Adopting a Cost Benefit Methodology in Supply Chain Decision Activities

William Stitt, CMRP, FAHRMM, CPHMCorporate Director, Materials

ManagementUniversity Community Health

Tampa, Florida

Overview

The decision making process related to healthcare products and equipment is dynamic, and many cases personal to the requestor.

This session will focus on an objective cost benefit analysis approach to evaluating new projects and conversions.

Key Points

Discover the “Value Proposition”

Concurrent consideration of project factors.

Operational

Clinical

Financial

Think quantifiable, not conceptual.

Neutrality from a supply chain perspective.

Validation determines success.

Types of Initiatives

Cost Neutral

Cost Savings

Cost Increase

While the methodology is

consistent, the approach

may change . . .

Common Methodology

Cost Application

Is cost the same, higher or lower?

Is the quality better, worse or the same?

Has functionality or benefit increased?

Revenue

Lower Cost per Procedure

Reduced LOS

Reduced Labor

Reduced Turnaround time

Are there?

Contract Considerations

Logistical Issues

Staff Education/Training

Other Issues

Validation

Are the assumptions related to cost, quality and functionality being actualized following implementation?

Validation is critical to determine whether or not your evaluation methodology is sound.

Every initiative will have a specific factor that influences the rationale for the decision, but concurrent consideration of all criteria is important.

Methodology

Process Considerations

Cost Utilization Workflow Clinical Quality Efficiency Revenue Enhancement Labor Resources Service Delivery

Other Issues to Consider

Who has ownership and to what extent?

Levels of “Granularity” in the analysis process.

Consistent formatting and information delivery lends credibility.

Determine the level of Administrative involvement.

Product Marketing Gone Bad!

Project-Hand Sanitizing Agent w/motion dispenser

Factors Increased Cost Per Use ($10k annually) Non contracted vendor No clinical benefit

Rationale Reduced usage More efficient product delivery

Approval Criteria

-Labor Savings & Efficiency

Quantify This!

Each product would reduce the hand cleanliness process time by 6 seconds.

32 processes day X 6 seconds=192 seconds X 210 nurses=40,320 seconds saved (672 minutes/day)

11 hours day X hourly nursing salary of $24.50 = Daily Savings of $269.50 or 1.37 Nurses!!

Vendor project ROI=38 days and increased productivity of nurses in the first year of 22%

Labor reallocation is normally not a good factor to consider in a cost benefit analysis, unless there is a significant change to workflow or positions are reduced.

Be cautious of vendor marketing claims in preparing your cost benefit analysis. It needs to be based on your operation and the appropriate factors.

Other Issues to Consider

Analysis Tools

Preliminary Analysis

Materials Project Prioritization Form with Drop-Downs.docMaterials Project Prioritization Form with Drop-Downs.doc

Cost/Benefit Analysis - Equipment

Technology Assessment CBA Example 2007.xls

Technology Assessment CBA Example 2007.xls

Date: 7/6/2007

Qty Vendor Price Qty Vendor2 $579,500.00 2 4 $317,200.00 4 4 $38,400.00 4 2 $5,202.08 2 1 $8,350.00 1 1 $4,000.00 1 2 ($3,763.60) 2

$948,888.48

Op

tion

s TrainingCash on AccountTrade in

SDS(Small Detector)Workdtation

N/A

Description: Purchase new equipment for the new Imaging Breast Center including two Mammo Digital Units, 4 Reading Work Stations, Mammography Reporting System, Biopsy System, CAD System, IDX Interface and MRI.

Great Hospital / Breast Care Center

Value Technology Team:

Harry Dower/ Ext. 51130Requested by: Department/Cost Center:

Description

Approved Capital Budgeted:

Fletcher/ Radiology/10-7043

Price Comparison Technology Assessment

General Electric, iCAD, Siemens, MRS, Hologic, R2 and IDX.

