest In Resources 

For a cost-improvement plan to be successful, your organization must be ready to make an investment not just in your employees who reside in the supply chain or purchasing areas, but also in those who have an impact on purchasing and who work with your vendors and suppliers.

At VIE Healthcare®, we have identified five areas where investment in resources is critical:

4.1 Project Management.

Every hospital should have either a robust internally or externally built (although I recommend externally built) project management system that can be customized to suit your own needs.

A project management system allows you to:

  • Monitor and track every phase of the plan.
  • Maximize potential cost savings and extract as much information as possible from it.
  • Revisit past actions before moving on to future plans.

Regardless of which system you select, it should be used solely for executing the cost-saving and cost-improvement plan. Access to what’s previously been implemented and achieved gives you a knowledge base to inform future decisions related to turnover, for example, or if a vendor contract is up for review.

At VIE Healthcare®, we use a tool called Work Front to manage all of our clients’ projects, enabling us to understand the status of every project, identify potential problems and also highlight outstanding milestones to be completed.

4.2 Data Analytics.

In the section about implementation strategy below, I’ll discuss why data analytics is so important to getting buy-in from your stakeholders. But first, let’s talk about the investment you’ll need to make to get accurate and trustworthy data.

This could mean hiring one too many data analysts and a data scientist on site or outsourcing your data analytics altogether.

In some cases, I believe that outsourcing your data analytics is useful because you walk away with an independent, impartial, third-party view from a team with a tremendous amount of expertise.

Typically, an outsourced firm will not only slice and dice the data but send it back to you with an analysis of where there are issues and opportunities for improvement by looking at pricing, trends, and variations – to name a few.

4.3 Decision-making Criteria.

Decision making isn’t an art. It’s a science – and it’s critical to your planning.

Decision-making isn’t an art. It’s a science – and it’s critical to your planning. Click To Tweet

The way in which you make decisions around analytics, products and strategy is important to establishing decision-making criteria.

You’ll need to determine what investment you’re ready to make and who should be a part of that planning. Ultimately this will determine how your hospital allocates its budget, what items you’ll purchase and how much you’ll pay for that framework.

4.4 Negotiation.

With supply chain vendors growing increasingly skilled in their pricing tactics, some degree of negotiation training is critical for employees in the following categories:

  • All those involved in a buying or purchasing role in your hospital or health system.
  • Anyone who has some influence or works with vendors, even in a supporting role.
  • Anyone who works with the products and services, either outsourced or purchased.

More advanced negotiations can be reserved for those on the front lines of purchasing and final decision making.

Introductory training should be considered for people like those OR nurses or physicians who influence the decision-making.

Ultimately what it comes down to is this: Great negotiators are essential.

4.5 Outside Use of Resources and Technology.

To create a long-term sustainable plan, you must be aware of all outside resources your hospital is using, and their function.

For example, this will include the outsourced resources you’re using in areas such as benchmarking, pricing tools, comparative data and even consultants who assist with initiatives or support the back-end.

You will ultimately determine to what degree and for how long these resources and investments are needed. The key to remember is that wise decisions are achievable when there’s no duplication of technology and that you have the support of all those resources.

As hospitals are expected to do more and more with less and less, this step is critical.

Component Five: Implementation Methodology

An implementation methodology is integral to creating a long-term sustainable strategy.

In other words, how is the core strategy going to be implemented?

To do this, you’ll need to identify the category, the opportunity gap or the need identified. Let’s look at a few examples:

Orthopedic implant pricing: Let’s use the specific example of your hospital examining the variation in laboratory testing. One opportunity may be in orthopedic implant pricing.

In many cases, hospitals use multiple vendors to provide the products and technology necessary to execute various procedures, all with different pricing structures for what they offer. In these cases, there may be opportunities to standardize all pricing to each specific component level.

Environmental services: Your system may be purchasing janitorial supplies and services from seven different companies when in reality you only need one or two suppliers. By analyzing everything related to environmental services, your processes can be standardized to improve overall cost savings.

Increasing costs: Without even identifying a specific need, you may notice that your budget lines in supply costs or your operating room are increasing. While you may not be able to immediately understand that this is happening, you can begin to investigate.

The next step in implementing a methodology process is related to project leads.

Each separate cost improvement or cost savings opportunity requires a project lead in addition to project sponsors to lead the charge and see it through to completion.

You’ll also need to have a solid definition of the exact data needed to achieve this.

Taking the example of the orthopedic analysis above, you would need to examine:

  • Contracts.
  • Spend data from your new material management system.
  • Invoice data for a few months to identify where any additional costs are being added.

Next, you’ll need to analyze the bill-onlys to see how these constructs are put together.

Helpful questions include, “Is there a reason that you’re seeing a bill-only instead of the line-item detail in the material management system?”

All this information is critical to define the data needed for every specific cost-saving opportunity.

When you have gathered all the information you need, it’s time to analyze the data – but be aware that this is not a linear data analysis. You will need to examine various components.

Furthermore, in some cases, you may need to add reimbursement data. This may be required in anything that matches or lines up to a clinical service, like in the example of orthopedic analysis above.

The essential step to achieving your implementation methodology is securing stakeholder buy-in.

The essential step to achieving your implementation methodology is securing stakeholder buy-in. Click To Tweet

The presentation should be made to your CFO, COO, CEO, physicians or department directors in a brief, concise way to ensure success.

Your stakeholders must be confident that you are providing accurate information, the analysis was well-performed, and that the data can be trusted.

You would be surprised at how many cost improvement and cost savings plans are cut short due to a poorly executed presentation with questionable data.

Creating a collaborative implementation strategy can help to achieve full buy-in.

In my experience, the people who will be most impacted by your plan may be uncomfortable with multiple changes happening at the same time. One way to overcome their objections is to present your idea in full, but break the changes down into manageable segments over the course of a year.

Let’s say your team has identified a million dollar cost savings opportunity which will require a significant shift in your organization’s cultural mindset and the way in which things are done. My advice is:

  • Look for the lower hanging fruit, the easiest things to implement first.
  • Propose that a portion of the plan to achieve half the savings be implemented this year, with the remainder of the $500,000 savings or improvements to be implemented next year.
  • Then present a plan for the actual strategy. Identify who will do what, who is responsible for different aspects of the plan, who will communicate it and who will support it.
  • Finally, be sure to set milestones, or deadlines for achieving each phase of the implementation.

Now it’s time to start implementing your strategy.

Keep in mind that maintaining regular communication is vital to maintaining momentum. This is possible by:

  • Regularly evaluating, documenting and communicating improvements in the areas of finance and performance.
  • Reflecting on the lessons learned, ie, what worked or didn’t work in the process.

By doing this, stakeholders will not only continue to buy-in to your plan, but the new culture of savings becomes status quo in the mindset of everyone down the pipeline.

This is one of the reasons I love a project management system. You can include all that knowledge for future strategy.

