News Column

tying supply chain costs to patient care

May 1, 2014

Parkinson, Rosalind C



Often, specific information relating supply cost to patient care is not available in hospitals because data for supply usage and patient outcomes are not connected in hospital systems.

Although supply cost data are frequently included in a hospital's general ledger and are manipulated to mimic costs associated with a patient discharge, critical information relating supplies to cost and quality of care is typically lost in translation. The inability to connect specific supply data to individual patients, especially for implants, is troubling not only from a financial standpoint, but also from a patient safety point of view, particularly when implants and devices are recalled. In September 2014, the U.S. Food and Drug Administration (FDA) will establish a unique device identification (UDI) system to aid hospitals to better track and manage medical devices and analyze their effectiveness. When these identifiers become part of patient medical records, the UDI system will provide the much-needed link between supply cost and patient outcomes.

The State of Supply Chain Data in Health Care

Supply costs are tracked in hospital financial systems so that patient charges can be calculated correctly to optimize revenue. As hospitals across the country focus on reducing supply costs-for example, by aggregating supply spend and engaging physicians in more disciplined procurement of high-end devices-their efforts have only limited potential for success, particularly when vendors are still able to directly influence physicians to continually use new products and devices. What is needed is a technology infrastructure to trace supply usage patterns directly to patients and analyze the impact of these usage patterns on cost and quality.

Currently, the healthcare industry's interest in unique, machine-readable product identifiers that characterize efficient supply chains and cost accounting in other industries could be described as "sluggish," at best. Eventually, health care can be expected to undertake intensive efforts similar to those currently seen in retail and manufacturing to reduce supply chain expense relative to charges per unit of output-or, in the case of hospitals, "patient discharge." But today, most hospitals rely on summary data to calculate supply cost per discharge. Typically, when hospitals attempt to match supply cost per DRG, they estimate cost from formulas applied to patient charges.

Lack of specific supply data relative to patient outcomes contributes to significant recall failures for implanted hips and knees. The FDA's new UDI system will help to rectify this failure, and work is underway in the Office of the National Coordinator (ONC) to encourage that the new supply identifiers be included in electronic health records (EHRs)for 80 percent of implants beginning in 2017. Numerous changes to hospital systems and processes will be necessary to comply with such a regulation.

Hospitals should consider five strategies that will position them to optimize use of the new supply identifiers, both to enhance patient safety and to gain a more clear picture of the link between the use of supplies and the quality and cost of care.

Strategy No. 1: Fine-Tune the EHR

Critical management information for the future will reside in data warehouses that store blinded, patient-specific information from EHRs. Data about treatment variability and variation of supply use for given DRGs, together with testing modalities and frequencies, are being gathered in EHRs today, but in many cases, the data remain in text fields and cannot be queried.

As payment reform continues to pressure healthcare organizations to link information regarding supply cost and quality, EHRs will become our most important resource in answering cost-quality questions, including what constitutes optimal supply use. Operational efforts to replace text fields in EHRs with scannable alphanumeric codes are vital to understanding supply cost and quality. Standardization of data-entry procedures that use machine-readable input and appropriate scanning devices and processes can reduce stress on caregivers. We must be responsive to front-line requests to streamline data entry if we are to make good use of EHR data in the back office. We should assume accountability to perfect EHRs to maximize their benefits as a cost-quality management tool within hospitals.

Strategy No. 2: Ensure Support for Value Analysis Using Better Data and Processes

Most large healthcare organizations employ value analysts to review supply cost and usage data in supply-intensive areas, such as operating rooms (ORs) and cardiac procedure areas. These analysts' findings can guide strategies to align selection of physician preference items to important quality and cost-savings targets.

Value analysts work to reduce supply variability among physicians to improve patient safety and aggregate supply spend. Value analysts say, "Physicians like data for decision-making," but value analysts are often frustrated by the data we can give them. Hospitals tend to rely on the cost-accounting and procurement systems or outside sources to provide cost benchmarks. However, these sources cannot provide answers to physicians' questions about the impact of specific products on patient outcomes.

Hospitals should acknowledge where they have deficits in supply data while fully using the data they have.

First, hospitals should avoid using patient charge data as a substitute for true cost data. Scrubbing patient charges to get cost information yields uneven results. Second, hospitals should admit when data are unavailable to support or deny product efficacy, but should actively pursue changes that will make such data available through EHRs in a few years.

Third, hospitals should use the data they do have to establish routines for considering cost as a factor in product decision-making at every level of the healthcare organization. Value analysts can develop policies for new product introduction, product substitutions and vendor access.

Many healthcare organizations, including Providence Health & Services in Renton, Wash., and Ohio State University Wexner Medical Center, have empowered their value analysts to work closely and effectively with physicians. When supported by highest-level executives, these analysts can optimize product selection choices even in the absence of good patient outcome data by discussing quality advantages with physicians.

