Hospital Case Studies

Other, ordinary consultants have many “deliverables.” Shelves full of notebooks. Information. Recommendations.
Our “deliverable” is MONEY.

Case Study # 1

“High Risk”/”Difficult” Expense Reduction with Physician Preference Items

One of the best opportunities for cost savings in many hospitals is Physician Preference Items. In many cases, such initiatives have been met with heels-dug-in resistance and strained hospital-physician relationships. Fatigue with this has set in and fear and timidity about it exists, sending hospital administrators looking elsewhere for ways to reduce costs. But surrender is not a good option. PPI is “where the big dollars go”, and we do NOT advise fearing or failing at these opportunities.

Here’s how it works, when it works…..

A 300 bed hospital in the Northeast was paying list price on “new technology” preferred by physicians. The “A” implant cost $9,500.00 (per level). Its manufacturer refused any discounts, on the grounds that it was new technology and it reduced patient length of stay. They indicated a discount of up to 10% might be made available in exchange for volume commitments. The administrator felt as if he had hit a brick wall.

VIE requested, obtained and analyzed the past 12 months of reimbursement data from the hospital. We identified that 65% of the cases were reimbursed by Medicare. (Medicare reimburses at the same DRG for a 1-level or 2-level or more.) The data revealed that over 70% of the cases were 2-level or 3-level. The spine implants alone cost the hospital $19,000 or $28,500, but the Medicare reimbursement for the entire surgery was $21,000.00.

We then presented the data to the spine surgeon. He was surprised by the facts, and expressed that he “thought the hospital was making A LOT OF money on these implants.” Full presentation of actual reimbursement data can change minds!

With the surgeon committed to a solution to the losses, the CFO, Supply Chain Director and our team conducted new negotiations with the vendor, achieving a THIRTY SEVEN PERCENT REDUCTION in implant pricing. Even the offered 10% discount tied to volume commitments that had been offered would still have resulted in losses for the hospital because of their payer mix. Negotiating with reimbursement data and the assistance of an independent authority is a powerful approach!

It’s important to understand that two data and fact driven negotiations occurred, and usually must occur: one, with the physician’s actually practicing medicine and conducting surgeries; the other, with the involved vendor(s). Physicians must feel their expertise and autonomy is being respected, and they must be brought into problem-solving; not confronted with dictates. VIE’s direct involvement changes the existing dynamic between doctors and hospital administrators. Vendors cannot feel unreasonably or arbitrarily strong-armed. Again, VIE’s direct involvement changes the existing dynamic.

Case Study # 2

Supply Chain Optimization – Regaining Control of Operating Room Inventories
A 600-bed academic medical center with high-volume programs in general and specialty surgery was struggling to maintain appropriate inventories of Operating Room (OR) supplies. In addition to the Operating Room, nursing units and other clinical departments frequently ran out of critical items used for patient care and were saddled with wasteful overstocks of other surgical supplies. The facility’s difficulties in maintaining sufficient OR inventory levels caused repeated interruptions and delays in surgical schedules. This became a major source of frustration and dissatisfaction among surgeons and hospital staff alike.

VIE Healthcare was engaged to develop a comprehensive long-term inventory control plan, identify and rein in wasteful supply-chain spending, and eliminate costly overstocks. VIE also was asked to negotiate the returns of overstocks and expired inventory, in addition to more-favorable purchasing terms on key contracts.

The Organization’s Challenges

  • With inventory turns of less than eight per year, the facility was missing its target of 12 inventory turns per year.
  • Materials Management lacked the resources to oversee all inventory within the facility. As a result, physicians and staff expressed a lack of confidence concerning stocking levels, and some began to accumulate secret stockpiles of OR supplies to ensure resources would be available when needed.
  • Some OR inventory had expired as a result of overstocking, resulting in considerable financial losses after manufacturers refused to accept returns of the expired goods.
  • Supply-chain expenses were escalating with no associated increase in revenues.

VIE’s Vision, Identification, and Execution

  • VIE partnered effectively with Materials Management and OR staff to align inventory level guidelines with usage and surgical scheduling, and to eliminate overstocks from the OR, the eight cardiac catheterization laboratories, Interventional Radiology, and other key ancillary areas. This helped to restore confidence among physicians and hospital staff that patient care supplies would be available when they were needed.
  • VIE worked with the facility to catalog and cross-reference all overstocked items and trace them back to the original purchase order. Once the value of expired inventory — in excess of $500,000 — was quantified, VIE used its proprietary return script process to negotiate returns of overstock for cash, credit, or product exchange.
  • VIE’s expert supply-chain consultants identified that certain pricing agreements were out of line based on current market conditions. VIE successfully renegotiated these contracts with more favorable terms for the medical center. In one area, for example, the facility was overstocked in one size but used more common sizes with an annual expenditure of more than $1 million. With the help of VIE, the facility renegotiated this agreement and reduced that expenditure by more than 20 percent.

VIE’s Dramatic Results and Impact on the Bottom Line: $1.9 Million

  • In less than six months, VIE recovered more than $400,000 in refunds and exchanges of expired and overstocked OR inventory.
  • The hospital eliminated unnecessary overstock of more than $1 million and achieved its target of 12 inventory turns per year.
  • The hospital also cut an additional $500,000 in annual operating expenses after VIE directly renegotiated numerous vendor contracts.
  • The surgical services team, physician and staff satisfaction increased significantly and complaints to senior leadership subsided after implementation of the long-term inventory-control plan.