Improving financial performance using clinical supply chain technology

Health systems continue to grapple with tight operating margins due to rising costs of labor and supplies. They are looking for investments, particularly technologies, that help them improve their financial performance without over-burdening staff. In addition, they have already made significant investments in enterprise systems to help drive standardization in data and workflows, including enterprise resource planning (ERP) systems and electronic health record (EHR) systems, so they are looking for new technologies that help them get more value out of these investments. 

“And yet, these enterprise systems don’t typically communicate well with each other,” said Kelly Finch, senior marketing manager at Cardinal Health™ WaveMark™ Solutions. “We are finding that health systems with a growth mindset are seeking investments in clinical supply chain technologies that bridge the gap between their EHR and ERP systems to provide them with enterprise visibility on supply use and spending so they can use those insights to mitigate supply expenses, reduce waste and drive supply standardization, all while enhancing staff efficiency and improving patient safety. Without clinical supply chain technologies in place to provide better visibility and to streamline supply chain processes, some health systems are relying on clinicians to manage clinical inventory, like implants and physician preference items, when their time is best spent on patient care.”

In this HFMA Executive Roundtable, six healthcare financial executives reflect on the biggest clinical supply chain challenges their organization faces and discuss what metrics are most critical to evaluating success and a return on investment (ROI) with clinical supply chain technologies. 

What are some of the top challenges that you face in your organization with the clinical supply chain?

Monica Hoch: In the more acute revenue integrity space, I see mostly the process flows. We just implemented a workflow for supply management, and it took us two and a half to three years to implement a standard Oracle ERP, where we used to have three different item masters and 14 different ERPs. There was a lot of work of getting data out of our system and then using it to understand what our costs are, what we’re actually purchasing and then driving our workflows regarding returns, rebates, stale products and waste, making sure people don’t open the packs before the surgery starts, little things like that. 

Because we had multiple item masters before, we had the same products multiple times in all of them. Standardizing all the items has given us a better starting point to now know what our supplies are and then look at the data for cost per case, what products are physicians using, and which vendor, and then they can look at the clinical outcomes for those products. 

Now we have one EMR and one ERP system, so it’s a much simpler environment. Our challenge now is that the behavior has not necessarily changed. Physicians like to use their favorite widget. Our supply chain group has been on a journey to simplify our supplies, trying to get acceptance to reduce the number of varieties. You can’t have
25 different brands of the same item and have hope to control your costs. 

We’re trying to get physicians to be OK with reducing the number of varieties of the same item. It’s just easier from a contracting standpoint. We’re often dealing with scenarios when an item shows up, we do a surgery and then we don’t have a price because the item may be the next version of the same product. Then contracting has to go back and get a price for the item. It’s hard to know whether to hold that case or go ahead and charge the price of the old item, which is what we have to do because we can’t just keep holding cases and waiting for contracting to get all that done. We’ve got everyone on one system, but there’s still a lot of work to be done.

Mark George: The biggest challenge with managing all of the clinical supply chain is just that it’s very cumbersome. 

In our state, it’s pretty standard to have a value analysis committee. We have a core team, and it’s run by a great clinical person who requests a detailed evaluation of each supply initiative to ensure it meets strict standards (financially, clinically and qualitywise). The committee meets monthly, and requests get denied or approved to move forward. The key is, we have to just make sure it’s right for the patient. Is it quality? Does it make sense? And then obviously, are we going to get paid for it? We have to blend in the payer mix and who’s going to pay for it, who’s going to bundle it and so forth. 

We have a corporate team that also includes decision support. They can run all the financial analytics down to the patient level and by surgeon. Tell us what he’s doing. What’s the payer mix? Are they making money on their procedure or not? And if you add in this new supply they want, or this new procedure, what does that do to their profit margins? And of course, does it make sense for the patient from a quality perspective. 

What are your top ROI metrics for clinical supply chain management?

Kelly Finch: Before this session, every participant was given a list of nine clinical supply chain performance metrics and asked to select the top three they felt were most important for measuring a return on investment. Overwhelmingly, two performance metrics rose to the top as most important for ROI when investing in a clinical supply chain solution: One, managing supply expenses and two, improving revenue.

Performance metrics related to improving data (like solving for data misalignment between existing systems that leads to missed revenue) and improving inventory turns to reduce waste were other notable issues highlighted. 

George: Supply expense is critical. When we look at our profit and loss statement, the second biggest factor in cost, besides labor, is supplies. As you’re increasing procedures, increasing volumes, building outpatient infusion centers, those are massive supply costs. We usually have a cost target set, and when they go outside that target, it’s a red flag. When we miss the target, it’s mostly because of the cost of the supplies that are coming through: Somebody used this expensive supply on an implant case, or this new drug got implemented. We make sure that we understand it, we can attack it and figure out how we can cover the cost. 

I’m sure all of us have struggled with a physician who wants a particular supply item, and if he doesn’t get this, he’s going to move his business elsewhere. We’ve tried to put markers on that to keep an eye on it. It’s always a big topic when we look at our financial statements.

Richard Nagy: We’re looking at cost per case versus revenue and how payers are reacting, as well as reduced inventory waste. A lot of that has to do with what payers will pay for waste, especially on drugs. 

The third priority is improved revenue captures. The biggest thing we’ve been facing has been payers coming back to us and stating, “No, that should be inclusive of routine charges.” They even say the procedure should be inclusive of the inpatient routine charge and not a separately billable or payable type item. 

