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A Comprehensive Value Analysis Program
Patrick E. Carroll & Associates, Inc. (PECA) developed the Product Acquisition Consumption and Evaluation Review (PACER™) program to assist healthcare organizations to critically assess the products and services they consume and the utilization patterns of those products and services. This assessment involves the application of value analysis techniques to identify opportunities to significantly reduce operating expenses. The Program is essentially conducted in two parts:
To Identify the opportunities
To intervene and achieve the savings
The PACER™ program is a comprehensive multidisciplinary process that re-engineers the hospital's practices. Our program redeploys resources to establish methodologies to analyze and redesign the selection and utilization of products and services. While the initial outcome of the PACER™ program is the identification of savings potential by product line, the long-term benefit is the development of an ongoing systematic process to assure the continuation of the benefits realized.
The basic PACER™ program entails an analysis of all non-salary expenses. The program entails development of historical product and service purchasing profiles by product line (i.e. commodity). The profiles are developed through detailed analysis of a variety of sources including purchasing, storeroom, and accounts payable records; historical supplier sales summaries; group purchasing agreements and contract compliance; interviews with key hospital staff; and tours of the materials management and customer department supply storage locations.
We believe the PACER™ program is unique as we develop the profiles rather than ask hospital customers department managers to complete elaborate survey forms. We believe the manager's time is too valuable to be involved in the development of historical purchasing records; additionally, we believe by having the consultant gather the information and then interviewing the manager, more accurate purchasing and utilization information can be obtained.
Upon conclusion of our extensive data gathering process, we utilize our significant collective experience in product/service design and function to generate recommendations. To make these recommendations we utilize the appropriate purchasing contracts, our extensive pricing/utilization database of over 500healthcare providers, as well as our collective experience to derive recommendations to change practice and/or products/services to realize cost savings while maintaining or enhancing quality.
The recommendations can be categorized as follows:
- Price Change - This recommendation entails maintaining the current product and/or service at less cost. The lower cost may be identified from correct utilization of the contract, further negotiation with suppliers, or identification of a higher than normal price when compared to the PECA database. As an example, we may identify that the healthcare provider is not realizing its contract pricing for a product (say syringes); we will calculate the savings entailed and reference the specific contract to enable the hospital's purchasing staff to make the correction.
- Product/Service Change -
This recommendation involves utilizing a different product/service from an alternative source that provides the same function, at the same or enhanced quality, at a lower overall cost. We may, for example, recommend the converting from one supplier's urological line to another and suggest trials to provide clinical staff comfort of the functional equality of the alternative. We will reference the purchasing contracts, which provides contract pricing for the alternative. In addition, we will utilize our extensive database to assure the client is receiving competitive pricing. Importantly, all of our recommendations will be on equivalent situations. Should a current product be acquired through a distributor, we will add the distributor's margin to the cost of the recommended product to assure the cost comparison is truly comparable.
- Componentization-
In some circumstances, we will recommend converting from a supplier pre-packaged product/service to the individual components at a lower overall cost. This recommendation involves detailed analysis of the hospital's cost of components compared to the cost of the pre-packaged product/service. The recommendation of utilizing components may involve a decrease in the usage of the specific components. As an example, we might recommend conversion from a supplier pre-packaged IV start kit to using the individual components. Should the componentization involve additional labor for the hospital, we will factor these costs (i.e. salary, benefits) in our calculation.We may recommend a hospital acquire a reusable product in lieu of a disposable product. We will calculate the cost of re-using the product (i.e. decontamination, cleaning, reassemble, sterilization, labor investment, and initial purchase investment in reusable inventory) in comparison to the disposable product. For instance, we might recommend discontinuing the purchasing of a disposable laceration tray in favor of utilizing a reusable tray prepared by sterile processing. All recommendations will assure infection control standards are met.
- Converting from Disposable to Reusable Products -
Practice Change - This recommendation involves changing the utilization of products and services. In some cases, these recommendations entail a reduction in the frequency of utilizing the product. For example, we might recommend establishing protocols for the use of expensive drugs.
Standardization is often an opportunity to identify savings. This is especially the case in decentralized purchasing environments where individual customer department managers are provided freedom in product selection. However, standardization is not a panacea and often the lack of standardization can reflect a more appropriate utilization of less costly products.
- Standardization -
The recommendations emanating from the program will be distilled from a number of discussions and iterations between the PECA team and the client staff. The recommendations will include a discussion of the current practice and products/services utilized, the recommended change, method of suggested implementation, and the non-measurable impact of the recommended change including waste generation, additional management support required, etc.
The basic PACER™ program was designed to complement rather than replace quality processes involving product evaluation and the purchasing function. We believe our greatest value to our healthcare clients rests in our ability to identify changes in practice and/or products and services to enable the hospital to exploit these opportunities.
The basic PACER™ program involves the following activities:
Initial Meeting - We will conduct an initial meeting to refine goals and objectives for the PACER™ program, identify hospital contacts and resources, establish timeframes, etc., determine decision making process, etc .
Steering Committee - We will assist in the establishment of a PACER™ Steering committee to review the recommendations and establish an approval process. This committee is typically comprised of representatives of senior management, medical staff, finance and materials management. The PACER™ steering committee will also determine implementation methodologies.
