One of the first questions I ask my new clients is about their value analysis review process. Why? Because that’s the rigorous process every hospital and system needs in order to ensure they’re effectively managing supply expenses.
You, like almost every CFO and Supply Chain VP I speak with, are probably nodding your head right now, saying that you have a methodology in place. But I would like to challenge you on that.
- What is your value analysis (VA) process, really?
- Who is involved?
- Do you include reimbursement analysis as part of the evaluation?
- What tools do you use to track progress and monitor results?
- How do you tie these results back to the overall impact on your organization’s total supply cost and net operating income?
- Does the process include reaching identified cost reduction targets?
The ultimate effectiveness of your VA program depends on your answers.
Many VA programs I encounter focus primarily on the introduction of new products and technology. Others are the opposite – primarily centered on cost savings of existing supplies but ineffective at controlling new product entries into the organization. In order to truly exert some level of control over your supply costs, you have to focus not only on the new products and technologies coming into your organization, but also on how well you are managing existing supplies. In other words, it’s great to excel at minimizing the added costs of new technologies – it’s even better to control those costs while also reducing existing costs.
5 best practices for a successful value analysis process
Best practice #1: C-suite engagement
A C-suite level leader needs to chair and oversee your Value Analysis Review Team. Visibility at the highest level of the organization will ensure the team members feel accountable – and accountability is the crux of success. As the organization’s financial steward, your CFO is typically going to be the best person to chair this team. If that’s not possible due to bandwidth or competing priorities, then ask your COO or CNO to lead this team. And by “lead”, I mean truly lead the process and hold others accountable to targets and results while serving as the go-to person for dealing with barriers and resistance to change.
Best practice #2: Appropriate representation
Value analysis is not just a supply chain responsibility. Supply chain alone cannot dictate that clinicians change their practice, judge the impact on clinical effectiveness and quality, or calculate the expected reimbursement for a new supply. The appropriate engagement of other key stakeholders is of vital importance to the VA team’s effectiveness, and those stakeholders include physicians, nursing leaders, finance personnel, and other support departments like infection control, biomed, food and environmental services, and information technology.
Best practice #3: Clarity of purpose and aligned incentives
In the first meeting, the team needs to develop a team charter (read more about team charters in my colleague’s blog), which will include the team’s mission, goals, and list of participants. Ideally, these goals will tie back to the participants’ annual incentive plans to ensure alignment with the organization’s goals. Ultimately, the purpose of this team is to ensure your clinicians have the products and technology they need while delivering appropriate cost savings and financial stewardship to the organization.
In subsequent meetings, the team needs to:
1. Review all new products and technology requests: Hardwire a new product and technology assessment process that includes a review of the cost, reimbursement and clinical impact (outcomes); develop item master controls to ensure compliance; and review new spend versus historical spend to identify new products that may have slipped through the cracks
2. Review strategic sourcing (contracting) opportunities to include contractual compliance monitoring
3. Review product utilization by commodity to identify standardization and consolidation opportunities
Best practice #4: 100% process adherence
Make it clear that you expect 100% process adherence. Ensure each and every new medical supply, non-medical supply, drug or purchased service entering your organization goes through the same rigorous value analysis review process. No exceptions. And the only way to be successful at doing this is to continuously monitor your item master, Rx formularies, purchasing reports, distributor reports and invoices. This will likely be the most challenging part of revitalizing your VA program as it will require some difficult conversations with department directors and clinicians who have historically found ways to circumvent the process.
Best practice #5: Culture of accountability
Like I mentioned, accountability is the crux of success. Every team member needs to understand the important role they play in your VA review process. Your physician champions need to understand they are there to represent their colleagues and bring forth their expert opinions. They also need to understand they are expected to champion the team’s decisions among their physician peers and ensure their colleagues adhere to the team’s decisions regarding vendors, supplies and preference card items. Your department heads need to understand that they, too, are expected to respect the team’s decisions and not stray from the approved process when procuring new products or services.
This brings us back to the first best practice I mentioned: C-suite engagement. This will help you instill a culture of accountability into the team itself – and across your entire organization.
By Tom Fox, Managing Director