The New Face of Value Analysis

Baseball has sabermetrics. The healthcare supply chain has value analysis.

Product selection in today’s IDN is a blend of old and new. Just as they have been for years, supply chain executives are charged with balancing cost, quality and clinician preference when introducing new products and technologies to their IDNs. They have to be adept at value analysis. And they have to be smart, diplomatic and persuasive.

But JHC readers face a new world in many ways. Concerns about the cost of healthcare and the quality of healthcare – expressed in terms of patient outcomes – have never been as severe as they are today. Concepts such as “value-based purchasing,” “technology assessment” and “comparative effectiveness” are raising the stakes. And government and private payers are beginning to demand that providers address the total cost of care, rather than care delivered just in the acute-care facility, or the doctor’s office, or the long-term-care facility, or the home.

But something else that’s new is helping supply chain executives face these challenges. Unlike their predecessors, today’s executives have a wealth of automated data at their disposal, as well as smart and well-trained people to analyze it and apply it to product and technology decisions.

Lessons from industry
Bob Yokl, founder of Strategic Value Analysis in Healthcare, Skippack, Pa., has been preaching the virtues of value analysis for close to 40 years. “As the director of supply chain at a children’s hospital, I was always looking for better ways to do things,” he says. He found some in the industrial world.
Sixty years ago, a person named Larry Miles introduced the concept of value analysis while working at General Electric, explains Yokl. During the war years, materials such as rubber, steel and other products were scarce. Miles devised a way to analyze alternatives that would yield the same results in the manufacturing process. Yokl founded his company 25 years ago to bring Miles’s techniques to healthcare.

Even though “value analysis” has high recognition in healthcare today, relatively few people are actually doing it, says Yokl. “They’re doing something else. That something else is price shopping, standardization, [working] GPO contracts.” That’s the bad news, he says.

But there’s good news too. For one thing, senior management is more attuned to the need for value analysis than ever before. Yes, many still believe that value analysis is about price, not total cost, but they’re learning, he says.

The other good news is this: Many value analysis efforts have moved from a committee approach to a team approach. “A committee reviews information and makes decisions on the fly,” says Yokl. “Team structure calls for teamwork. You actually go out and see what the customer is doing; you shadow your customers; and you come back with much better information.”

By “shadowing,” Yokl means talking to customers with knowledge. “They’re asking, ‘Why are you using this feature?’ ‘How many times do you use this a week?’ ‘What patients do you use it on?’ So it’s not blindly shadowing them. It’s coming up with good questions based on data you’ve seen.”

If that data shows that the hospital usage is out of sync with what other facilities are using, or if the products being requested are overkill, then some action can be taken.

Data is integral to the process, but so are old-fashioned concepts, like time and effort. Simply taking the time to vet technology requests can save hospitals hundreds of thousands of dollars, says Yokl. He points to one instance of a lab manager who requested a high-priced lab information system which, upon analysis, wouldn’t even have fit the department’s needs.

“Nobody has time to vet,” says Yokl. “It could be a million dollars of equipment. The request comes in, management hasn’t a clue, but they trust the department manager. IDNs can use value analysis techniques to vet technology requirements, and then seek out lower-cost alternatives to meet their requirements.”

Getting the right people on the value analysis team is the key. “It’s an analytical job, not a clinical job,” says Yokl.

Today’s value analyst
With a master’s degree in business administration from the University of Dallas, Sandy Wise, RN, might represent the new breed of value analysis professionals. As director of clinical resources for the Texas Purchasing Coalition, Wise has been developing a clinical value analysis team program for the last year. Developing such a team for an RPC, as opposed to a hospital or even an IDN, presents its own set of challenges.

Texas Purchasing Coalition is a regional purchasing coalition, or supply chain management partnership, comprising 27 acute-care hospitals in the state. TPC has a variety of standing groups that consider product and technology issues, some examples being pharmacy, general medical, perioperative, cardiology and imaging. Various ad hoc groups are pulled together as necessary. One example: ICU nurses, infection control and others convened recently to hammer out oral care issues, in an effort to curtail ventilator-associated pneumonia. The member supply chain executives make up a Texas Purchasing Coalition council, whose members, after considering clinical input, ultimately decide whether or not to pursue a particular technology.

