Caldwell Memorial Hospital’s supply chain was struggling, as many hospital operations do, with multiple stock locations, excess and often incorrect inventory, and low accountability for what was on the shelves.
So the hospital’s leaders took action, and their successful initiative provides several steps that other providers may want to consider, too.
#1 Use Lean thinking
Caldwell leaders looked to their prior experience with Lean management tools to guide their efforts in the supply chain. A value stream assessment helped them pinpoint specific challenges, while data collection and analysis helped them develop a strategic plan for tackling them. This critical prep work revealed several key areas of focus: inventory visibility, demand flow optimization and management of physician preference items.
#2 Get visual
First up: inventory visibility and demand flow optimization. By introducing a new, Lean-based visual replenishment system, Caldwell gained the transparency needed to consolidate supplies, eliminate excess inventory and lower distribution costs. Plus, clinicians no longer had to spend valuable time managing supplies when they should be with patients. The combined annual savings from these initial activities totaled more than $3 million.
#3 Reign in requests
Next on the list: physician preference items. From supplies to lab resources to room and board, no two Caldwell physicians seemed to utilize assets in quite the same way. And these variations were adding up.
Digging into and analyzing resource usage data allowed Caldwell to break down the costs by clinician, case and location. This revealed just how much the inconsistency was costing the hospital — more than $4 million — and what Caldwell needed to do to convert those costs into cost-saving opportunities.
If you’d like more information on how this hospital achieved its remarkable result, please reach out to us.You can also read the full case study here.
Peer benchmarking could lead to the answer.
Tell us if this health system’s challenge sounds familiar: CHRISTUS Trinity Mother Frances Health System, located in Northeast Texas, was facing a staggering potential setback when a number of payer contracts changed. The difference amounted to a $25 million shortfall in their budget’s revenue.
The system’s first reaction might have been to issue an across-the-board expense reduction mandate to make up the budget difference. We all know that can happen a lot in the industry, but it doesn’t always produce the results healthcare organizations need, and quality of care can be impacted.
Instead, this system chose a data-driven, strategic savings approach as the path forward, with an eye on long-term financial independence from these types of shortfalls.
A look at the targeted expenses
Using a comprehensive comparative database, the system was able to benchmark costs, productivity and resource utilization against best-in-class facilities of similar size and demographics.
Leaders identified cost improvement opportunities in areas such as supply, labor costs, length of stay and purchased services — areas where the system was not at the same level as high-performing peers in terms of expenditures.
The benchmarking information from the database was also used as a call to action for staff to find methods of improving processes and cost management. CHRISTUS Trinity Mother Frances leaders formed teams and assigned financial targets. Teams then used the database to answer the question, “If another health system is able to keep supply costs at this level, what can we do to bring our costs to that level with no bearing on our patient care or satisfaction?” The health system also created a dedicated project management office to help guide the process. The results of these efforts (in box below) speak for themselves.
If you’d like more information on how the health system achieved this result, . You can also read the full case study .
The Society of General Internal Medicine (SGIM) recently released a report calling for several changes in how healthcare is paid. Most importantly, the payment model, and moving to a reimbursement system more based on the quality of the healthcare delivered. I completely agree. The SGIM is to be congratulated for this important recommendation. Fee for service drives the wrong behavior for hospitals and physicians.
Physicians are currently paid more money if they provide more services to patients, irrespective of whether the patient actually needs the service. This incents physicians to fit more patients into a crowded day and it leads to more testing. Medical equipment and device vendors understand how payments work—their proposals to physicians to put more testing equipment in the office include details of how many tests per month need to be done to make a profit on the equipment. This type of analysis is provided to physicians every day for ECG machines, heel ultrasound bone densitometers, and radiology equipment. The tests provide value in certain situations, but the emphasis should be on the clinical need, not the profit motive. Fee for service medicine drives this behavior, and is part of the reason US healthcare is the most expensive in the world.
Hospitals are not immune to the problem; hospitals make more money by filling the beds and keeping the CT and MRI scanners busy. Marketing efforts are focused on attracting more patients for hospital services, particularly in the more lucrative areas such as cardiovascular surgery and cath labs. Hospitals should focus on improving the health of the communities they serve, not on providing more services.
One of the promises of the accountable care organization is to base medical payments on quality outcomes, not on volume of services. If implemented, the provision of medical services will be based on the medical need and the evidence of medical benefit of the service. This needs to be an important part of the discussion on reforming and improving the healthcare system in the US.
Dr Michael Taylor
Chief Medical Officer