The job isn’t done at this point, however. Three months after the plan is finalized, you must verify the work. Ask yourself:

  • What are the outcomes and results?
  • Are the results in line with projections or are there any notable differences?
  • Did any unexpected issues or opportunities arise as the result of the strategies your hospital implemented?
  • Are there parts of the plan that need to be changed, modified or improved?

If you do identify opportunities for changing or modifying the plan, just pivot.

Reframe your thinking and make changes to the plan accordingly.

Component Six: Accountability To Achieve Exceptional Results

Accountability to achieve not just any results, but exceptional results is vital to your health system. Hospital environments are constantly changing. As your cost-saving initiatives are being implemented, your hospital’s responsibilities in the areas of cost improvement, cost analysis and transformation are also evolving.

Being able to access all of your initiatives on a single project management dashboard allows you to provide reports, even at a weekly level.

It’s easy, though, for people to be lost in the data, so it’s also important to choose wisely when determining who needs the reports, what data needs to be presented and how often it’s delivered.

The CFO or COO is a good place to start when deciding who should receive weekly reports. But there may be others who need to be updated on the project status. Identify who those people are early on in the process.

To determine the what of reporting, you’ll need to establish different critical drivers during the process and which milestones are important.

Let’s look at the earlier example of the orthopedic analysis again.

If you’ve identified a million dollars in orthopedic cost savings over a period of four months but by month two you haven’t started vendor negotiations, that must be flagged as a potential problem. Remember, negotiations can take a month or more to complete once you’ve factored in all the back and forth in the process.

I’m a big proponent of self-management reporting. When initiatives are established, complete with timelines and goals, there’s an expectation that they will be achieved. If they’re not being achieved, the stakeholder needs to be able to explain why things aren’t working and what they’re going to do differently to reach the desired outcome.

This is more important than merely pushing a report out for an already-busy CFO to sift through and ask the right questions to try and resolve the problem.

By regular self-managing, there are few surprises when milestones become due and the project continues to move forward even when faced with hiccups along the way.

Component Seven: Measuring Your Achievements

The final component for developing an agile cost transformation structure for long-term sustainability is how your hospital will measure the result of its efforts.

This process begins with looking at real numbers based on actual utilization. I’m talking about taking time in the 13th month after the launch to review the previous 12 months.

Sometimes you’ll find that you missed the mark. Perhaps the analysis was wrong, or product utilization was different than anticipated. You may also find that the saving was even greater because of higher utilization.

But by going back and looking at the real outcomes, you can identify the true impact of the plan.

Another idea for measurement is to set up a template during the project management process, allowing you to take a monthly or quarterly look at things like pricing, specific products or category spend.

Category spend is actually a nice way to begin. Take, for example, your AP spend. You can categorize the data, but you also need a way to analyze the specific line item details.

The specifics – not the summary data, not the category data – will drive all the initiatives.

Some hospitals want to look at the results monthly, but I’ve found that given fluctuations in supplies, technology and physicians, the quarterly view gives a much clearer picture of how the initiatives are performing. Furthermore, it allows you to examine a fair comparison of how the quarter performed year over year and determine whether or not it’s time to revisit the initiative.

It’s great when stakeholders are measuring supply change because it means they’re engaged in the initiative, but it’s even more important for finance or some sort of independent analyst – typically someone who was not responsible for implementing the initiative – to take a lead role in measurement.

Ultimately, their role should be to provide unbiased proof that the initiatives were performed and that the numbers that were put forth as savings are actually being validated.

The outside view is important because it provides an opportunity to find even more potential areas for cost savings or may even highlight something that was previously overlooked.

In the end though, no matter what those results look like, your results need to be tied back into the overall mission of the organization.

Every single dollar saved goes back to the community and goes back into healthcare.

Ready to enhance and optimize your operating margin?

For a complimentary consultation, call our office today at 1-888-484-3332, Ext 501 or email Lisa Miller at lmiller@viehealthcare.com.

Analyzing Complex Contracts In Healthcare

This article was written by Jim Cagliostro.

As the use of third-party partnerships in healthcare continues to rise, the need to analyze complex contracts that form the basis of these relationships is essential to secure quality results at a competitive price.

Traditionally, outsourcing has been reserved for a health system’s support functions such as housekeeping, laundry services, food services, security and even supply chain management. But as costs rise, health systems are outsourcing more patient care services such as anesthesia, emergency department staffing, dialysis services, diagnostic imaging and hospitalist staffing.

Contracts between hospitals and vendors have become so complex that managing them effectively has become a huge challenge. Here’s my advice to create a more efficient process:

3 ESSENTIAL STEPS FOR PREPARATION

Before carrying out a contract review, I recommend the following steps:

  • Your leadership team must prioritize the need to review all contracts with third parties. One of the common errors a health system makes is to neglect its need to consistently examine its relationship with each of its vendors.
  • Your hospital must get organized in coordinating and managing its contracts. Contracts have different start and end dates. Some contracts renew automatically (often called “evergreen contracts”) while some have a predetermined completion date. It can be extremely difficult to differentiate if your health system relies on a manual or paper system. A digital system allows a more efficient search and review. In addition to digitizing your contracts and invoices, consider using contract management software.

The need to track contracts through their entire lifecycle has only increased as contracts have become increasingly complex in their language, terms and conditions.

With VIE Healthcare® as a trusted health partner, contracts are streamlined to achieve and maintain real cost savings.

  • Establish a contract management team. This may involve bringing together existing employees from appropriate departments to assist with analysis. Some health systems hire experts to carry out this process. In 2013, Mercy Health Services in Baltimore MD appointed David Forbes as Director of Contracting Services.

Due to the impact that the development of a contract management team can have on the financial health of your hospital, a number of factors must be considered as you bring this team together. These are considered below.

WHO SHOULD HANDLE YOUR HOSPITAL’S CONTRACTS?

Hospitals may frequently employ policy administrators or someone from compliance, quality control or nursing to oversee contracts. In our experience, a designated contract administrator with a background in risk management, law, or purchasing would be more effective in this role.

David Forbes explains, “In-industry experience is a consideration, but we look for strong negotiators with contracting backgrounds first. There is also something to be said about bringing unbiased eyes to an industry in need of dramatic change in how it manages its spend.”

The advantage to having a team that includes frontline staff is that employees from multiple departments or with various skills or expertise can contribute to help the contract administrator negotiate a contract that best serves the financial welfare of the hospital.

Including frontline staff from specific departments can provide the contract management team with detailed insight which would help them negotiate terms that help the hospital save money without negatively impacting its day-to-day operations.

Contracts are legally-binding documents. They must be handled with care and should be managed by an experienced individual and team. Without that expertise, your healthcare system is at risk of incurring extensive costs.

Contracts are legally binding documents. They must be handled with care and managed by an experienced team. Click To Tweet

WARNING: Personal relationships between hospital employees and vendor salespersons also play a significant role in contract negotiation.

A certain amount of trust is required when negotiating contracts with a vendor. Sometimes, that trust can be betrayed and a relationship with a vendor can lead to an unreasonable or one-sided contract that is not mutually beneficial.

