We now operate in a data- and evidence-driven supply chain world that should give us everything we need to make our jobs easier and more efficient in our value analysis duties, right? Some of this is true, but just having access to data is not enough. You must apply the right methodologies, principles, and practices to interpret this data effectively and strategically manage your value analysis projects and teams to get the best results. The key to taking yourself and your Value Analysis Program to new levels is to not only have that data at hand but to apply new and sometimes older strategies that will take this data to a new level of understanding that will help you achieve your goals of cost and quality improvement.
We Are All Driven by Spend but That is Not the Whole Picture
Let’s think about spend management which most organizations have. You spend more, you spend less, you stay at a certain spending level in many categories, but what do you do with this? How do you know what is actionable and what is not? Most would say that the increased spending may be actionable, but I can tell you from over 33 years of tracking spend increases that is not always the case. Just because the expenditure is higher does not always mean that there are actionable savings to be had. We need to be smarter and more strategic with our value analysis projects and not always be triggered by just one dimension of our supply chain. There is more to learn and apply.
You Need Good Evidence to Direct Your Efforts
The challenge with spend variation lies in knowing exactly what actions to take. In an ideal world, you could dive into every major category and fully optimize each one over time. Unfortunately, limited time and Value Analysis Team resources make that impossible — and many of those efforts would likely lead to dead ends. What’s needed is a smarter way to assess and prioritize your spending categories, not just focus on the ones showing higher costs. Often, spending levels may appear stable in certain areas, only to discover later that those categories are actually performing well above expected cost levels. That’s because spend data alone only compares spending to other spending — it doesn’t reveal underlying inefficiencies. We need a more effective way to use spend data as evidence, not just as a passive tracking tool.
The Solution is Simple – the Art and Science of Supply Chain Benchmarking
There is no better tool to have in your arsenal than benchmarking, hands down. Many people think that when you talk about benchmarking you are “comparing” your hospital or health system to another, but that is not true. Benchmarking is the search for best practices – comparing as close to apples to apples as you can with metrics and spending. Benchmarking is not just comparing your spend to other spend, which will not tell the whole story. True benchmarking would be to assign a statistical metric (e.g., Cath Lab Cases) to each supply category (e.g., Angiography Catheters) to find out where you stand with this category. You can use it to compare it to your own history within your system or develop a group of cohort benchmarks.
This Example is Just One Category
Let’s use a simple example like pulse oxisensors. To accurately measure cost performance, you need a meaningful metric that reflects their full utilization across both inpatient and outpatient areas. For this category, we use cost per adjusted patient day. This metric helps you understand your performance within your own system and track trends year over year. We then take it a step further by providing our clients with cohort benchmarks, offering truly comparable, evidence-based insights. It may sound straightforward, but achieving this requires well-defined data categories and reliable clinical volume statistics — since adjusted patient days alone can’t be applied to every product or service.
What Do You Do with This Evidence?
Most would think to only use this data for cost optimization efforts, but interestingly you can also use this data to see where there is overuse of a particular product that indicates issues with the product itself or other utilization issues like nurses changing wound care dressings too soon. The good news is that once you have these metrics in place and continually update them, you will be able to take corrective action and have a mechanism in place to make sure that your changes have stuck. Many times, we find that not only do they stay in place but show better results than you projected, which is well worth knowing.
The Power to Know with Certainty is the Big Win!
Benchmarking has been around for many years but has not been applied to the healthcare supply chain at the level it needs to be used. Yes, we apply this methodology to our budgets, procedural costs, and departmental overall supply cost per metric, but why don’t we go a step further and take it down to the category or even departmental level? The data is there, and we need to start drilling down to that level as we are certainly capable of making this happen. This will entail your total cost of supplies and compare them to patient volume centric metrics and let you know exactly what is happening with your entire cost. The bottom line is that there are savings and quality improvement opportunities galore, but you need to add this skill set to your toolbox to take advantage of them.
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