We have the argument that Medicare allows it, and Medicare encourages it, in order to match up cost and charge. Providers have to make the argument that payers are paying extra for these items because the cost of a device isn’t often figured into the procedure cost or it’s not up to date because payment data used to determine the rate is from up to three years ago. With increases in moving more procedures to outpatient and new technologies, the cost has gone sky-high for all supplies, implants and new technologies. And payers don’t really want to capture these items as new technologies. They fight you on what is and what isn’t a new technology and whether it’s FDA-approved for that specific purpose. Providers have to make sure we’re capturing it first, that it has the right codes, that we’re fully investigating the FDA approval for it ahead of time, so that we know when we’re using it off label.

Elise Myers: Our ROI metrics are similar, but I think inventory waste is related to your improved turns, and you’ve got to have control over the number of supplies you’re using for the same thing. I’ve had doctors say, “I have to have this particular supplier implant,” and the other thousand doctors in our system don’t need that. You have to question whether they really need that supply. It’s important to have those standards and have some rationality around the variety to help you reduce that inventory waste for things going obsolete or not. 

Hoch: Like others, my top two ROI metrics were managing supply expenses and improving revenue, and my third was staff efficiency. That includes clinical staff efficiency, master data team, supply chain efficiencies and rev cycle. You have to determine how to get that charge onto the account, and how to price it all so that flows downstream from your cost analytics. It’s important to figure out how to reduce the burden for all those folks that are involved in that.

Sometimes soft costs are difficult to measure, but you can figure out how many [full-time equivalents] FTEs it’s taking or how many hours they spend doing a certain function, and which costs would be most valuable to your health system. Anytime we change a workflow, there’s always an analysis done on the nursing impact and the physician impact because we really can’t change workflows that create more time required from them. We’ve been working on some automation with physicians to try and figure out how to make this easier for the doctor and more accurate. It’s very easy to miss. It’s not just supplies; you could be missing value in your level of care, or whether it’s a trauma scenario or not. We miss those additional revenues if we don’t take that documentation and connect it to what the charge is ultimately going to be for that work that the physician performed. 

Kashif Zaheer: For me, the number one ROI metric was to manage supply expenses. And second was to improve revenue, capture all supply charges for every case or procedure before transferring to a billing system. And third is reducing inventory waste. That’s also very critical. 

As everything is moving toward value-based purchasing and driven by managed care, it’s very important now for organizations to build strategic partnerships. You can’t employ everybody, so it’s helpful to have strategic partnerships that can focus on the revenue cycle, for example. If we have a certain population and we’re going to get only this much revenue from that certain population, we may need help figuring out how to work with specialists to reduce the cost and eliminate the variance, such as one particular surgeon believing that this is the only way, or this is the only instrument he can use. We have to figure out how we can work with them to collaborate with review committees to change that behavior so we can reduce the cost too. 

We’ve started doing some of this through strategic partnerships. We have a preferred provider list now within our Epic, and all physicians from each market can use those lists for any referrals. That helps us manage some of those costs, because if one patient goes out of the system you lose all that revenue.

Hoch: To piggyback on that, we’re looking for a vendor partner that is helping us think forward, using automation or other innovations. Is their solution something that will align with where our problem areas are or where we’re trying to go? We look for partners that are aligned with some of those strategic objectives for accomplishing our goals with the least impact possible to our clinical staff. And maybe we leapfrog over manual work and automate it in such a way that, instead of making it easier for someone to do charge entry manually, we just forget that piece and do something using automation or some kind of innovation that we haven’t even thought of yet.

Conclusion

For healthcare finance leaders looking to control supply costs, reduce waste, and to simply have the data necessary to make informed decisions, clinical supply chain solutions can help improve financial performance by managing supply expenses and supporting comprehensive charge capture through workflow automations and elevating their investments in existing systems.  

Panelists

KELLY FINCH
Senior marketing manager at Cardinal Health WaveMark Solutions in Dublin, Ohio

MARK GEORGE
Director of finance, RWJ Barnabas Health – Jersey City Medical Center in Jersey City, New Jersey

MONICA HOCH, MBA
Associate vice president of revenue integrity at Providence in Irvine, California

ELISE MYERS, MBA
Vice president of clinical revenue integrity at Providence, in Seattle, Washington

RICHARD NAGY
Vice president of managed care at Allegheny Health Network in Pittsburg, Pennsylvania

KASHIF ZAHEER, MD
Regional medical director physician practices at OSF Healthcare in Evergreen Park, Illinois

About Cardinal Health™ Wavemark™ Solutions

Cardinal Health™ WaveMark™ Solutions is a clinical supply chain solution that provides health systems with insights to operate the most efficient flow and clinical documentation of medical supplies, including high dollar inventory and medical consumables. The solution leverages predictive modeling and automated inventory management — coupled with expert support services — to empower teams in operating rooms, procedural labs, and nursing units to optimize workflows and support product availability through the development of a clinically integrated supply chain. For over 20 years, WaveMark™ has helped more than 300 health systems automate and simplify clinical and supply chain workflows to reduce the time that clinical staff spend on supply management and allow them to focus on providing the best patient experience and care.

_{This published piece is provided solely for informational purposes. HFMA does not endorse the published material or warrant or guarantee its accuracy. The statements and opinions by participants are those of the participants and not those of HFMA. References to commercial manufacturers, vendors, products, or services that may appear do not constitute endorsements by HFMA.}