Hospital administrators must ensure that those negotiating contracts on their behalf are not only skilled in contract negotiations but also have the hospital’s best interests in mind. They should be aware of any ‘perks’ that a hospital employee may be receiving from an existing or potential vendor as well as any friendships or relationships that may compromise effective negotiations.

WHY ARE HOSPITAL CONTRACTS SO COMPLEX?

Some may suggest that vendors purposely create contracts that are difficult to navigate in to order to gain greater profits from the hospital but there are other reasons to consider, outlined below.

The most obvious is that hospital contracts simply contain so much information. Countless services and supplies are needed for your hospital to operate on a daily basis. Creating contracts to cover every detail is no small task.

A further complication is the array of new products, services, and technologies across the sector. The US spent $171.8 billion on medical and health research and development in 2016.

The rapid advances in technology must also be a consideration in establishing IT contracts. Technology can become outdated before the contract renewal date.

Consignment of equipment and supplies is common in hospitals to ensure supplies are readily available for unplanned or emergent procedures. The nature of managing and tracking consigned equipment creates even greater complexity in these contracts.

The variety of pricing models is also a major challenge. Tiered pricing is often used as vendors seek to increase overall sales by decreasing the cost-per-item if larger volumes are purchased. The wide range of costs for supplies and equipment within a hospital also creates a wide variety of contract arrangements.

For example, gauze supplies can cost a few cents while CT scanners can cost around $2.5 million.

Contracts with vendors who supply less expensive items in bulk will look much different than contracts with vendors who provide CT scanners with scheduled maintenance.

The pros and cons of a long-term or automatically-renewing contract must also be considered in light of the Consumer Price Index and how prices might change over a longer period of time.

Since 1999, VIE Healthcare® experts have analyzed countless contracts and gained familiarity with a wide variety of pricing models.

Regulatory factors must also be considered when reviewing contracts. A vendor’s contract with a hospital must comply with:

  • Federal, state or local laws.
  • Current health standards.
  • Your hospital’s policies and procedures, which can change frequently based on the most recent evidence-based practice and research.
  • Anti-kickback laws where applicable.
  • Tax-emption provisions for non-profit organizations must also be considered.

More recently, hospital leaders have prioritized an increased focus on Medicare standards and requirements to maximize reimbursement under the Hospital Value-Based Purchasing (VBP) Program.

With Medicare reimbursement in mind, the prevalence of performance-based contracts is on the rise. Using performance metrics to incentivize both hospitals and vendors helps to ensure that each party is ‘carrying their weight’ in the relationship.

This type of partnership can also be described as a shared-risk or shared-benefit relationship in which there are penalties for not meeting a particular standard but also incentives for exceeding the standard.

One example of this is when a contract dictates that dietary services be penalized for failing to provide safe and healthy food to patients but rewarded for delivering that food in a timely manner and thereby increasing patient satisfaction. In this scenario, a hospital must determine appropriate incentives prior to contract approval so it does not overpay a vendor, leading to an unprofitable contract.

“Is the value that they’re providing worth the money that you’re paying? That’s ultimately what we do every day – try to help our patients answer that question. The more complex the contract is, the more difficult the decision is.”

 – Rich Dormer, VIE Healthcare® COO & Margin Improvement Expert

THE CONTRACT

Once your hospital has established a contract management team, analysis can then begin.

This process should be standardized. Our VIE Healthcare® contract experts have identified the following key points:

  1. Ensure the right people are involved in the process. The contract management team should have open and frequent communication with physicians, clinicians and department heads to assist with the evaluation and negotiation process. End users who work directly with the outsourced provider should be able to evaluate whether or not the vendor is meeting expectations.
  2. The contract must be clear so that each party understands all expectations. Verbal agreements should not exist in conjunction with the written contract. The contract lays out the foundation, beginning, and end of the relationship between the hospital and vendor. If the contract is not clear, problems in the relationship can arise.
  3. Ensure that you are securing the best pricing. This can be accomplished by benchmarking to see if current prices are competitive and by negotiating with the vendor based on your findings.
  4. Determine if there are purchase obligations and the consequences of not meeting those obligations. Hospitals are often unaware of their minimum purchase obligations and the financial repercussions for failing to meet that minimum. The hospital’s leadership must determine if increasing spend on that vendor would be financially beneficial or if there is a need for renegotiating the contract.
  5. Determine if there is price protection from year to year. Often vendors will begin a contract with competitive pricing, only to raise rates that are less competitive later in the contract.
  6. Consider a performance-based contract in which pricing is linked to key performance indicators that the outsourced provider is responsible for delivering. This ensures that measurements take place and payment is based on a vendor’s performance.
  7. Know the terms of each contract. Know exactly when the contract expires, if it automatically renews and how much notice is required to terminate a contract.
  8. Understand the “out language” in the contract and any penalties for terminating the contract early.
  9. Ensure that invoices accurately reflect what is written in the contract. If invoices are not compared with contracts, incorrect pricing can continue throughout the length of the contract and beyond.
  10. Do not be afraid to negotiate in the middle of a contract. While certain contract terms and conditions may present a challenge, it is never too late to negotiate. In our experience, some savings have even been achieved by simply asking for better pricing, especially when a vendor knows they have been overcharging.

7 COMMON OVERSIGHTS IN CONTRACT ANALYSIS

The margin improvement experts from VIE Healthcare® identify the following common oversights in contract analysis:

Overpaying for a service. The challenge in healthcare is that hospital leaders often do not have the time to carry out a thorough analysis of how much the blood bank should be charging for a specific test, for example. Enter VIE Healthcare®.

Our extensive research and experience have allowed us to gain an in-depth understanding of the market and determine when a hospital is receiving a competitive rate or even best-in-class pricing from a vendor.

Using our database of pricing for the wide range of outsourced services, VIE Healthcare® can determine if a vendor is charging your hospital more than it should and where opportunities for savings may be identified.

Paying for services that your hospital does not use. The length and complexity of a contract means this possibility is often overlooked. The service may have been in use in the past or may have been offered at such a competitive price that it was included in the final contract language. If your hospital is paying for a service or product that is not being used, best-in-class pricing is irrelevant. Resources that could be used elsewhere are being wasted.

If your hospital is paying for a service or product that is not being used, best-in-class pricing is irrelevant. Click To Tweet

Applying small price increases to regularly-used products or services is a common practice that vendors use to raise the rate of a product or service without informing the hospital. Small price changes can go unnoticed but over time can cost your hospital thousands or even hundreds of thousands of dollars. Ensure the rate of price increases is written into the contract from the start. If price change guidelines are excluded from a contract, they can only be discovered through a detailed invoice evaluation and comparison with the current contract.

VIE Healthcare® accomplishes this through its proven Invoice ROI process.

Small price changes can go unnoticed but over time can cost your hospital thousands or even hundreds of thousands of dollars. Click To Tweet

Ask the question: “Do you have the entire contract?” Be sure that you are not looking at a contract that has expired and that you have the entire contract in front of you. That includes any amendments or addenda that have been added to the original contract.

