Value analysis looks beyond cost

Healthcare systems have used value analysis for years but the practice is gaining renewed attention as reimbursement pressures continue rising. And as the word spreads that some hospitals have savings in the millions, many will take a second look.

One thing is clear. A fair value assessment can't be done within the finance department. It requires contributions from the hospital's clinical staff and its supply chain organization. "We pull in all the key players in the organization that need to be involved in the decision," said Gloria Graham, clinical materials specialist at Cincinnati Children's Hospital Medical Center.

Bigger hospitals may have multiple committees. Cincinnati Children's has a value analysis steering committee as well as a number of groups that focus on different categories of products.

A value analysis project can start with a clinical issue, such as staff unhappiness with the way a piece of equipment is performing, or with a goal to realize savings on a certain type of supplies. "You might be buying products within the same family – maybe you're buying them from six or seven vendors," Graham said. "If you can get it down to one or two vendors, you aggregate the volume and you can get better pricing."

There are big bucks involved. Value analysis saved Cincinnati Children's more than $17 million in the most recent fiscal year, Graham said.

Some of the savings realized from value analysis can relate to prevention, said Colleen Cusick, director of materials management at the Johns Hopkins Hospital in Baltimore. For example, Johns Hopkins assessed oral care kits that nurses could use with patients on ventilators. While the kits were a little more expensive than purchasing the components separately, providing oral care is one of the ways to prevent ventilator-associated pneumonia which can push up the cost of a patient's stay by as much as $40,000. "So if you have someone getting a kit – that's less than $20 a day to prevent it. You can justify that cost," Cusick said.

Value analysis should also consider whether clinical staff will make use of all of a product's features, Cusick said, and cited the example of two monitors, both clinically acceptable, one of which has "a whole lot of bells and whistles."

"The question is, do you need the added features?" she said. "And if you don't, why are you going to buy a monitor with a whole lot of features that no one is ever going to use?"

A hospital's technological capabilities are another consideration. "If your hospital is old and you don't have the infrastructure for wireless capability, why are you buying pumps with wireless capabilities?" Cusick said.

Price isn't a reliable guide to quality, she noted. "Sometimes we hear the comment from staff, 'Oh, you just buy the cheapest product out there,'" Cusick said. "My answer to that is the cost of a product has nothing to do with the quality of a product. You can have really expensive stuff that's really no good. And you can have inexpensive stuff that's the workhorse and really good."

The process of assessing the value of products involves "a lot of negotiation and diplomacy," she said. "But at some point, you have to have that leadership piece." 

"People have to understand that there are savings targets that you need to reach," Cusick said. "It could be that you have to show a doctor his supply cost for surgery is different than his four colleagues'. Until someone sees that, they might not even know their supply cost is higher than everyone else's."