Strategy No. 3: Make Necessary Adjustments to Support UDI Capture and Evaluation

Large healthcare organizations, including Mayo Clinic in Rochester, Minn., and Kaiser Permanente in Oakland, Calif., began preparing for UDI several years ago to be able to trace medical supplies from the time they are purchased to the time they are used for an individual patient, in the same way they track medications. These organizations expect to realize cost savings from their efforts quickly once the identifiers are printed on product labels as required under the FDA regulation. All implant packaging must include these identifiers by September 2014.

Mayo and Kaiser will be ready to input UDI information into their purchasing databases and will enable clinicians to scan UDI information in the OR so that the information transfers directly into the patient's record. Such automated data transfers eliminate many of the manual processes currently used. As a result, information in the patient record will have fewer errors, will be more accessible long term in the event of implant recalls, and will require less labor to track. The Office of Inspector General (OIG) of the U.S. Department of Health & Human Services regularly requests data to assess hospital compliance with credit returns for explanted devices. Once system adjustments are in place, hospitals will be able to automate their responses to such requests.

Today at The Ohio State University Wexner Medical Center in Columbus, the best source for data on explanted devices is the device suppliers. We look forward to a future where we will have better visibility into our own implant information thanks to UDI and our EHR.

Strategy No. 4: Automate the Supply Chain

An unfortunate byproduct of revenue-focused business in health care is the industry's significant underinvestment in technology to support supply chain efficiencies that have proven effective in other industries. However, a number of healthcare organizations have demonstrated that automation can create a smoother, more cost-effective supply chain. With unique product identifiers, automation will take another leap forward as data passed between healthcare organizations and their business partners incorporates use of the same product identification, just as we've seen in retail today.

Some large healthcare organizations, including Mercy in St. Louis, Intermountain Healthcare in Salt Lake City, and Ohio State University Wexner Medical Center, have tackled various aspects of supply chain automation, and their efforts will be enhanced by the availability of UDI. But all healthcare organizations should implement automation strategies as soon as possible in anticipation of UDI, since automation reduces manual hand-offs that are notorious for creating data-entry errors. Supply information moved into EHRs should be error-free so that it can be used by patients to manage recalls and by data analysts to refine understanding of specific product selection on the basis of cost and quality of care.

Strategy No. 5: Instill Accountability in Front Line Staff

Healthcare organizations eager to instill costconsciousness into their cultures may already try to support clinicians with centralized analytics. However, sooner or later, timely, accurate, and impactful information should make its way to the point of care so that clinicians can make informed choices during an episode of care without input from others. Technology linking accountability for product selection to real-time expense reporting is available from consultants and software developers. Successful healthcare organizations will take advantage of these products to support a culture that values visibility into product selection both to save money and to support quality outcomes.

Organizations can begin to prepare front-line clinicians for accountability by expanding costaccounting systems to include specific products used to build patient charges rather than depend on a product category. Even though data are limited, healthcare organizations should invest in business intelligence systems that will tease out as much detail as possible on a physician and DRG basis. Healthcare organizations should begin sharing data for supply intensive DRGs with clinicians and managers and asking pointed questions about specific products used in these cases. Discussions now can focus on bringing supply cost into focus for those people who routinely make product selections. Investment in processes today will help create a culture that enables all stakeholders learn their future roles in supporting quality of care at the lowest cost once good data are routinely available.

Steps Toward Supply Chain Transformation

Hospitals and health system leaders' current understanding of supplies in their organizations underscores that supply costs are a building block for patient charges. Cost-accounting systems tell us how much our organizations spend on supplies, but this expense currently is not linked to patient records or to DRGs, where it could be analyzed relative to cost per incident of care or patient outcome. As healthcare organizations' revenue continues to decline, cost control has brought urgency to improved costcontainment strategies linking cost and quality.

Healthcare leaders can prepare now for a future linking specific supplies to quality outcomes by refining data quality in their organizations' EHRs, recognizing data gaps and taking steps to fill them, preparing systems to accommodate the FDA's UDI requirements, automating the supply chain, and preparing for front-line accountability through timely and accurate product selection analysis. Progressive organizations recognize that these transformations require long-term commitments, and they are preparing now rather than waiting for the platform to catch fire. *

AT A GLANCE

> In September 2014, the FDA will establish a unique device identification (UDI) system to aid hospitals in better tracking and managing medical devices and analyzing their effectiveness.

> When these identifiers become part of patient medical records, the UDI system will provide a much-needed link between supply cost and patient outcomes.

> Hospitals should invest in technology and processes that can enable them to trace supply usage patterns directly to patients and analyze how these usage patterns affect cost and quality.

Lack of specific supply data relative to patient outcomes contributes to significant recall failures for implanted hips and knees.

With unique product identifiers, automation will take another leap forward as data passed between healthcare organizations and their business partners incorporates use of the same product identification.

Organizations can begin to prepare front-line clinicians for accountability by expanding cost-accounting systems to include specific products used to build patient charges.

Rosalind C. Parkinson, MPH, recently retired as chief supply chain officer, The Ohio State University Wexner Medical Center, Columbus, Ohio, and is a member of HFMA's Central Ohio Chapter (rosalindpark8@gmail.com).


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Source: Healthcare Financial Management


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