The Key to Value Analysis Success is Having the Right Items On Your Agenda Every Time
How are you selecting your value analysis projects? Is it organized, systematic, and foolproof or is it left to others to decide? It is our goal with this article to give you a framework to select the best projects for value analysis so you can almost guarantee savings or quality improvements on each and every value analysis project you undertake. Here are 9 triggers that we recommend to our clients to select their best value analysis projects.
1. GPO Contracts
First, we like to say that all new or renewal group purchasing contracts should be selected as projects for value analysis. The reason for this is twofold:
a. GPO contracts tend to involve high dollar purchases thereby providing an opportunity to shave at least 5% in imbedded costs on every new or renewal GPO contract. Over $262,000 (or 10%) annually was saved by one of our clients who reinvented their wound care program instead of just renewing their GPO’s wound care contract.
b. GPO contracts could be costing your healthcare organization thousands of dollars annually unnecessarily since they may not be the appropriate product to meet your customers’ requirements. We see this in product selection all the time. Your customers are buying higher priced products (within your GPO contract) than are medically indicated.
To ensure that you have an opportunity to perform value analysis studies on all of your new and renewal GPO contracts, be sure to give your value analysis team 90-days lead time to get this work done.
2. Large Dollar Purchases
An ABC Analysis Report should be run annually to determine what products, services, and technologies are costing your healthcare organization. Then the highest 20% would be selected as value analysis projects. For instance, some time ago we identified a form for one of our clients that was costing them $185,536 annually. A value analysis study identified $91, 542 in savings or 50%. This is why you need to always review your top 20% (in dollars) purchases every year to ensure that there are no savings to be squeezed out of these large dollar purchases. By the way, the top 20% tend to change each year.
3. New Purchase Requests
It goes without saying that all new purchase requests, over $25,000 annually, need to be put under the value analysis microscope to weed out inappropriate products and to also search for lower cost alternatives to lower your acquisition and running cost. This is where substantial savings can be achieved since your requisitioners generally don’t look for lower cost alternatives when making their requests.
4. Magazine Articles
Often, you will see a magazine article touting a savings opportunity that was achieved by another hospital. This is a perfect opportunity to bring this to the attention of your value analysis team, so they too can investigate this savings opportunity.
5. Contract Renewals
Contract renewals are the ideal time to investigate savings opportunities since many times poor supply chain practices have crept into your contracts. A few years ago we reviewed an IV rental pump contract for one of our clients and found that they used 2,252 more IV sets than originally estimated, yet didn’t get a price break for doing so. We also noted that their pump set cost increased 28% during their four-year contract period, but no one questioned it. This is why you can never take your eye off the ball even after you have signed what you believe to be a very cost-effective and value-justified IV rental pump renewal contract.
6. Price Increases
Any time you receive a price increase on a product, service or technology, you should immediately place it on your value analysis agenda to search for a lower cost alternative. This is because with few exceptions there is another product, service or technology that will meet your requirements at a lower cost. Also, chances are once you inform your sales rep that the commodity is going to be re-examined by your value analysis team, they will cancel their increase.
7. Product Failures
A product failure could mean that value analysis didn’t get it right the first time, so it is crucial that your value analysis team review why a product failed. It’s the only way we know of to get feedback on your VA decisions so you can improve on them.
8. New Regulations
We have found that new regulations can cost you more money than they should if they involve product changes. Therefore, value analysis should be interpreting the new regulations to make sure cost effective decisions are being made by your hospital staff. Many times we have found that new regulations open the door to buying more than is required.
9. Utilization Misalignments
One of the newer and biggest areas of opportunity is in utilization misalignments. This can be anything from over consumption, waste or use of feature rich products that should not be used in a department or procedural area. There is good news and bad news when it comes to these savings. When you find one of these, they are more than likely to be a bonafied savings opportunity that will net good results for your VA Committee/Team. The bad news is that these are not that easy to uncover since you must have a system to compare your spend to the volume metric for each of the product areas such as cost per adjusted patient day for exam gloves, oxisensors, etc. You can do this with a spreadsheet if you happen to be focusing on that product study but more than likely you will need additional reporting to aid you if you are to track after utilization more diligently.
There are many ways to find new savings and quality improvement opportunities for your value analysis team’s agenda; these are just a few of the best elements we have found to be successful throughout the country with our clients and colleagues. A word of caution would be to be protective of your value analysis agenda items as you can chew up a lot of committee/team resources on items that don’t amount to much savings or quality improvement at all. In value analysis, you have to be on the lookout for the big fish as they will fill your savings and quality goals and objectives that will become more and more important to your organization’s bottom line.