Hospital Spending Meets Patient Outcomes

February 18, 2012 in Medical Technology

Kristian O’Meara, Vice President at BravoSolution, heads up the spend analysis company’s healthcare practice.

Healthcare Group Purchasing Organizations (GPOs) – which are comprised of large hospital systems (IDNs) and individual hospitals; urban and rural – influence a majority of the dollars spent in the US healthcare market. Due to their unique position, GPOs are under increased pressure in today’s business and political climate to reduce healthcare costs and improve the visibility of their supplier selection and sourcing process.

In their simplest form, GPOs are committed to negotiating for the highest quality products at the lowest possible price without compromising on patient outcomes. One of the basic strategies for securing the lowest possible price from healthcare suppliers is to force as much volume to the contracted supplier as possible.

Beyond negotiating the lowest price, GPOs must also monitor contract compliance to ensure their members and vendors behave as promised. Finally, GPOs must go deep into analytics to identify opportunities to save money while maintaining and improving patient outcomes.

Contract Compliance: Critical for Cost Reduction

There are many reasons a member might buy a necessary item “off contract” and source outside the already researched and preapproved vendors. However, that decision can be costly for a hospital. For example, purchasing a single pacemaker off-contract may cost as much as $700 more than buying one from a vendor under contract – a tough pill to swallow in today’s budget-conscious healthcare environment.

For healthcare procurement executives looking to bring in costs and improve compliance, a new trend is arising. GPO executives are now deploying spends analysis more regularly to gain better visibility into areas of savings leakage, align physician supply preferences with patient outcomes and improve compliance tracking.

Spend Analysis: Key to Compliance and Cost Containment

Spend analysis is a technology enabled process that collects, cleanses, classifies and analyzes expenditure data with the objective of monitoring compliance, improving visibility, and identifying cost savings opportunities.

There are three core areas of spend analysis – visibility, analysis and execution. By leveraging all three, companies can answer crucial questions affecting their spending behavior, including:

• How are we spending our budget?
• Which supplies are we spending our budget with?
• Am I getting what has been promised?
• Are their functional equivalents supplies that can reduce costs?

Hospitals and GPOs have a wealth of information to use in the spend analysis process, including GPO contracts, commitments, purchase history, invoices, vendor data and most importantly, supply, physician and procedure level patient outcome data.

Realized Savings: Improved Patient Outcomes

Using spend analysis, GPOs actively monitor compliance and improve patient outcomes with existing agreements by analyzing pricing, allowing members to quickly address missed savings opportunities and identify opportunities to improve patient outcomes with less costly functional equivalent. GPOs can conduct spend analysis at a detailed level, often at individual facilities to ensure that compliance is monitored at all levels where purchasing activities take place. The spend analysis process cross-validates purchasing behavior with the contract terms to make sure that members and vendors are complying with contracts.

Spend analysis allows GPOs to enrich their spend data with outside information (market data, physician preferences, patient outcome data, etc.) to confirm that a contract is still providing value and to identify less expensive, more effective supply alternatives.

As one GPO Executive put it, “We know that if a member buys on contract, it’s saving on average 10 percent from current costs. Spend analysis gives us detailed visibility into network-wide spending and its comprehensive compliance analytics are essential to our ability to help our members achieve those savings, day in and day out without compromising patient outcomes.”

One compelling example is illustrated by the experience of a large hospital network which already had strong controls and processes in place. Using spend analysis, they recently identified $2 million in savings by tracking overpayments made in the last eight months. The member was very disciplined and surprised to learn, through this extra visibility, that they were throwing money away.

“When you have a network like GPOs do—with tens of millions of line items and many prices and contracts changing on a monthly basis—even small reductions lead to millions in savings,” said a GPO Executive.

“The visibility provided by spend analysis benefits members by helping both GPOs and their members track changes and preventing overpayment.”

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