Once the decision to introduce a new product or technology has been made, the member representatives take that information back to their facilities “and run it through whatever process they need in their organization in order to get consensus at home,” explains Wise. While consensus is the goal, TPC members are free to follow their own path. In one recent example, the majority signed on to a contract for suture, endomechanicals, topical skin adhesives and mesh. “Very difficult categories,” notes Wise. “Each member evaluated the products with a consistent tool, but customized the process to meet the needs of their clinicians.”

Clinical and business expertise
Another example of the new breed of value analysis directors is Terri Nelson RN. She began her healthcare career at Mayo Clinic in Rochester, Minn., as a staff nurse, then worked as a nurse manager for many years. She then held a position in Mayo’s quality office, collecting quality data and measuring quality outcomes. When the value analysis position opened up in the supply chain management department in 2002, she applied. Her master’s degree in healthcare administration combined with her clinical background made her a successful candidate.

Value analysis started with each Mayo Clinic location (that is, the group practices located in Rochester, Scottsdale, Ariz., and Jacksonville, Fla.), as well as the Mayo Clinic Health Systems (a network of clinics and hospitals in Minnesota, Wisconsin and Iowa), having their own value analysis committees, she explains. These committees were charged with reviewing and selecting products.

Today, the Mayo Clinic has one multidisciplinary, multisite committee called the Mayo Clinic Commodity Committee, which is charged with approving recommendations for products that have been reviewed by clinical staff. Despite the word “Commodity” in the name, the committee reviews both commodity and clinical-preference products. Products defined as “physician preference products,” which are used by staff in various specialties, such as surgery, cardiovascular, radiology, etc., are approved via physician practice committees.

Overseeing the value analysis process for multiple locations gives Nelson a unique perspective on the nature of clinical wants vs. needs. “What we’re asking of our staff is this,” she says. “’Don’t tell me something doesn’t work. Instead, tell me what outcomes you expect to achieve, and then which of these outcomes aren’t being met by this product.’ We then need to ask the question, ‘Did we select the right product?’”

Example: Clinicians expect suture to pull together wounds and maintain closure to promote healing, she explains. “These are the outcomes. We need to make sure we have the right product to meet these outcomes. We encourage clinical staff to tell us what they need, so we can get the right manufacturer to meet these needs.”

What she is trying to do – and what she wants the clinical staff to do as well – is to move beyond “I just don’t like it.” Rather, she’s looking for concrete and actionable data. “We ask for as much detail as possible. We share this detail with the manufacturer. Our commitment is to work with a manufacturer to resolve any issues.”

Tapping into vendors’ strengths
Indeed, today’s healthcare environment calls for new relationships with vendors, says Tom Lubotsky, vice president supply chain, clinical resource management, Advocate Healthcare, Oak Brook, Ill. Accountability is an important part of the puzzle. But vendors are also a source of information, so why not tap into that, he says.

For example, at press time, Advocate was working with potential vendors of CT equipment on an agreement that would call on them to help the IDN use the technology more efficiently. “We’re not just concerned about what technologies advance the coordination of care; we’re interested in new solution sets around the way in which care can be delivered,” says Lubotsky. And vendors can help.

In the future, IDNs may write more agreements with vendors that “share the accountability for agreed-upon results, as a way of rewarding vendors whose technologies perform as promised, and penalizing those whose technologies fail to do so, he says. “We write consulting agreements that way,” says Lubotsky. Why not agreements for products and equipment? “Legally, I’m sure there are some hurdles. But that’s something we’ll have to address.

‘What I’m saying is, why not rely on the technical knowledge of the supplier to guide us and help us develop appropriate performance criteria that can be measured?” he says. With close to 150 clinical performance measures, Advocate has plenty of experience monitoring the performance of its clinical staff. “Much of it is focused on clinical quality and safety. There’s no reason we can’t do the same thing in the supply chain. It will take some effort, but I think we can do it – develop measures around utilization and appropriateness.”

He calls it a true performance-based management system. “Everything has a measurement associated with it, and it has to be broken down into safety, appropriateness and necessity. We have to answer these questions. And if it’s not something we can measure today, but something we will have to measure tomorrow, we’ll evolve to that performance-based management system. But we have to start asking the questions now.”

And while not all suppliers will be pleased all the time, at least the process is transparent. “The thing about value analysis tools that’s helpful for anyone is that if there’s a question about fairness or awarding the right contract, you can go back to the steps and say, ‘Here’s what we do; here’s the data we looked at,’” says Nelson. That data is both clinical and financial. “The vendors we work with know we’ll be fair. And if they don’t get an agreement, they know it’s not because we didn’t like them.”

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