If your contract management team does not have all the information up front, it can lead to misguided decisions and poor preparation for vendor negotiations.

Ensure the state referred to in the contract reflects the state where the hospital is located. As hospitals seek more competitive pricing, they often enter into partnerships with vendors across state lines. The state referred to in the contract often reflects the vendor’s location. However, it should be written for the state that the hospital is in. This can be one of the first indicators that a contract has not been reviewed thoroughly by your contract management team.

Ensure that the terms of your IT contracts reflect the “acquisition” date versus the “go live” date. Training often takes longer than your IT vendor’s initial estimate, increasing costs as hospitals pay for the extended training required before it can “go live” with a new service or product.

COO of VIE Healthcare®, Rich Dormer, recommends asking the following question related to IT contracts and training “If it takes longer to implement, who is going to benefit?”

Missing renewal dates. This is one of the most costly oversights in contract analysis and often a missed opportunity to renegotiate a contract. The need to understand your contract notification periods and whether or not the contract renews automatically cannot be understated. If a contract renews automatically, you lose your leverage in negotiations. A sense of urgency is vital. Vendors are more open to negotiate when they know a renewal is imminent, particularly if they could lose your business.

VIE Healthcare® recommends that you evaluate any agreements that are set to expire in four to six months.

KEEP IN MIND:

In summary, the goal of contract analysis should be to find areas of potential leverage before entering into negotiations. This includes thorough contract review, reconciliation with invoices, and understanding the terms of the contract to assist with the negotiation process.

If leverage is lost, your hospital must consider:

  • The immediate cost of breaking that contract.
  • The long-term prospect of finding a vendor that provides comparable services at better pricing.

This highlights the need to fully grasp the details of the contracts you have with outsourced providers.

The contract is the foundation of your hospital’s partnership with any vendor. If it is not mutually agreed upon and understood by both parties, the relationship is destined to fail.

To maximize the benefits of any vendor, your hospital must consider all aspects of the contract from beginning to end.

In the words of Bryan Covert, Senior Analyst and Margin Improvement Expert at VIE Healthcare®, “Even when the relationship with a vendor is starting, you need to be thinking about the end of that relationship. You can get a vendor to agree to much more, in terms of end-of-contract terms, when they are trying to get your business.”

Your outsourced provider should act as an extension of your organization, committed to cost, process, and revenue improvement. The vendor is a partner who should work with you to achieve your mission in accordance with your values.

Ensure that every necessary detail is included in the contract, including what metric the vendor is using to calculate their charges. For example, is the vendor charging per use of item, per cleaning of item, per hour for their employees and so on?

At VIE Healthcare® we believe there is always room to negotiate – even if you are already receiving best-in-class pricing. Click To Tweet

Working with VIE Healthcare® means your hospital is working towards a healthier financial future. The landscape of healthcare contracting has become so complex that it really takes an expert team to navigate the course.

Our extensive database, which is constantly being updated, is a tremendous resource and one reason hospitals choose to work with VIE Healthcare®.

Equally as important, we work with these contracts daily, know what to look for and what critical factors can often be missed. Our experience in analyzing complex contracts for hospitals throughout the country helps us identify the many ‘tricks of the trade’ that vendors frequently use to maximize their profits.

It is essential to have a dedicated team familiar with contracts and their innate complexities to bring these tactics to light.

Negotiate from a position of strength with VIE Healthcare® as your partner.

Schedule your free consultation today 1-888-484-3332 Ext 500 | info@viehealthcare.com

Healthcare Telecommunication Expenses: Consistent Monthly Costs Do Not Guarantee Accurate Billing

This article was written by Jacqueline Oberst.

Each month, healthcare organizations receive volumes of telecommunication invoices, some of which exceed 1,000 pages, but consistent monthly costs do not guarantee accurate billing.

Due to the overwhelming amount of data, the process of invoice approval generally consists of comparing costs with the previous month to validate consistency and ensure costs are within budget.

This detail may give the misleading impression that expenses are being contained, but the fact is that many facilities unknowingly are carrying excessive costs for erroneous billing, ranging between 25% – 40%.

How can your healthcare organization resolve these issues and ensure accurate billing?

Look Beyond the Invoice – What Aren’t You Seeing? 

80% of all telecommunication invoices have errors.

80% of all telecommunication invoices have errors. Click To Tweet

In my experience, analysis of the raw telecom data is eye-opening, with errors commonly identified in the following areas:

  • Non-compliant contract pricing.
  • Unused products.
  • Billing services for incorrect or closed locations.
  • Products and services not covered under an agreement.
  • Incorrect application of taxes and surcharges.

Immediate identification of errors will ensure that invoices are accurate prior to approval for payment and that all overcharges are properly credited back to the account.

VIE Healthcare® works with many healthcare organizations across the country to bring significant and sustainable cost reduction through real-time visibility into their telecommunication data.

In one case, we worked with a large organization with multiple hospitals and ancillary facilities. Internally, there were many challenges with managing the telecommunication costs across all locations. Costs were stabilized each month so there were no outward indications of any billing errors.

Using our proprietary Telecom ROI™ process, the VIE Healthcare® team was able to identify multiple errors across all vendors. These included:

  • Billing service charges for decommissioned locations.
  • Contract pricing not accurately applied to the account.
  • Expired contracts resulting in higher costs.
  • Inaccurate application of taxes and surcharges.

This healthcare organization was able to achieve extraordinary cost reductions in excess of $750,000.00. 

VIE Healthcare®: Telecom Expense Reduction Experts!

VIE Healthcare® is the expert in healthcare telecommunication cost reduction and management. Here’s why:

  • We have spent over 20 years assisting hospitals realize average savings between 25% – 40%: savings that are sustainable.
  • We provide insight into an organization’s telecom data.
  • We understand the current telecommunication market and available services and pricing.
  • We serve as a resource to an organization when engaging vendors for new services and agreements.
  • We provide education to an organization’s internal stakeholders, ensuring sustainability.

VIE Healthcare®: Case Study

The Engagement

VIE Healthcare® was recently engaged by a 1,500+ bed health system in the Northeast to carry out a comprehensive telecommunication review. As part of this project, we analyzed and reviewed current services, vendor contracts, pricing and prepared detailed phone and circuit inventories.

Engagement Breakdown

Inventory Analysis.

VIE Healthcare® performed a detailed inventory of vendor services, verifying each vendor for utilization and operation. Working closely with the health system’s telecommunication management team, we discovered that the staff maintained an accurate inventory and was fully knowledgeable of all services associated with the health system.

As a result of their impeccable management, the annual savings opportunity for this phase was $9,597.00.

Our experience on other projects in the past has realized a much higher savings opportunity in this phase for a hospital system of this size.

Plan Optimization.

Voice plans were reviewed for utilization with savings identified through plan optimization. The savings were associated with local calling usage for one of their primary vendors.

VIE Healthcare® tracked the usage for 208 lines over 6 months and identified 133 lines for plan optimization/cost reduction.

