I recently read an article quoting a physician promoting end-to-end standardization of supplies, devices, and implants which, from his point of view, doesn’t harm the quality of a healthcare organization. In fact, according to this physician, it improves it. His conclusion is based on a recent study showing that low cost providers can also have good quality scores in Medicare quality programs. Here’s my contrarian view of this hypothesis based on my observation that end-to-end standardization can be harmful to your healthcare organization’s financial health.
One-Size-Fits-All Mentality Costs You Time, Money, & Quality
Under this scenario, standardization saves you money up to a point, but then it costs your customers time, money, and could possibly even degrade quality if your customers decide to use the standardized supply, device, or implant. For example, every patient doesn’t need a three-port IV set (only 17% do), but it’s not unusual for a hospital, system, or IDN to standardize 100% on two or three-port IV sets at an upcharge of $2.00 per IV set or more. Consequently, this costs the average hospital that over-standardizes on their IV sets hundreds of thousands of unnecessary dollars a year.
The lesson to be learned here is that no one-size supply, device, or implant meets the functional requirements of all of your customers, so don’t deceive yourself that it does. The rule of thumb is that 10% of your customers will need a higher supply, device, or implant specification, 80% can utilize your basic standardized commodity, and 10% can use a lower supply, device, or implant specification. Only through customization (i.e., commodities built to meet your exact customers’ functional requirements) can you really have the lowest cost and highest quality supplies, devices, and implants.
Supply, Device, & Implant Customization Is the Key to Success
The #1 reason that we have found why department heads and managers buy off contract is that their hospital, system, or IDN’s standardized commodity under contract doesn’t meet their exact functional requirements. As a result, this costs them time, money, or even creates quality issues if they used them. I can’t remember the number of times we discovered that a hospital’s lab was buying their gloves, underpads, and syringes at a higher price off contract because their hospital, system, or IDN’s standardized gloves, underpads, and syringes didn’t meet their exact functional requirements. So, if you want to have the optimal supply cost per patient day, consider customization vs. standardization within your manufacturers’ product lines. This can meet all of your customers’ (10%/80%/10%) exact requirements.
Advanced Standardization “Activity-Based” Cost Model
If you are now following the customization model that I outlined, then you might be interested in an Advanced Standardization “Activity-Based” Cost Model that will provide you with even lower costs than the customization I just talked about. To optimize your standardization by five, eight, or even 12 percent more, you will need to standardize based on your “best value” or lowest “activity-based” cost supplies, devices, and implants. By explanation, these are the supplies, devices, and implants that have the lowest “activity-based” cost across your hospital, system, or IDN. For instance, after calculating the “activity-based” cost of your IV catheter kits system-wide, you discover that hospital “Z’s” cost per patient day is the lowest for your cohort. You would then consider standardizing on this kit system-wide (regardless of whether you have a GPO contract for it) after confirming that this isn’t an anomaly. You would also want to benchmark your peer’s “activity-based” cost to see if they are utilizing lower cost alternatives than you are buying now. This is how you drive your costs down to the lowest levels possible, without having quality issues.
Technologies Are Changing Rapidly – You Must Change Too
There are very few corners of healthcare (revenue sources, payers, policies, procedures, processes, etc.) that haven’t changed over the last decade, so why shouldn’t you consider new ways to standardize your supplies, devices, and implants? To follow the old tenets of standardization, as recommended by the physician I just talked about, isn’t good enough in the 21st Century. To be truly effective, you need to consider new standardization models as I have outlined above. This is because to rely on the old standardization model we have been employing for a century or more could be harmful to your healthcare organization’s financial health.