Automating Business: Standardization

Investing in Standardization
Vendors provide software tools to help IDNs standardize purchasing and reduce costs.

The key to reducing healthcare costs is not necessarily lowering purchase prices. In fact, by investing in information systems designed to help aggregate data and standardize purchases, IDNs are better assured of paying the right price for the right product and, hence, reduce spending.

“Take cost out of the initial equation,” says Kevan Torgerson, senior VP of corporate accounts for McKesson Corp. in Alpharetta, Ga. “In order to drive down costs, IDNs must standardize software systems throughout their hospitals, as well as the hospitals’ use of contracts and purchasing.”

The challenge of automating
“In the past, there hasn’t been a lot of standardization of contracts in IDNs, but this has been changing in the last 12 months or so,” says Torgerson. “IDNs are looking to maximize their contracts and purchasing solutions.”

“The tools are available for IDNs to standardize their products, but hospitals must be open to this,” adds Jamie Wyatt, VP of health industries for Oracle in Pleasanton, Calif. “When hospitals rely on automation to standardize, they find their staff is freed up and can accomplish more.” This, in turn, reduces healthcare costs. Wyatt estimates that 65 percent of IDNs in the United States have implemented some type of information system to help with standardization.

Still, affording automated solutions can be a problem. Some IDNs find it difficult to fund new information systems for hospitals when old systems become obsolete. While for-profit IDNs are beginning to invest more in automation and standardization, not-for-profit IDNs are either more reluctant or less financially leveraged to make the same commitment. Yet, when a system includes 50 to 100 hospitals, IDNs need standardization to remain competitive.

One approach McKesson offers is its Optyx information/data management system, which enables multiple hospitals in an IDN to aggregate data without completely replacing old software and hardware systems. Designed especially for medical-surgical supplies, this program provides an “overlay,” which Torgerson says gathers data from individual hospitals and shows the IDN contracting staff whether its members are maximizing contracts.

Every IDN presents a different set of challenges, since every hospital system is different. “We want to help hospitals leverage as much of their current hardware and software investments as possible, and allow each hospital to retain as much of its current system as possible, yet still standardize and maximize data,” says Torgerson. “To do this, we look at each hospital’s technology and computer infrastructure and make recommendations for maximizing existing systems.”

“If a hospital’s current information system is meeting its needs, we’ll continue to use that system,” adds Wyatt. Similarly, the IDN shouldn’t standardize its hospitals on a legacy system simply because it is the most widely used, if it is not efficient.

According to Wyatt, the big question is: Are IDNs managing contracts effectively and keeping pricing up to date? Even hospitals with solid materials management departments sometimes lack the tools to maximize contracts. But automated systems can help.

Identifying, naming, managing
“Implementing a new information system for a hospital system is not always the most time-consuming part of standardization,” says Wyatt. First, the IDN contracting department must evaluate why its hospitals use their current systems and identify what it wants a new information system to accomplish. “One of the biggest aspects of implementation and standardization is discussing what issues need to be addressed and then agreeing on how to address them,” he adds.

Wyatt says to maximize hospitals’ uses of contracts, IDN contracting staffs can use information systems to help them identify products on contracts. “Historically, hospitals haven’t had the ability to convert codes and standardize products,” he says. One of the greatest challenges in working with a new hospital system is evaluating and converting its product codes. “We can’t standardize products and pricing without understanding each hospital’s coding system,” he adds.

Wyatt cautions to forget about brand names and use generic labels. Once the IDN masters the naming of products, it can coordinate and standardize product usage among its hospitals.

The more organization the IDN accomplishes up front, the fewer distractions it will encounter later, as it updates old information systems or implements new ones. When it comes time to revamp or implement an IDN-wide information system, this process should only take nine to 12 months.

IDNs generally start implementing new systems by replacing their hospitals’ old inventory and accounts payable systems. These components are critical to the organization’s ability to function. However, by adding a bidding or electronic purchasing component, as well as an electronic requisitioning module, IDNs can get a much better return on investment. And, adding these functions does not require much additional work. Wyatt also recommends adding a supplier analytics component early on to keep the contracting staff apprised of how well the supplier is meeting expectations.

“The less work the hospital must do on a daily basis, the more money it saves,” says Wyatt. The goal should be to get the supplier to do some of the work and provide services online. He says suppliers can and should do the following:

Resolve invoices
Enter invoices online for second- and third-tier suppliers
Manage requests for proposals and the bidding process.

Return on investment
Wyatt says that while the cost of information systems may vary depending on the size of an organization and the number of solutions purchased, the return on investment typically is between threefold and tenfold. In fact, a larger hospital system may purchase a more expensive mix of automated solutions, but the return on investment will be greater, simply because of greater usage.

“We have seen savings of more than $50 million,” says Wyatt. With regard to contract usage, hospitals generally can expect a savings of 3 percent to 5 percent. “To determine the return on investment, IDNs must document their expenses before implementation, as well as afterward,” says Wyatt. They must also establish whether the new system is accomplishing what it was supposed to do.

Education and training
Few, if any, would dispute the benefits of ongoing education and training to ensure the greatest usage of information systems. “IDNs should educate their hospitals on an ongoing basis to fully use information systems,” says Wyatt. “Things change, or certain functions are not used very often. Organizations that spend the time and effort (to keep their members current) get the greatest value from the system.”

McKesson stresses the need for annual in-service events provided by IDNs to train new staff and keep older staff up to date. “We want our customers to be experts, but they can only retain so much information [acquired during] training,” says Torgerson. In-services, ongoing education and consulting engagements help ensure that hospitals and staff are using information systems optimally.

In addition, IDNs must ensure their hospitals are consistently coding products correctly and getting the right prices. This information can be tracked through audits. Some IDNs now rely on evaluated receipt settlements to ensure all of their hospitals pay the correct prices for different products. The hospital uses the quantity and unit price on the purchase order to determine the exact payment owed to the supplier. By immediately compensating the supplier, the hospital reduces the chance of being billed incorrectly.

“IDNs and their hospitals have pricing information in their information systems,” says Wyatt. “They can save time and effort by using this information to automatically cut a check to the supplier.” This beats waiting to catch or correct a faulty invoice.

Wyatt says the tools are available for IDNs and hospitals to take better advantage of contracts. Now, and in the future, information-driven systems will help these organizations better evaluate purchasing processes.

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