The annual savings achieved for this phase of the engagement was $10,305.00.

Contract Review.

VIE Healthcare® has extensive benchmark data available for telecommunication pricing. The information consists of voice services, local usage, long distance usage and circuit pricing for various size clients.

When reviewing vendor contracts, we utilized the most aggressive pricing available for an organization the size of this health system. Contract terms were re-negotiated with certain vendors, and new contracts established with others, resulting in extensive cost reductions across all services.

The total annual savings achieved through vendor contract price reductions was $376,173.00.

Service Migration.

Once all new contracts were established, VIE Healthcare® worked closely with the client’s telecom team to optimize the newly secured pricing, creating a plan with a two-fold purpose of savings optimization and vendor diversity.

This included moving services away from the organization’s then primary vendor.

The result of the migration of services across vendors was an annual savings of $283,425.00

Impact

In total, VIE Healthcare® secured $679,500.00 in annual savings for the health system.

Additionally, we were able to train the staff in telecommunication management best practices to ensure the cost reduction and process improvements we achieved were sustainable in the future.

As one of the leaders in telecommunications expense reduction and management strategies, VIE Healthcare® can help you find similar savings at your hospital or health system.

Why VIE Healthcare® Invoice ROI™ Technology is Innovation in Data Analytics

This article was written by Lisa Miller.

As healthcare costs rise, we explain why VIE Healthcare® Invoice ROI™ technology is innovation in data analytics.

US spend per capita on healthcare exceeded $10,000 in 2017 and healthcare consumption now represents 17.2% of the country’s GDP. With future increases predicted, the onus is on hospitals and healthcare institutions to deliver greater margin improvements and take control of spiralling healthcare costs.

“‘As a general principle…about one third (of hospitals) have margins that are above zero, probably about one-third of hospitals are pretty close to zero…. and about one-third are running in the red,” explains Gary Young, Director of the Center for Health Policy and Healthcare Research at Northeastern University.

Purchased services spend is one of the most overlooked opportunities to drive margin improvement and reduce spending. The issue is that the majority of hospitals struggle to monitor and manage the high volume of supplier contracts, let alone evaluate them.

At VIE Healthcare® our extensive frontline expertise has enabled us to develop and utilize a proven process to identify, analyze and deliver significant cost savings in hospital purchased services.

We have now transformed this proven strategy into a technological process and patented the process as our Invoice ROI™.

Invoice ROI™ is an automated process developed by VIE Healthcare® to manage your purchased services spend.

Invoice ROI™ offers invoice reconciliation, contract optimization, business intelligence and an analytics platform with real-time contract reconciliation and benchmarking performance provided on a monthly basis for outsourced services.

The Untapped Cost Savings in Purchased Services Spend

Purchased services spend can comprise as much as 40-50% of a hospital’s non-labor spend. Click To Tweet

Purchased services spend can comprise as much as 40-50% of a hospital’s non-labor spend. These costs cover areas such as dietary, housekeeping and waste management. For example, in our experience, most hospitals don’t have an accurate understanding of this significant portion of their budget, yet it can represent millions of dollars in potential annual savings.

Gaining clarity of your purchased services spend can improve patient care and satisfaction as well as drive efficiencies and margin improvement.

Invoice ROI™ empowers your hospital to track these costs in real time and compare them to historical data to deliver actionable intelligence. Full visibility of that data enables us to understand your hospital’s spend history and can be used to make significant cost savings, improve your margins, track purchased services spend and monitor ongoing performance.

Invoice to Contract Reconciliation

Traditionally, benchmarking is used to evaluate how a hospital is performing compared to its competition in order to identify improvement. In our experience, hospitals move to benchmarking, optimization and variation before carrying out an essential line item analysis, often missing significant opportunities for cost savings.

Our unique approach always begins with reconciliation, examining each agreement and carrying out a deep dive into the past 12 to 18 months of your invoicing data.

This line item reconciliation reveals the potential hidden costs contained in your invoices which are often the result of pricing errors and off-contract spend that your hospital might not be aware exist. It also allows our experts to identify trends in utilization that can further increase your costs.

Prior to the launch of our Invoice ROI™ technology, this task was carried out manually. All line item data was entered accurately onto spreadsheets.

Line item analysis is the most critical part of the entire process and is essential to drive significant savings. The results we achieve through line item analysis cannot be achieved with Accounts Payable (AP) spend.

While AP can be categorized in a shorter timeframe, it provides only directional, high-level category information that lacks the detail and analysis essential to drive improvements in your purchased services spend.

These invoiced line item details are also generally not available in hospital material management systems. In these cases, agreement structures are often complex and, consist of different tier pricing, particularly when dealing with multiple vendors.

6 Major Categories for Purchased Services Spend

At VIE Healthcare®, we have found it most effective to work with six major categories of purchased services spend for the purpose of reconciliation. These are as follows:

  • Clinical.
  • Finance/Support.
  • Finance/HR/HIM.
  • Biomed/Service/Maintenance.
  • IT/Telecom/Telehealth.
  • Administrative.

These six areas represent a high-value potential for cost savings opportunities but also present challenges to hospitals attempting to reconcile monthly invoices to vendor agreements. Not only are these savings huge and easily achieved, but they also have no negative effect on the operation of the hospital.

Invoice Optimization

Most hospitals believe they are “stuck” with their purchased service agreement provided by their vendor and accept a 3%-5% price increase each year without question. The truth is, that closely scrutinizing your purchased services agreements and renegotiating market competitive rates will reap significant savings for your hospital.

It makes a tremendous difference to the overall impact on your hospital. With accurate, enterprise-wide purchased services spending data, health systems can easily view spending trends and identify potentially rogue vendors.

When eliminated or renegotiated, cost savings of 5-10% are easily achievable, but imagine the impact of a 15% expense reduction on a $40 million purchased service spend. That is $6 million.

Imagine the impact of a 15% reduction on a $50 million purchased service spend. That is $6 million. Click To Tweet

The work performed by VIE Healthcare® enhances the systematic collection, interpretation, and analysis of multiple invoices searching for the following:

  • Trends.
  • Purchase patterns.
  • Outliers.
  • Variations.
  • Quality.
  • Utilization improvement opportunities.

This enables a pro-active monthly management of the outsourced and purchased service spend for our clients.

When we review a purchased services agreement, we examine the invoices and review the contract. Invoices are then matched to contracts in order to understand utilization and reimbursement. If possible, we then benchmark and go to a very granular level. If price alone is examined, it will not be optimized.

Benchmarking Intelligence

Data analytics solutions reveal hidden insights in the field of healthcare and this is particularly true of purchased services spend. Our Invoice ROI™ technology enables hospitals to examine and reconcile invoice data, reveal trends and be able to benchmark while providing real-time reconciliation and optimization insights.

Invoice ROI™ from VIE Healthcare® enables your hospital to examine & reconcile invoice data, reveal trends & benchmark, while providing real-time reconciliation & optimization insights. Click To Tweet

With an in-depth examination of hospital spend, Invoice ROI™ combines line details with other data inputs that identify trends, variations, quality and utilization improvement opportunities for pro-active monthly management of outsourced purchased services spend.