"Kick-Off Meeting" - We will conduct a "kick-off meeting" to explain the program to senior management, department managers and medical staff.
Data Gathering - We will begin the data gathering process which involves interviews, collection of historical information, departmental tours, etc.
Identify Initial Opportunities - We will identify initial opportunities in specific product/service lines for further analysis.
Confirm Pricing and Utilization Data - The pricing information is normally confirmed from accounts payable files. Utilization information is confirmed from a variety of sources included the materials information system, supplier reports, accounts payable records, purchasing records, etc.
Determine Alternative Practice Product/Service - This task also involves confirming the price/cost of the recommended alternative and calculation, if required, of utilization of the alternative.
Calculation of Savings by Product Line -This process includes identification of the impact of the recommended changes.
Summarization of the savings (in total and by product line)
Development and publication of the draft report and final report
Presentations of the final report.
Implementation of the changes
Monitoring the results of the program
Our staff typically conducts periodic status briefings throughout the project. We provide monthly written status reports documenting activities completed, activities in process, activities to be undertaken, initial impressions, and any issues that have evolved; the monthly status report also includes a summary of the savings identified to date by product line. In addition, the PECA team will attend hospital meetings of the products committee, pharmacy and therapeutics committee, nursing practices, department managers, senior managers, to present the program, discuss progress, and/or present opportunities as desired.
The amount of PECA involvement in the formal education and training of client staff and implementation of the recommendations varies greatly depending upon the needs and wishes of the client. The basic PACER™ program presumes the client is most interested in utilizing PECA's expertise; thus, the involvement in implementation and formal training is minimized. Other clients, however, request our extensive involvement in this process. Importantly, we customize the scope of our PACER™ program to the needs of our individual hospital client.
The basic PACER™ program typically involves eighteen to twenty-two weeks from initial project meeting to the final report. Delays in the availability of individuals and/or data essential to the analysis will delay this schedule.
The first recommendations are usually generated within thirty days of program inception. These recommendations are communicated as they are developed to enable an expedient realization of savings. Recommendations will be generated throughout the remainder of the four months of the program.
At the conclusion of the PACER™ program, the healthcare provider will receive the following benefits:
1. Specific recommendations to change practice, products, and/or services with accompanying savings identified in detail. Our clients have identified annual cost savings ranging from $420,000 to $8,000,000. The savings per occupied bed per year have averaged over $9,950. In addition, our hospital clients have realized a high (i.e. ninety plus percent) degree of success in implementing our recommendations.
2. Purchasing and utilization profiles of the selected commodities identifying storeroom market share (i.e. percentage of products acquired from the hospital's storeroom), supplier market share, and degree of standardization.
3. Development of a non-stock database to assist in future MMIS installations, comparison of future supply consumption profiles, price negotiations, and other management studies.
4. Technology transfer through the education of client staff on the concept and application of value analysis techniques. This will be accomplished through one-to-one meetings with customer managers and staff, presentation at various meetings, and educational seminars, as desired.
5. Assistance in the implementation of the specific recommendations. We will provide detailed implementation strategies and assist in the presentation of the change to the specific care provider/manager as appropriate. Typically, one third of the recommendations present relative ease upon implementation; hence savings can, and have been, realized upon identification of the opportunity. A second group of recommendations will realize moderate resistance to change necessitating senior management support and discussion with the department(s)/individual(s) impacted. The last proportion of recommendations are anticipated to experience significant resistance thereby requiring strong leadership, development of study task forces, and an extended implementation period. Importantly, the nature of implementation varies greatly between clients. Our implementation strategies are customized to the needs and culture of the specific client.
6. Evolution of the clients products committee to a value analysis program assuring that the benefits of the PACER™ program are realized and continued.
7. Operational recommendations designed to enhance service and/or reduce costs. While operational issues are not the focus of the PACER™ program, our extensive on-site involvement affords us the opportunity to identify areas for potential redesign/engineering. We will document these issues and our recommendations in our final report.
8. Development of monitoring systems to measure the success of the PACER™ program after presentation of the final report.
9. Conduction of a post-project audit to provide the hospital a "report card" documented progress accomplished, roadblocks encountered and savings realized.
10. Comparison, at the time of project initiation and ongoing thereafter to PECA's national survey of supply costs per patient day/admission.
11. We will provide on-going support after completion of the engagement. In addition, we will share new opportunities for savings as they are developed.
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The table below illustrates the success of our past 10 Projects.
| Location | Savings | Daily Census | Savings/Bed |
| Ohio | 7,907,267 | 567 | 14,284 |
| North Carolina | 2,888,341 | 264 | 10,941 |
| Iowa | 1,184,799 | 158 | 7,480 |
| Ohio | 657,705 | 79 | 8,378 |
| Iowa | 3,616,929 | 417 | 8,745 |
| Missouri | 1,353,018 | 90 | 15,084 |
| North Dakota | 1,993,352 | 124 | 16,037 |
| Texas | 3,256,850 | 439 | 7,420 |
| North Carolina | 922,548 | 118 | 7,818 |
| California | 2,175,763 | 193 | 11,291 |
Healthcare Consulting
5252 Orange Avenue, Suite 100, Cypress, CA 90630
phone: (714) 236-3743 fax: (714) 236-8480