Suggested Vendors:

Option BOption A

Harry Dower,Christine Rotell Walsh,Theresa Winsey,Jay Monpara, John DeFiore,Rhonda Coleman, Ali Al-Ababneh

$1,800,000.00

RIS Synchronization2D Biopsy Optical localizer

DescriptionSELENIA(Large Detector) Workdtation RIS Synchronization

Cash on AccountTrade in

Price $1,084,800.00

$0.00$0.00$0.00$0.00$0.00$0.00

Sub Total

Dig

ital

Mam

mo

NEEDLE LOCALIZATION KITTraining

1 4

$948,888.48

2 iCAD $79,500.00 2 1 iCAD $0.00 1 1 iCAD $34,100.00 1

$113,600.00

MRI 1 Siemens $638,635.00 1 Siemens

MRS 1 MRS $88,000.00 1 MRS

Interface 1 IDX $22,000.00 1 IDX

$0.00Siemens

$1,833,435.00Total Price

There are 3 additional items under option B (4 Multi-Modality Workstations,Training and Manager) which are worth $79,800.00.

$1,961,123.48

MAGNETOM PE Sonata MAGNETOM PE Sonata $638,635.00

IDX Interface IDX Interface $22,000.00

Mammography Reporting System Mammography Reporting System $88,000.00

1 Stereotactic Breast Biopsy System $150,000.00 1 Stereotactic Breast Biopsy System Biopsy System

If UCH agrees to become a show site for the Siemens system the price will be $150,000 otherwise it will cost $170,000.

Hologic

Op

tion

s

Total

$0.00$0.00$0.00

The Cash on Account is money charged to add any new modality to PACS, GE has quoted $4000 while Hologic is estimated at $10,000. .

N/A

Replace the exisiting R2Mammography Digitizing System

R2 ImageChecker D Digital Upgrade kit to version 8.5 of the R2's Mammography Digitizing SystemC

AD

1

$0.00$0.00

$0.00

SecurView(DX) Manager

Dig

ital

Mam

mo

iCAD Second Look

Total

Multi-Modality Workstation

Two Week Bio-Medical Service Training,Cost is for tuition only. Travel,room and board at customers expense.

Option A Option BDirector Approval: Harry DowerComments:

Executive Sponsor Approval: Jeff Oskin

Please review the quotation to make sure that we have covered all bases as far as operations and accompanied equipment

Cost Analysis Detail Worksheet

CBA Cost Analysis Detail Item Example 2007.xlsCBA Cost Analysis Detail Item Example 2007.xls

Month: Jul-07 (revised 8/7/07)

University Community Health

Supply Reduction InitiativesDo not populate Do not populate

Do not populate Do not populate

Initiative # Old Lawson#Old

Manufacturer Old Man. #Old

UOM

Old BUY UOM

Old Price Per BUOM

New Lawson#

New Manufacturer New Man. #

New UOM

New BUY UOM

New Price Per BUOM

EA Cost Diff

EA Mo Utilization

BUOM Mo Utilization

Monthly Savings

Conversion of Trocars from Ethicon to Applied

5mm Trocar 200622 Ethicon B5LT 6 bx 298.04 202092 Applied C0104-S 6 bx 144.32 25.62 144 24 3,689.28

12 mm Trocar std 200623 Ethicon B12LT 6 bx 394.46 202099 Applied C0130 6 bx 187.65 34.47 60 10 2,068.10

11mm Bladless trocar 200624 Ethicon B11LT 6 bx 344.82 202096 Applied C0658 6 bx 187.65 26.20 48 8 1,257.36

12mm Trocar, Blunt 200625 Ethicon H12LP 6 bx 378.00 202102 Applied C0718 6 bx 156.00 37.00 126 21 4,662.00

12mm sleeve 200626 Ethicon CB12LT 6 bx 226.38 202101 Applied C0652 12 bx 178.24 22.88 0 0 0.00

11mm Sleeve 200627 Ethicon CB11LT 6 bx 298.72 202098 Applied C0651 12 bx 178.24 34.93 0 0 0.00

5mm sleeve 200628 Ethicon CB5LT 6 bx 208.08 202095 Applied C0529 12 bx 76.32 28.32 180 15 5,097.60

Ligation and Endo Ligation

Clip Applier, Endo 10mm 196877 Ethicon ER320 3 bx 305.46 202109 Applied CA080 6 bx 366.60 40.72 12 2 488.64