Invoice ROI™ technology from VIE Healthcare® enables your hospital’s supply chain team to build a funnel of cost-saving projects and successfully execute those savings on their own.

This line item analysis equips your hospital with an efficient method of monitoring and tracking your purchased services spend. Your negotiating position with vendors is thereby strengthened, while long-term supplier relationships can be established with confidence.

Our unique Invoice ROI™ overcomes the challenges faced by hospitals in line item analysis of purchased services invoices. These issues include:

Volume of data: Every month hospitals are faced with hundreds to thousands of line items on invoices which require review for multiple vendors.

Lack of detail: Summary invoices are often provided, lacking the supporting detail which is essential to comprehend and analyze your purchased services spend. In our experience, different line items can often be trapped within the invoices themselves.

A shift in invoicing: Purchased services invoices are unique, presenting a significant challenge compared to invoices received for traditional stock items. This shift in the way services are invoiced requires trust between the hospital and their suppliers.

Complexity: Due to the complexity of charges and the way in which services are invoiced, a high potential for billing errors exists. These errors are often overlooked because the price increase may only fluctuate by 10% compared to the previous month. Far too often, this increase is absorbed often without question.

Reviewing spend on a 12-month basis

Another common issue is reviewing spend on a 12-month basis.  A review of 12 months may show that $75,000 was spent, but a line item analysis would reveal that the previous three months had been trending up 30%. This detailed information affords the ability to accurately project and control future costs.

Hospitals and health systems are coming under greater scrutiny as they face increasing pressures to deliver high-quality patient care while staying financially viable. When a purchased service is correctly benchmarked, appropriately contracted and effectively managed, a hospital can realize meaningful savings that can be passed on and used to improve patient care.

3 Steps to Planning For Cost Savings Analysis

This article was written by Pandush Mitre.

In order to maximize margin improvement for your hospital, planning ahead for cost savings analysis is invaluable.

In over two years working with hospitals and healthcare organizations for VIE Healthcare®, I have developed a simple three-step process that enables me to take a deep dive into cost analysis and into achieving cost savings for our clients. Each individual contract, whether for blood services or software and maintenance, requires a comprehensive review to realize the highest level of cost savings.

My three step process, outlined below, enables healthcare leaders to transfer their attention from the nitty gritty contract and invoice details to focus on the essentials of patient care.

Step 1: Identify The Service For Analysis

This is achieved by reviewing an accounts payable (AP) spend report.

The AP report helps me to identify the vendors I am familiar with, and those I have not previously worked with but who may be worth investigating.

This process is made much easier with my access to the extensive insights into agreements and pricing structures that VIE Healthcare® continuously compiles.

That information also allows me to understand how vendors operate across health systems in the industry and narrows my focus when searching for a cost savings initiative.

For instance, one of my priorities is to identify vendor agreements that are coming up for renewal as these are details which are often overlooked in a pressured hospital environment.

In this way, I ensure that healthcare organizations are not locked into a new 3 or 5-year agreement contract with a vendor that has auto-renewed. This vital step guarantees that healthcare leaders are given the opportunity to negotiate a more cost effective agreement.

After vetting the most important aspects of purchased services agreements, I am able to identify which ones are worth analyzing. My focus is further narrowed by internal stakeholders highlighting the services they wish to be reviewed.

Step 2: Presentation of Data

Following the approval from internal stakeholders to move forward with the analysis, I organize and collate all available data into a clear and concise plan. In my experience, this certifies that the entire process flows more smoothly.

For example, my goal when analyzing a blood services agreement is to identify hidden cost savings. My approach to this covers the following points:

  • How have I achieved cost savings on similar agreements in the past?
  • What information do I currently need to gather in order to reduce costs?
  • What are my targets and what information or steps in the process am I missing?

To assist my review, it is helpful to have copies of all current agreements, amendments and addendums in place, together with invoice samples covering a 12-month period.

It is this attention to detail which separates VIE Healthcare® from other consulting organizations and enables us to maximize potential cost savings for our clients.

Our Invoice ROI™ technology identifies the line-item details of your hospital’s purchased services invoices in real-time. Click To Tweet

Once obtained, the invoices are extracted through our exclusive Invoice ROI™ process. This patent pending technology provides the invaluable insights the line item invoice details have to offer. Crucially, the data in the analysis is not based on estimates, nor is the spend based on categories but on the actual services that the hospital pays for directly, provided by line item detail.

In addition to invoices, I typically have a utilization report to enable me to validate the hospital paying for what it has actually used, rather than what is being invoiced.

After completing my evaluation, I am in possession of the information I need to present my analysis to the internal stakeholders.

Step 3: Identify A High-Level Cost Savings Strategy

My third and final step in planning a cost analysis is to identify a high-level cost savings strategy based on my investigations. This allows me to provide a cost savings plan, complete with actionable insights, a detailed analysis and supporting information to the hospital or healthcare organization I am working with.

This strategy is outlined in a SOAR report (Savings in Operations Achieved Rapidly).

Following the submission of this report, VIE Healthcare® makes recommendations to our clients and outlines the next steps to implement their strategy and achieve their goal of margin improvement through cost savings.

How Can You Improve Patient Flow Through Your PACU?

This article was written by Jim Cagliostro.

“Individual commitment to a group effort is what makes a team work, a company work, a society work, a civilization work.”  Vince Lombardi

Teamwork is essential to the smooth running of everyday operations at your hospital and critical to improving patient flow through your PACU.

The post-operative care system in any healthcare facility is complex and costly, encompassing multiple departments and their respective staff to function properly. Its efficient and safe operation requires collaboration and coordination to ensure patient care. If staff members fail to perform their duties, or if just one department does not maintain its processes effectively, the entire system suffers.

If just one department in a healthcare facility does not maintain its processes effectively, the entire system suffers. Click To Tweet

System inefficiencies can also lead to poor patient flow and a logjam of patients in the Post-Anesthesia Care Unit (PACU). 

The cost of providing extended care to post-operative patients in the PACU is much higher than the cost of care on the admitting unit, or transferring the patient to same-day surgery in preparation for discharge. This is for a number of reasons, including: 

  • The labor cost for PACU staff (critically-certified RNs, anesthesiologists, CRNAs, etc.) is significantly higher than non-PACU staff.
  • The nurse to patient ratio is often 1:1 or 1:2. Furthermore, when care is extended at the end of the day, the need for staff to work overtime increases hospital costs.
  • A 2015 study found that a short stay hospital admission was actually less expensive and preferred over PACU care when PACU stays were expected to last longer than 2.5 to 3.5 hours.

Obviously, there are times when holding a patient in PACU is necessary due to their condition and in some circumstances can be life-saving. The issue for many hospitals is that patient flow is often impeded for unnecessary and avoidable reasons.

In addition to increased cost, patient safety, quality care and patient and staff satisfaction can be compromised when patients are held longer than necessary and the PACU becomes crowded.

