A Long-View On Value Analysis

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CEO Jamie C. Kowalski, Consulting, LLC, Milwaukee, WI

Back in the day, as many say, could anyone even imagine that Value Analysis would be what it is now? That might further beg the question, “What is VA now?” In perfect “consultantese”, the best answer might be, “Well, that depends…..”

Historical Perspective

In the 60’s, most hospital based purchasing staffs were focused on providing whatever the clinician or physician wanted. Since cost-based reimbursement prevailed, cost was not a factor. The efforts to standardize were mostly based on trying to buy more items from the same suppliers, because that was a more efficient way to do business, even though it might not result in the most costeffective outcome.

Product Evaluation committees emerged and focused on looking at (and reacting to the introduction of) new products to determine the most effective (aka, “best”) product for the medical need. Pharmaceuticals, handled by the Pharmacy & Therapeutics Committee, sought and mostly achieved similar objectives. The committees were inclusive of key stakeholders – diverse members; sometimes 20 or more attending meetings.

By the early 80’s, providers began to consider cost and effectiveness, together. The changes in reimbursement (TEFRA and DRGs) supercharged that movement. Thus, the concept of “value” became mainstream. But, did that actually happen? Once again, the probable best answer is, “Well, that depends….”

What’s Value Analysis?

Fast-forward to 2014 and what is seen and heard? There has been an explosion in the number and quality of spend capture and analytics software that can slice and dice usage, spend, and outcomes data and turn it into meaningful information, instantly.

There is a lack of data and information anymore. Today, the goal has been reached. Data is being transformed into information, which is being transformed into intelligence and insight. However, is that intelligence being applied to reach the goal of finding the acceptable level of value and achieving the lowest total delivered cost?  

Ask several people to define the value in VA, and they will likely provide multiple answers. Consider this, if the primary definition is not substantially the same as this: Value Analysis is determining the process, product, drug, device, etc., that meets but does not exceed what is required, then real value is NOT being achieved.

It does not mean consistently just defining VA, it means applying it, consistently, fearlessly, vigilantly, yet tactfully. Too frequently, Supply Chain leaders have admitted and expressed exasperation about the savings foregone because the VA process did not result in the most cost-efficient choice. They grumble when some physicians (mostly surgeons) insist that the item to select is the one with the most bells and whistles that go beyond the needs of the medical requirements, or, is the one from the company with which they are most familiar (and maybe are buddies with the sales representative) with, frequently stating all the other products are inferior, while all the evidence (based on many sales to other hospitals and use by many other surgeons, without any negative effects on the outcomes required for that patient, that condition) proves otherwise. Is that the best value?

Long-View

Why is this happening in this era of negative bottom lines, ACA legislation driven drastic reductions in reimbursement to both hospitals and physicians? It seems the answer is, missing commitment to VA and the discipline to execute its principles, plus inadequate leadership. A harsh, inaccurate, or unfair conclusion? When considering all the factors/evidence, what other conclusion can there be?

Why is commitment lacking? Most likely because of insufficient education/communication and salesmanship. Like in any campaign, all participants and stakeholders need to be informed about the reality of the situation. What is the provider’s bottom line? How many surgical procedures are performed for which the reimbursement doesn’t cover the costs? More procedure volume doesn’t fix this. What are and why is there such a wide range of total costs for the same procedure, for all surgeons doing the procedure? Why is an item that may be the lowest total cost alternative, and provides the same outcome, being rejected? The facts clearly show that, while such “unnecessary” spending may have been acceptable or allowed (even encouraged) in the past, it is not possible to continue this for another day. This information can and must be presented to stakeholders, in a professional, tactful, and educational manner.

Maybe the needed sales pitch includes something like, “We are all in this together, and we’ll figure out how to deal with it.” “It’s not your fault or anyone’s fault, it just happened, and it cannot be afforded anymore.” Or, “We are not just calling you out; everyone has to do more.” Slogans? Maybe. With many, it works. Given what is at stake, it’s worth a try.

Leaders lead, see the big picture, envision an end state that deals with the challenges of the big picture, develop a plan to create the future vision, and sell it to all those who have to help execute it, along with the stakeholders who will be affected by it. Then, leaders get people to follow them, and do what each can and must do to make things happen. Surveys of provider and supplier executives, and personal observations, continue to reveal that too many of those in leadership positions (Supply Chain and/or VA) either don’t know what a leader is and how a leader leads, or do not want to do the hard work, handle the hassle, or take the risk.

The data is there. The technology/analytical tools are there. VA can fulfill its destiny. It must. Now.

Since the 1970’s, Jamie C. Kowalski has developed and utilized his specialization in healthcare and hospital supply chain & spend management, as an executive, strategic advisor, thought leader, frequent speaker, coach/mentor, consultant, and advocate. He is the author of five books on healthcare supply chain management, contributed to 3 others and has written over 50 published articles on supply chain management topics. In 1980, Jamie founded the firm Kowalski-Dickow Associates, Inc. (KDA), which grew to an internationally recognized, leading hospital supply chain management consulting firm that served over 1000 hospitals and 150 IDN clients. In 2002, KDA became a subsidiary of Aramark. Jamie is a Co-Founder and Board Chairman of The Bellwether League, Inc., the not-for-profit Hall of Fame for the Healthcare Supply Chain leaders. For questions or comments, Jamie can be contacted at www.jamieckowalskiconsultingllc.com.  

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