Value-based purchasing is short-hand for a new system of payments to healthcare organizations to incentivize providers to focus on cost, quality, and appropriateness of care as opposed to fee-for-service. The long-term goal is for employers, insurers, and customers to purchase their healthcare services in whichever increasing quality of care is achieved at the lowest possible cost.
New Revenue Sources of the Future
Studies show that about one-third of all hospitals’ third-party contracts are now value-based payments. Meaning, they are either fixed price or capitated payments for the whole patient event that will grow as a revenue source over the next 10 years. Medicare too is now testing bundle payments for hips and knees in 67 geographic areas of the country this year. The takeaway here is that management of supply chain expenses in a value-based and bundled system is now a reality, not just a theory, for all supply chain professionals.
Managing Before, During, and After the Purchase
Since the best defense is a good offense in the new value-based purchasing world, it is now mission critical for supply chain professionals to manage their supply expenses before, during, and after their purchase more effectively, efficiently, and scientifically. Here’s how it is done:
- Managing Before: Most of your new supply chain expenses are generated at the point-of-entry of your healthcare organization or your purchasing department representing hundreds of new products, services, and technologies, or as much as 25% in new items annually. This extravagance can no longer be tolerated in a value-based purchasing environment. Your value analysis teams must ruthlessly clamp down on these new purchases or your supply costs will be unsustainable over the long term.
- Manage During: We need to manage our supply costs during the evaluation phase of our value analysis studies to ensure that our supply costs don’t go up during our trial periods. This task can only be accomplished with utilization analytics, since your supply costs are a moving target and therefore need to be adjusted for volume and intensity.
- Manage After: Similar to managing your supply costs during your evaluation phase of a new product, service, or technology, you need ongoing (after the purchase) measurement of utilization. We have seen enormous swings in variation in products, services, or technologies bought months or years ago. If you don’t monitor and correct these deviations, your supply costs will eventually be out of control.
The time has passed for unscientific management of our supply expenses. We now must be hyper-vigilant to any change in our supply expense variations before, during, and after the purchase.
Utilization Analytics: Developing a Roadmap for Success
We in the supply chain have been given the opportunity to meet the challenges of the new value-based payment and bundled payment systems head on with utilization analytics. This is how we can harness big data to effect major change in our healthcare organization. In the long-run, these new value-based and bundled payment systems will make supply chain mature as an elite management discipline. This is how we get recognition!