Clinical Causes for Prolonged PACU Stay

In general, patients recovering from surgery are assessed using the Aldrete Score (or a similar tool), which measures their respirations, oxygen saturation, level of consciousness, circulation, and activity to determine if they are ready to be discharged from the PACU. Oftentimes, a patient’s condition will dictate that they remain longer.

Clinical factors that can contribute to a longer PACU stay include:

  • Morbid obesity.
  • Hypertension.
  • Age.
  • Obstructive Sleep Apnea (OSA).
  • Type of surgery.
  • Length of surgery.
  • Type of anesthesia.
  • Post-operative Nausea & Vomiting (PONV).
  • Uncontrolled or Poorly-Controlled Pain.

While a patient’s comorbidities cannot necessarily be corrected on the day of surgery, they must be considered before, during, and after the procedure so the patient can be monitored appropriately. 

For instance:

Appropriate fluid management, along with the perioperative administration of medications like ondansetron or metoclopramide can decrease the incidence of PONV.

Reminding patients to take their daily hypertension medications on the day of surgery will help them maintain a safe blood pressure during their recovery. 

Pain management can also be approached in a variety of ways to improve recovery time.  One study in the Clinical Journal of Pain determined that the use of intravenous acetaminophen “decreased length of stay (LOS) in an adolescent surgery population likely through decreased opioid consumption.”

Additional care must also be taken around anesthesia.

Anyone who has worked in a PACU setting can tell you that providers of anesthesia give varying degrees of sedation. Some are more ‘heavy-handed’ or ‘generous’ with their anesthesia than others. Furthermore, two patients may respond very differently to the exact same amount of anesthesia. 

Appropriate, individual patient assessment by an anesthesiologist must be prioritized to ensure a speedy and safe recovery in the PACU. Ultimately, each patient must be assessed to determine their needs before, during and after surgery to achieve that. These are just a few suggestions in a process that must constantly be evaluated to determine the clinical factors delaying patient discharge from PACU and how they can be addressed.

Non-Clinical Causes for Prolonged PACU Stay

Non-clinical reasons for delay can often far outweigh the clinical. A 2015 study found that:

  • Of 12,662 PACU admissions, 449 PACU discharges were considered delayed.
  • 98% of these delays, were caused by “avoidable non-clinical reasons.” 

Non-clinical causes include:

  • Insufficient staffing on the receiving floor.
  • Receiving RN is too busy or admitting other patients.
  • Lack of staff to help transport patients.
  • No clean beds available.
  • Room not clean.
  • Waiting for equipment.
  • Waiting for tests to be completed (Portable CXR, lab results).
  • Waiting for physician orders.
  • Waiting for approval/sign-out from anesthesia.

Collaboration and communication can become more complex in addressing these issues as they often involve departments with responsibilities throughout the hospital. 

Furthermore, a patient who may be recovering well from surgery requires a number of criteria to be met, including:

  • A clean bed to arrive in.
  • Orders for the receiving floor from the physician.
  • Staff members to help with transportation.
  • Approval from anesthesia.
  • Any essential equipment or diagnostic tests to be completed. 

This process potentially involves the following departments:

  • Bed Management.
  • Environmental Services/Housekeeping.
  • Transport.
  • Nurses’ Aides.
  • Surgical Team/Residents.
  • Information Technology (if orders and charting are done electronically).
  • Anesthesia.
  • Radiology.
  • Central Supply Department.
  • Laboratory.
  • Registered Nurses (to give and receive report).

If a delay occurs in just one of these departments, a patient’s PACU stay may be extended, leading to increased costs for your hospital and a logjam in the PACU. Considering how many individuals are involved in this process, it is understandable why most delays are attributed to non-clinical reasons.

Determine What Slows the Flow of Patients Through Your PACU

Solutions to improving patient flow and reducing discharge times may often be complex due to the equally complex nature of the postoperative care system. 

An article in the Journal of PeriAnesthesia Nursing states that “understanding and addressing the causes of delayed discharge in PACU may help to improve patient flow and reduce discharge times. Future research should include the cost associated with these delays and assess the effectiveness of interventions introduced to eliminate such delays.”

The first step to improving patient flow is understanding the causes of delayed PACU discharge. Click To Tweet

The first step to improving patient flow is understanding the causes of delayed PACU discharge. As we have seen, these may include both clinical and non-clinical factors involving multiple departments. A multidisciplinary approach to resolving these issues is therefore essential.

A comprehensive study carried out by the Keck Medical Centre of USC concluded that “using an interprofessional approach to examining PACU length of stay and delays in transfers was successful in reducing PACU length of stay.”

Some hospitals have also adopted the Toyota Production System founder Taiichi Ohno’s following seven areas of waste to assess disruption in patient flow:

  • Delay, waiting, or time spent in a queue with no value being added.
  • Producing more than you need.
  • Over-processing or undertaking non-value added activity.
  • Transportation.
  • Unnecessary movement or motion.
  • Inventory.
  • Defects in the product.

According to the Virginia Mason Institute, “The key to understanding the benefits of heijunka (production leveling or smoothing) is a willingness to see the actual processes and identify all the reasons why they are not flowing continuously.” 

This can be a time-consuming and arduous process but it must include a collaborative effort by those who are directly involved with your hospital’s post-operative care system.

The Patient Journey Mapping® Service offered by VIE Healthcare® is one method that helps hospitals identify problems and “serve as a starting point for an improvement project, specific for your own place of work.”

Taking Action to Improve Patient Flow Through Your PACU

Once the causes are identified, a collaborative, inter-departmental approach is essential to devise potential solutions, covering the following: 

  • Clarify obstacles to implementing proposed changes and establish a well-defined plan and timeframe. 
  • Carry out careful monitoring and evaluation to determine the effectiveness of all changes made. 

The latest research and evidence-based practice must be used during this process.

Gathering data and implementing solutions is often a lengthy process but results in long-term benefits for your hospital.

Despite the inevitable frustrations and challenges that may arise, successful collaboration between departments is possible. Henrik Kehlet’s Enhanced Recovery Protocol is one such example. Developed in the 1990s, the program is based on key principles which require cooperation across multiple departments. These include:

Preoperative counseling, preoperative nutrition, avoidance of perioperative fasting and carbohydrate loading up to two hours preoperatively, standardized anesthetic and analgesic regimens (epidural and non-opioid analgesia) and early mobilization.” 

Similarly, improving patient flow in the PACU can be achieved when staff from every department commit to working together to identify the underlying reasons for delays and agree on appropriate solutions to resolve them.

There is no ‘one size fits all’ or quick fix to improve flow in the PACU. Change is difficult and time-consuming, but your hospital cannot afford inefficient processes in today’s healthcare landscape. The process will take time and require the gathering of accurate data from people on the front lines. It may also involve asking hard questions and challenging the status quo.

But one thing is certain: “individual commitment to a group effort” is critical to improve patient flow through your PACU. 