Endo Pouch

Specimen Retrieval bag 196908 Ethicon Pouch 6 bx 521.98 113058 Applied CD001 10 bx 662.50 20.75 150 15 3,112.00

Scissors

Scissors 196874 Ethicon 5DCS 6 bx 459.96 202297 Applied CB010 10 bx 385.00 38.16 130 13 4,960.80

Medline Pack Conversion

Open Heart Bundle 114539 Cardinal PCHFOBUHC 1 ea 140.06 114539 Medline CDS840405 6 ca 388.94 75.24 24 4 1,805.68

CABG CDS 113996 Cardinal PCHFCBUHI 1 ea 332.93 113996 Medline CDS840406 1 ca 322.40 10.53 19 19 200.07

Major CDS Womens Center 119037 Cardinal PGHFMAUHG 2 ca 178.10 119037 Medline CDS941222 2 ca 164.84 6.63 38 19 251.94

Arthroscopy 119200 Cardinal SOP26AHUHG 1 ea 44.86 119200 Medline DYNJ22913 3 ca 124.58 3.33 63 21 210.00

Laparoscopy 119529 Cardinal SLC26LPUHG 1 ea 54.32 119529 Medline DYNJ22914 4 ca 200.47 4.20 36 9 151.29

LAVH 119046 Cardinal SNE26LMUHE 1 ea 173.41 119046 Medline DYNJ22915 1 ea 160.58 12.00 13 13 156.00

Nasal Pack 118184 Cardinal SEN26NSUHF 6 ca 255.78 118184 Medline DYNJ22916 4 ca 157.83 3.17 56 14 177.66

ODSC Shoulder Arthroscopy 110548 Cardinal SOP26SAUHI 3 ca 163.32 110548 Medline DYNJ22917 3 ca 151.16 4.05 33 11 133.76

Pacer Pack 112991 Cardinal SCV26PTUHF 2 ca 116.64 112991 Medline DYNJ22918 3 ca 161.94 4.34 45 15 195.30

Peri Gyn 110028 Cardinal SMA26PGUHC 3 ca 191.01 110028 Medline DYNJ22919 4 ca 235.75 4.73 8 2 37.86

Radiology Pack 116602 Cardinal SAN26RDUHC 3 ca 177.72 116602 Medline DYNJ22920 4 ca 285.80 -12.21 112 28 -1,367.52

T & A 118509 Cardinal SEN26TAUHG 6 ca 58.86 118509 Medline DYNJ22921 8 ca 99.84 -2.67 32 4 -85.44

TMJ 118182 Cardinal SEN26TMUHC 2 ca 176.76 118182 Medline DYNJ22922 3 ca 245.42 6.57 3 1 19.72

Vag Hyst 116668 Cardinal SMA26VHUHE 2 ca 195.78 116668 Medline DYNJ22923 2 ca 181.21 7.29 10 5 72.85

Major 119194 Cardinal SBA26MJUHE 2 ca 116.32 119194 Medline DYNJ22930 3 ca 161.49 4.33 69 23 298.77

Neuro 199879 Cardinal SNE26NEUHB 3 ca 177.12 199879 Medline DYNJ22931 2 ca 113.46 2.31 92 46 212.52

Basic 111139 Cardinal SBA26BSUHI 4 ca 105.70 111139 Medline DYNJ22932 6 ca 171.66 -2.19 540 90 -1,179.90

Universal 115622 Cardinal SBA26UNHEE 2 ca 184.38 115622 Medline DYNJ22933 2 ca 170.66 6.86 14 7 96.04

Total Joint 199878 Cardinal SOP26TJUHE 3 ca 198.99 199878 Medline DYNJ22934 3 ca 184.17 4.94 120 40 592.80

EP 112896 Cardinal SAN26EPUHA 3 ca 142.98 112896 Medline DYNJ23000 4 ca 172.81 4.46 40 10 178.30

Chest Tube 119560 Cardinal SAN26CTUHA 10 ca 334.00 119560 Medline DYNJ23001 12 ea 410.40 -0.80 12 1 -9.60

