Clean supply data reveal savings opportunities

Healthcare Financial Management, Annual, 2006 by Jack Medkeff, Dan Eckert

Like most hospital systems. Genesis HealthCare System, in Zanesville, Ohio, spends a lot on supplies--up to $75 million annually. Like other hospitals, we used to have difficulty researching how the money was being spent because the condition of our supply spend data wouldn't easily allow such analyses. We had 12,000 individual products in our item master file, yet we couldn't rely on our supply spend database to determine what our total spend was in major product categories or where we could save costs.

Genesis recently completed a data cleansing project with a third-party supply chain partner that understood our challenges. Within four months. we were able to identify how we could save almost $500,000. The results reinforced our view that the supply chain is a key area to drive savings, versus serving as a cost center.

An Issue of Messy Data

When we began this project, it was apparent that Genesis' materials management information system was overdue for replacement:

* The existing categorization schema didn't support industry product grouping standards. The ability to group products into family categories, such as cardiac catheters and stents, can help hospitals analyze spending patterns and evaluate savings opportunities by consolidating vendors and products.

* The data contained inaccuracies, including incomplete vendor information and unclassified products.

* Identical items were being procured for multiple facilities at differing costs.

* There was no contract management capability that automatically linked products to their correct vendor contract, which meant there was no way to tell if we were paying the right price for products.

Our problem was not unique. Many hospitals face artifact in their item files. Most significant, many hospitals do not follow a standardized approach for completing the data fields in their item files.

To resolve our problems, we plan to eventually implement a new enterprise resource planning system. However, the underlying data problems had to be resolved first.

The solution we used had a comprehensive reference database with auto-matching technology and more than 2 million manufacturer-provided product records. We were able to reduce the number of records in our item master by nearly 30 percent by eliminating erroneous and duplicate entries, as well as those products that had not been purchased in years.

From there, we categorized our item master according to the United Nations Standard Products and Services Code[R] product classification system. The UNSPSC is a global system that groups medical items into products of similar family and class. Categorizing the item master by UNSPSC has given us a greater awareness of supply spending across the hospital system because we are able to easily view supply spend by product category.

Savings Jump Out

Once the data were clean, we were able to identify all items that had a contract available. We then looked at the contracted price and the most recent price paid on each of these items. By isolating discrepancies between these two numbers, we identified distinct instances of overspending. For example, the most recent price we paid for a particular orthopedic implant accumulated to $20,000 more in total purchases than the contracted price negotiated by our group purchasing organization. We could realize this $20,000 in savings by activating the existing implant con tract, and potentially, by receiving a credit from the manufacturer for overpayment.

All in all. this project revealed that Genesis could save from $230,000 to $462,000 over an 18-month span, depending on how aggressively we pursue the savings opportunities.

Information is power, and we now have access to data that allow us to perform analyses across our entire supply spend in a way that wasn't possible before. When our new enterprise resource planning implementation is complete, our clean data will give us a huge head start in enhancing future fiscal efficiencies.

Jack Medkeff is director of materials services, Genesis HealthCare System, Zanesville, Ohio. He can be reached at jmedkeff@genesishcs.org. Dan Eckert is president and chief operating officer, Neoforma, Inc. He can be reached at dan.eckert@neoforma.com.