The Patient Journey Mapping® service from VIE Healthcare® identifies problems that serve as a starting point for an improvement project specific to your healthcare organization or hospital. VIE Healthcare® works collaboratively with you to create solutions and nurture a culture of ownership, responsibility, and accountability within your organization.

Schedule your free consultation today 1-888-484-3332 Ext 500 | info@viehealthcare.com

The Value of GPOs: Truth Or Myth?

This article was written by Lisa Miller.

The value of GPOs – is it a truth or a myth?

After labor expenses, supply costs are the second highest level of expenditure facing hospitals – and they have been rising relentlessly over the last decade. On average, they comprise 15% of a hospital’s total overall costs but that figure can reach 30-40% in surgery intensive hospitals. By 2020, it is now predicted that supply chain costs will overtake labor expenses as the number one cost in healthcare. Hospital survival will increasingly depend on effective supply chain management.

Negotiating cost-effective supply agreements has historically been a challenge for many healthcare organizations. Most are not robust enough to purchase sufficient volume to secure discounts from vendors and manufacturers in isolation. Ultimately, they pay excessive prices for supplies that are essential to their very existence.

Enter the GPOs.

GPOs (Group Purchasing Organizations) play a major role in the supply chain of the US healthcare industry – and the level of their non-labor costs. Click To Tweet

According to the Healthcare Supply Chain Association (HSCA), GPOs exist to help ‘… healthcare providers….to realize savings and efficiencies.’ This is achieved by using their leverage to negotiate discounts with manufacturers and other vendors. Today, there are 633 GPOs in the US and Canada and over 12,000 members within those GPOs.

Dissenting voices, my own among them, have contributed to the debate over whether this system of purchasing does in fact save hospitals money or is ultimately contributing to rising healthcare costs. Three key arguments in favor of GPOs are that they reduce costs, increase competition and drive transparency. But in almost two decades as the founder of VIE Healthcare®, I see growing evidence to challenge those claims.

Here’s why.

GPOs: A Cause For Concern?

In October 2014 the GAO delivered a report to Congress on GPOs, entitled The Funding Structure Has Potential Implications for Medicare Costs. This report provided a starting point for the US government to examine GPOs more closely and evaluate the potentially negative impact they have on healthcare costs. But in the last four years, the situation doesn’t appear to have changed.

From my observations, GPOs are often shrouded in secrecy, yet a glimpse into their world reveals major hidden issues. I’ve explored some of my concerns – and those of others – below:

Monopolization by GPOs Prevents Competition

An article in the Wall Street Journal in May 2018 Where Does the Law Against Kickbacks Not Apply? Your Hospital highlighted the conflict of interest and secrecy surrounding GPOs. In a market dominated by four giant GPOs, it emphasizes just how difficult it is for other new and often more innovative companies to break through.

Notably, Amazon Business, which originally intended to expand its client base to include larger hospitals and health systems, withdrew from the healthcare supply market in April, in part due to the barriers imposed by the relationships between hospitals and GPOs.

Furthermore, GPOs use just three major distributors which in turn pay fees to GPOs and are entitled to manufacturers’ rebates on contract products. As smaller suppliers cannot access these rebates they are effectively excluded from the entire market. The article suggests that higher costs and supply breakdowns are the ‘inevitable’ consequences of these arrangements, an argument which I agree with.

GPOs: The Cause of Drug Shortages?

Back in 2015, GPO kickbacks and anti-competitive practices were identified as the cause behind generic drug shortages, as it was noted they were in control of over $300 billion in drugs and supplies for around 5,000 hospitals. That situation has not improved. In many cases, hospitals continue to experience a shortage of saline. Other drug supplies affected by the purchasing power of GPOs include anesthetics, painkillers and IV fluids for oral rehydration.

The Power and Influence of GPOs

GPOs weren’t originally intended to operate in this way. The first healthcare GPO was established in New York in 1910 when hospitals collaborated in an attempt to reduce the cost of laundry services. Many decades later, in the 1980s, GPOs were given a ‘safe harbor’ by Congress, which allowed them to take kickbacks from suppliers.

Today, GPOs wield what appears to be immense financial and political power. Writing in the Summer 2018 edition of the Journal of the Association of American Physicians and Surgeons, Marilyn M. Singleton, MD, JD observes that GPOs don’t always choose the products that are best for their customers or patients and calls for their ‘safe harbor’ status to be reconsidered. This is unlikely to be achieved due to the extent of lobbying in Congress. Premier Inc alone spent a total of $1.79m on lobbying in 2017. This lack of transparency and federal oversight allows the practice of kickbacks to continue unmonitored, leading to higher spending for Medicare and fueling the spiraling cost of healthcare.

A further concern arises from the fact that Medicare may be paying rates based on inaccurate data. The annual update of Medicare payment rates to hospitals relies, in part, on information that hospitals report to the Centers for Medicare and Medicaid Services (CMS), an agency in the Department of Health and Human Services (HHS). According to the most recent records, the last review of this report was carried out in 2005.

Although all hospitals are required to report GPO kickbacks to the CMS, there is no data verifying that this information was, in fact, provided to the department on a regular basis since 2005. The most current report may therefore be inaccurate.

Medicare payment rates may be affected over time based on inaccurate data in the annual update to hospital payment rates, which relies, in part, on information that hospitals report to the Centers for Medicare & Medicaid Services (CMS)—an agency in the Department of Health and Human Services (HHS). Hospitals are required to report all GPO kickbacks to the CMS as reduction activity, but an accurate report of GPO kickbacks is difficult to determine if the last review of this report was done in 2005. Medicare might be paying rates based on inaccurate data.

Is There An Alternative to GPOs?

Ideally, a healthcare system should focus on the needs of the patient and broader society over corporate gain. The current system appears to be failing to achieve that aim. Click To Tweet

While GPOs negotiate contracts with manufacturers, vendors, and distributors, hospitals typically maintain the ability to make purchases outside of the GPO contracts but negotiating in isolation is difficult, as prices are likely to rise. For hospitals considering working with GPOs, resources and guidance on negotiating concessions before entering into an agreement are also available.

Singleton also suggests that the mood is changing and offers evidence of a shift in the market:

  • Healthcare organizations are moving towards bypassing GPOs to gain the best value medical technology contracts.
  • A growing number of systems are ‘owning and controlling their own supply chain destinies.’

Amazon also remains serious about disrupting healthcare supply chains. In July 2018, its acquisition of pharma startup PillPack was announced, sending shockwaves through the market – but it is in its very early days.

At VIE Healthcare® we work with healthcare organizations to identify areas for cost savings in non-labor spend with our unique Invoice ROI™ Purchased Services Technology. Since 1999, we have saved hospitals millions of dollars by utilizing data analytics to find cost-saving opportunities in every invoice line item. Our team of experts dig deeper than the average AP spend and compare market pricing and market trends to identify where the opportunities lie for our clients.

Take our hospital cost assessment to better manage your hospital’s purchased services spend.

For a complimentary consultation, call our office today at 1-888-484-3332, Ext 500 or email us at info@viehealthcare.com.