Thriving in a Value Based Purchasing Environment
In today’s healthcare environment, communication and collaboration are not interchangeable. The differences between the two need to be understood to successfully transition to a Value Based Purchasing (VBP) environment.
Effective communication between Supply Chain & Perioperative Services professionals has been, and will continue to be, the cornerstone of initiatives to reduce surgical supply costs. Unfortunately, effective linear communication alone will not guarantee success in the future.
In 2010 the Hospital Value Based Purchasing program, established by The Affordable Care Act, reshuffled the deck. Facing a mandatory shift from volume-based to value-based reimbursement, hospitals need to redefine how departments interact. The shift from linear communication to cross-discipline collaboration provides the necessary foundation for transforming the focus of Supply Chain from Volume to Value.
Value Based Purchasing
Instead of reimbursing the hospital for goods and services that have already been provided, or reimbursing the hospital based on a nationally averaged flat fee, the VBP payment model rewards physicians, hospitals, medical groups, and other healthcare providers for meeting prescribed performance measures for quality (outcomes) and efficiency (cost & satisfaction).
Our own Jeanne Parkes, CEO, had this to say at OR Manager last year about the shift to value-based care, “A reimbursement model based on value rather than volume is here to stay. This is not yet another in a series of incremental refinements in healthcare reimbursement – it is a fundamental change in the healthcare business model.”
Impact on Supply Chain
Reduction in supply costs remains a focus of healthcare Purchasing departments. This traditionally includes leveraging the size of an organization, their GPO affiliation, and any other volume-based dynamics to negotiate better unit pricing with the Vendor community. In other words, when you’re holding a hammer, everything looks like a nail.
When combined with aggressive standardization programs, this can produce effective results and remains the go-to strategy for the reduction of supply costs across the country. To further facilitate clinical and financial collaborative decision-making, Value Analysis programs were implemented to organize product review & cost reduction activities within the framework of acceptable clinical, operational and financial outcomes.
Today however, Supply Chain personnel must expand their focus from cost containment to include “Margin Enhancement”. Even more unsettling is that revenue is no longer a known quantity based solely on volume. It is becoming a patient centric dynamic based on measurable quality & value of services provided. This requires a review of process and workflow as well as costs to ensure that supply chain practices contribute to quality patient care at the point-of-care.
The illustration on the top depicts the dynamics of a Volume driven process. The individual processes depicted here represent key touch points of the Perioperative continuum of care (blue circle). The colored circles surrounding each activity illustrate a “siloed” process reacting to the input from the previous step. Collaboration in this environment is focused on optimizing the efficacy of each individual process, (sometimes at the expense of the other processes), as a means of leveraging economies of scale. This reactive environment is like driving your car forward while staring in your rear view mirror. You can clearly see what has occurred but you’re not able to adjust to what’s happening in front of you.
The illustration on the bottom represents the Perioperative continuum of care as seen through the lens of a Patient Centric culture. The first thing we notice is that the center of the process is no longer a dollar sign. That has been replaced by the patient; the epicenter of everything we do. The individual siloes are also gone.
Based on our experience, to thrive in this new environment, organizations can no longer afford to operate as disconnected entities focused on optimizing individual processes. The fact that an individual process has been improved by 50% is irrelevant if it does not optimize cost, quality and customer satisfaction. Activity is not a result. Instead, every individual activity as part of an overall process needs to be evaluated against these questions:
- Is my activity still necessary?
- Am I optimizing technology and/or resources to minimize cost?
- Do I perform my activity in a way that improves the patient care experience or quality?
- Is my activity transparent and measureable?
- Management siloes are becoming a thing of the past. Adapting supply chain practices in a perioperative patient-centric culture begins with establishing routine cross-departmental collaboration as the primary method of communication for impacting daily operational management.
Stay tuned for our next blog post where we discuss ways to create a patient centric culture as it relates to supply chain and how the perioperative continuum of care is seen through that lens.