Service Line Management and the Supply Chain
(From Healthcare Purchasing News, November 2010)
Drawing the lines by service
Do line drives lead to operational scores, facility home runs?
by Rick Dana Barlow
From a branding/marketing standpoint, service line management resembles a fast-food franchise "value" meal – an easily identifiable bundle of products designed for customer convenience and company sales.
Factor in the financial and operational perspectives and the contrast service line management is expected to generate – on paper at least – is less stark and more subjectively gray.
Hospitals and other healthcare facilities may wield service line strategies for clinical specialties as a competitive weapon designed to improve market share, quality and revenue while controlling costs, but supply chain managers typically see service line strategies as a method to facilitate physician relationships and manage physician product preference, in terms of expensive implants.
But do these motivations make service line management implementation worth the effort? What do the analytics reveal?
In short, more focus.
"If an organization has decided to employ the service line concept, then I’ve found that this focus can only help the supply chain manager in that the requisite management and clinical buy-in is presumably in place," said Michael Rudomin, principal, HealthCare Solutions Bureau LLC. "As we have all experienced, a value analysis program will struggle or fall short absent strong senior management and/or clinical support, particularly when it comes to the high-cost implants that are the major cost drivers.
"But if an organization has committed to service line management, then this obstacle has at least been minimized if not removed," Rudomin continued, "the laser focus that is directed towards a small, discrete population of procedures rather than the entire range of procedures performed breaks up what can be a large, difficult task into smaller, more manageable pieces, and the mind set of balancing revenue/reimbursement, cost, profitability and quality is in place and supports an environment in which the supply chain manager can demonstrate the impact – positive or negative – of alternative supply choices or contracting opportunities."
Service line management offers a way for a facility to understand its strategic priorities and associated resources, according to Mark Whitman, senior consultant, supply chain, Amerinet Diagnostix.
"By looking at each clinical area as its own business line, there is the potential to make better decisions about the structure of the operation," Whitman said. "Understanding and managing the cost and profitability of the service line is a key component of this concept."
To do it properly a facility needs accurate and timely information from internal and external sources, illustrated with dashboards on key indicators that should be monitored to assist in making decisions, he added.
"When employed within the supply chain, an effective service line strategy can pay great dividends," Whitman continued. "If structured appropriately, it allows supply chain managers to be active participants in a team structure
that manages the service line. This allows for greater visibility of issues and better integration of processes. Supply chain management organizations can be much more responsive to the needs of each service line if they are actively involved in the process."
One noteworthy aspect of service line management is that process improvement initiatives, such as lean and six sigma, can feed into it rather easily with some structural adjustments, he noted. In fact, value analysis fits in very well with a service line strategy, Whitman indicated, where the overall delivered cost includes such areas as labor impact and product utilization, as well as unit cost. "Within a service line management structure you may need to tailor the value analysis structure to more effectively integrate the service line structure," he advised.
"The overall supply cost structure of many of these key service lines is dominated by high cost medical devices and implants," Whitman noted. "Managing these costs requires a prospective strategic contracting approach in order to ensure that cost structures do not erode over time. To make this effective, this process would need to involve working with key physicians and other clinicians to agree on standardization efforts."
Michael Neely, president, Perimeter Solutions Group, spied service line management as a means to inform and promote process improvement techniques.
"By way of example: Lean methods could leverage information from service line analytics on procedure times, Six Sigma methods could gather valuable information regarding clinical process variation and value analysis teams can garner valuable product utilization data," Neely said.
"MedAssets’ Service Line Analytics is designed to bridge the gap that is often present between the materials management side of the facility, where the concern is heavily focused on the cost of supplies, and the clinical operations, where concern is less focused on cost, and more focused on quality and outcomes," said Lisa Dietz, vice president, Aspen Healthcare Metrics, a MedAssets company. "MedAssets believes clinical and financial information must be linked using Service Line Analytics as the connector. Tools like Service Line Analytics allow a facility to easily identify their opportunities for supply cost improvement, including both price and utilization opportunities.
"While our goal is to drive cost out of service lines and maximize hospital margins, facilities must have the physician alignment to accomplish clinical changes and optimized protocols," Dietz continued. "Service Line Analytics helps hospitals achieve physician alignment by looking at supply cost and utilization in the context of their clinical value and outcomes. It provides internal and external benchmarks, as well as patented metrics to support any ongoing process/technique a facility may employ."
Healthcare organizations typically apply service line management to clinical specialties, such as cardiology and orthopedics, and for supply chain management it can be a way to manage physician preference items. But how can service line strategies effectively be implemented for non-clinical operations?
"Although much of the focus of service line management is on the clinical process, the non-clinical support processes play an integral role and can’t be overlooked," Whitman said. "Involving supply chain management in the service line process on an ongoing basis should provide a mechanism for better integration with the service line concept. This would also apply to other non-clinical operations that provide support to these service lines."
Only time will tell, Neely observed.