Left Heart Cath 119205 Cardinal SCV26LHUH3 2 ca 150.38 119205 Medline DYNJ28419B 4 ca 162.86 34.48 396 99 13,652.10

Dental 197984 Cardinal PEHFDNHEE 4 ca 49.32 197984 Medline CDS980493 12 ca 153.88 -0.49 108 9 -53.28

Total Hip 195201 Cardinal SOP26THEA 1 ca 146.85 195201 Medline DYN22924 2 ca 268.63 12.54 6 3 75.21

Minor Ortho 191778 Cardinal SOP26KAHEE 4 ca 137.64 191778 Medline DYNJ22925 6 ca 194.56 1.98 12 2 23.80

Arthroscopy 194986 Cardinal SOP26KAHEC 2 ca 114.72 194986 Medline DYNJ22926 4 ca 191.94 9.38 36 9 337.50

Total Knee 195202 Cardinal SOP26TKHEB 1 ca 113.91 195202 Medline DYNJ22927 2 ca 189.51 19.16 12 6 229.86

CV Major 191849 Cardinal SBA26MJSCD 1 ca 251.42 191849 Medline DYNJ22928 2 ca 232.71 135.07 0 0 0.00

Final Analysis ExampleQUALITY HEALTH SYSTEMFinal Cost Benefit Analysis-Summary Approval Worksheet

Project Scope: Single ProductPRODUCT/PROJECT NAME: Orthopedic Tissue Device Multiple Products

REQUESTING DEPARTMENT/PROJECT SPONSOR:

Product Details: Product Source: Distributed? Y or N Cost Per Unit $0.00Use Unit of Measure: Product # Inventoried Y or NAnnual Usage Chargeable? Y or N

Product/Project Benefits/Outcomes:1. Product reduces bleeding and associated swelling and scar tissue at Surgical site.2. Patient experiences less pain related to the procedure.3. Additional blood usage is eliminated or significantly reduced.4. Equipment provided free of charge with probe purchase.

Project Factors:1. Average 2-3 units of blood per total hip case. 2. 1 probe used per case (routine)3. Blood fees include all ancillary service and lab charges

Cost Analysis (Per case):

Cost of Unit of Blood

Additional Fees (Crossmatch, Autologous, Type & Screen)

# of Units of Blood/Case

Ext Cost of Blood Cost of Probe

Savings/Case with Probe

145.00$ 97.00$ 2 484.00$ 475.00$ 9.00$ 145.00$ 97.00$ 3 726.00$ 475.00$ 251.00$

CURRENT 2 Units 3 Units PROPOSED 2 Units 3 UnitsDevice Cost $0.00 $0.00 Device Cost 475 475Blood Costs $290.00 $435.00 Blood Costs 0 0Additional Fees $194.00 $291.00 Additional Fees 0 0Total Cost $484.00 $726.00 Total Cost 475 475

Increase/(Savings) per case with Probe (2 units of blood): ($9.00)Increase/(Savings) per case with Probe (3 units of blood): ($251)

COMMENTS:Copy of evaluation analysis with blood usage validation is attached. Period of evaluation was 60 days.

Project Sponsor Signature:__________________________________________

Materials Management Use Only:

Evaluation Information Verified (Date):CVAC Deadline:

_____ Item/Project is approved-proceed with implementation_____ Item/Project is not approved-note course of future action:

_____ Resubmit in 90 days_____ Continue trial for period of ______ days_____ Hold for Administrative approval

Director of Value Analysis:_____________________ Corporate Director, Materials: ________________________

Aquamantys Tissue Device Example 2007.xls

Aquamantys Tissue Device Example 2007.xls

Final Points

Be objective

Use real data

Apply reasonable assumptions where necessary

Don’t let any one facet of the project determine the outcome

Embrace Change!

Summary

Adopting a cost benefit analysis approach to your organization can be a valuable tool and will help you to engage your clinicians in the decision making process for supplies and equipment.

Your comments and questions are welcomed at this time.

Thank you for attending the session.

William P. Stitt

WStitt@mail.uch.org

In Closing