"I believe that there will be corollary successes in non-procedure areas, but think that these strategies will need time to mature," he said. "Data quality is the Achilles heel of service line analytics, and non-procedure based service lines typically have far less accessible data. As with any viable strategy, service line analytics will be deployed in the order of greatest return."
But it’s all about perspective, in terms of focusing on the big picture or component parts, according to Rudomin.
"For most of us, trying to manage a large, complex problem, such as supply costs for the entire organization, is much harder than managing a smaller and discrete subset of that problem, such as managing supply costs [for an area], which is what service line management does," he said. "In addition, we are usually more successful if we look at an issue in its entirety, with all its inputs and outputs, rather than simply one or two of these components, again a tenet of service line management."
As an example, Rudomin recalled a time when he started as a hospital director of materials management where the supply chain department was lumped all together from a budgetary perspective. "All operations and 80+ staff were under one single general ledger account, which I found to be too big and difficult to manage," he said. "So I asked Finance to break each functional area into its own GL sub-account, and created budgetary departments to manage within the supply chain – purchasing, central sterile, storeroom and inventory, linen, receiving, distribution and materials management administration. Once that occurred, I could identify and manage the costs, both operational and personnel, by functional unit/budget.
"Similar to service line management, instead of a supply chain-wide focus we managed by "service line," or smaller functional units where the inputs and outputs could be clearly associated with each specific function/department," he continued. "For me at least, managing by smaller, functionally-related activities made a lot more sense than trying to manage and budget by a single line item called ‘materials management.’"
Service Line Analytics is able to deliver data for all 740+ MSDRGs at the detailed charge level, according to Dietz, for all charges, not just for physician preference items in certain specialties.
"Data of this type are certainly used to manage PPI costs effectively, but can also be effective in facilitating discussions around all other areas of cost as well, she added.
For example, Dietz continued, a facility may identify a service line within Service Line Analytics that has a supply cost savings opportunity. This savings may be directly related to the use of physician preference items, or it might be some combination of physician preference items, medical/surgical utilization and length of stay caused by issues around discharge planning. A facility might also be able to identify variation among physicians in utilization of other areas, such as diagnostics or lab and blood costs.
"Healthcare reform and the expected emphasis on managing greater risk and more patients at lower reimbursement will require transformation of clinical and nonclinical operations," she said. "Transformation to a strategic sourcing model to optimize supply chain effectiveness will help hospitals drive operational improvements if they have the data to support the change. Clinical and non-clinical leaders will need to work together to deliver more consistent care at a lower cost, so hospitals will be able to maintain a margin under new reimbursement scenarios."
For Whitman, one of the primary budgetary advantages that service line analytics provides is the ability to change focus depending on the profitability and growth prospects of a particular service line.
"Understanding how you are performing against the competition will enable you to build on strengths and address weaknesses," he noted. "Although most available information is retrospective in nature, the analytics can incorporate a prospective view based on an organization’s knowledge of their cost structure. This information will assist in providing information on where additional resources should be invested and cost gaps addressed."
But Rudomin thinks any such advantages are more indirect than direct.
"If you presume that a well-run organization should know and understand its products and their associated cost-profitability-quality balance, then it really shouldn’t matter whether that organization manages horizontally – all supply costs for the hospital – or vertically – supply costs for a specific procedure – since supplies should be well managed in either case. However, as we are all only too aware, many organizations are not well run. In those scenarios, a service line focus can help better identify the supply cost impact on a given set of procedures and thus serve to provide better and more detailed budgetary information. In my mind, more and better data should equal better decision-making and overall management."
Neely contends that service line management can extend beyond the PPI realm and into the supply and pharmaceutical cost budget.
"Providing the visibility to product utilization and the variation in the choices that clinicians make to deliver care, service line analytics enables the reduction of ineffective and excessive product use," he noted. "Prime examples [include] the matching of premium knee or hip implants for relatively immobile patients and ‘because that’s the way we’ve always done it’ excessive draping practices. Additionally, if service line analytics is deployed in a holistic fashion, an organization could use the analytics to identify throughput, clinical utilization and labor savings opportunities. It has the potential, if utilized correctly and consistently, to be an essential element of the supply chain management toolkit."
Dietz called for perspective to fully understand the power service line management provides.
"Very often, the annual budget process begins with a discussion on where a facility anticipates service volume growth and/or decline and how these changes will impact revenues and expenses," she said. "Service Line Analytics delivers service line volume, contribution margin and profitability data, trending this data over time.
"Finally, for multi-facility organizations or integrated delivery networks, identifying cost savings and building this into the budget can be particularly challenging, especially if the organization lacks the ability to compare their individual facilities to one another," she continued. "Hospitals are faced with high-level objectives to cut expenses with few tools to help them identify where to look for their weaknesses and cut cost without sacrificing quality. Service Line Analytics can deliver a cross-sectional and multi-facility view of data, allowing IDNs to focus on their facilities where they might have the largest opportunity to impact their supply cost and expenses. Service Line Analytics can quickly identify problem areas and weaknesses, at the facility, service line, sub service line, MSDRG, payer, physician and even charge item level of granularity."