PODCAST: Ten Largest Medical Device Companies

By Eric Bricker MD

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The AHRMM Stance on Comparative Effectiveness Research [CER]

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Association for Healthcare Resource & Materials Management

By Adam Higman

By Brian Mullahey

By Kristin Spenik

By Jerzy Kaczor

http://www.SoyringConsulting.com

In today’s hospital setting, data and healthcare information is the most accessible it has ever been making it necessary for healthcare professionals to assess and evaluate its accuracy.  Additionally, the healthcare supply chain is filled with “me-too” products with often dubious improvements in clinical efficacy over competitive and legacy products.

The AHRMM Issues & Legislative Committee

AHRMM’s Issues & Legislative Committee has advocated the usage of Comparative Effectiveness Research (CER) to offer substantial, evidence-based data to aid healthcare organizations in their purchasing decisions.  CER data includes unbiased conclusions regarding healthcare products and supplies, after having compared the advantages, usefulness, and possible harm of numerous pharmaceuticals, medical devices, equipment, surgical procedures, and tests for specific disease states and treatments of care.

Adult-Resources

Goals

By utilizing the CER-provided data, materials management professionals can :

  • Warrant top-performing Value Analysis Committees
  • Verify the cost-effectiveness and ability of salvaging “single use items”
  • Regulate Medical/Surgical products
  • Capitalize information technology efforts to decrease expenditures and inaccuracies
  • Change supplies, services, and technologies to lower budget-friendly, clinically-acceptable options that endure needed specifications
  • Convert to supplies, services, and technologies that produce better patient outcomes at a lower total cost that meets needed specifications
  • Prioritize capital expenditures
  • Use third-party benchmarking tools to get the most out of resources 2

More:

Conclusion

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Understanding Healthcare AR and PO Financing

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A Normal or Strategic Business Imperative for Doctors?

If you, or your medical practice, can’t qualify for a traditional business loan, or if you don’t have time to wait for those funds, there are other alternative financing options that might be the answer — especially when those funds will equal a big return.

AR and PO financing (accounts receivable and purchase order financing) are two choices for business owners, and medical practices, when they need immediate capital, or have lower credit scores.

Assessment: This graphic should help decide if AR or PO financing is right for you.

Source: Dan Bischoff

 Conclusion

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About the Mobile Health Market

Sensor-Based Mobile Apps Show How M-Health Business Models Could Work

By Markus Pohl

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Making money with mobile healthcare applications takes much more effort than most developers expected. M-Health apps normally do not get into the app stores’ top ranking lists and thus do not receive high download numbers.

m-Health Applications Business Models

But, there are working business models for the mHealth applications. Within the mobile health app category revenue won’t be generated through app stores. More and more mHealth app publishers have understood that they have to adapt their business model accordingly. Turning away from the “normal” pay-per-download models to practices like charging for medical service (call a doc) or sensor based models.

Sensor Based Models

Sensor based business models seem to have particularly caught the attention of mHealth app publishers over the last 6 months. The idea behind this model is not to sell an app but to use the app to promote the sales of a sensor. Revenue will be generated outside the app store.

Trend Examples: 

Here are some examples to highlight this trend.

  • Health and Wellness Monitoring tools combine fitness-related equipment to track pulse, calories, running speed, heart rate, or use sensor-devices to monitor weight control, fetus observation and eye testing. Target groups for these products are fitness and health-conscious users aged mainly between 35 and 45 years.
  • Chronic Condition Monitoring tools monitor health conditions like heart disease, hypertension, diabetes, asthma and obesity. They generate revenue from selling a sensor-device with a free application. Target groups are healthcare providers, medical personnel and chronically ill people between 30 and 50 years.
  • Diagnosis Tools are mainly targeted at professionals, who increasingly demand more portable and easy-to-use devices for easier communication with patients and peers.
  • Educational and Motivational Tools monitor habit patterns (e.g. sleep monitoring via app/device) or serve as useful didactic instruments for science education (e.g. portable microscopes).

Traditional health care service providers and especially medical device manufacturers should be aware of these trends and start to connect to the smartphone world.

To find a detailed overview of mHealth business models – please see the Mobile Health Market Report 2010-2015. Or, take a look at more mobile healthcare research from research2guidance.

Assessment

Outside app store revenue will drive the market. Sensor-based business models prove how to actually make money with mobile applications.

Conclusion

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Hospital Materials Management Information Systems [Part 2]

Fundamentals of Software Implementation

By David J. Piasecki; CPIM

By Hope Rachel Hetico; RN, MHA

Dr. David Edward Marcinko; MBA

www.HealthcareFinancials.com

The singular focus of any Hospital Materials Management Information System (HMMIS) is to deliver significant improvements in the ability of hospital facilities, networks, and other healthcare organizations to optimize the processes and work flows associated with materials management systems and reduce the costs related to inventory, durable medical equipment, pharmaceuticals and supply chain management (SCM).

Understanding Strategies

Strategically, hospitals must exploit contemporary technologies and connectivity with suppliers and trading partners to:

  • improve patient care and safety,
  • increase efficiency,
  • drive down costs, and
  • optimize inventory levels.

Software Implementation

As with the selection process written about previously, ERP software implementation may also require outside assistance.  Whether you use consultants from the software vendor, a business partner, or an independent firm, the implementation plan will likely be the same.  It’s very important to listen to consultants and be prepared to dedicate the resources outlined in the implementation plan.  A common mistake made by healthcare entities going through their first major implementation is to underestimate the complexity of their operations, the extent of system setup and testing, and the impact the implementation will have on their operation.

ERP Implementation

Here is an outline of a common scenario in single-hospital ERP implementations.

  • The consultants warn of the consequences of not dedicating adequate resources.
  • Management publicly agrees but privately thinks the consultants are crying wolf.
  • Implementation fails or goes poorly.
  • Management claims “how could we have known?”

Don’t let this be you.  The only thing to assume about the implementation is that it that it will be much more difficult than expected, it will take longer than you expected, and it will cost more than expected.

Like most other projects, the success of a software implementation will be based upon the skill of the people involved, training, planning, and the effort put forth.  Plan to have the most knowledgeable employees heavily involved in the system setup and testing.  

Testing Programs

Adequate time should be dedicated to make sure every aspect of every process is thoroughly tested.  An example of a detailed testing program is listed below:

  • Does the purchase order [PO] receipt screen have all the information needed to perform the receipt such as vendor item number, item description, unit of measure?
  • What happens when we receive more than the PO quantity?
  • What happens when we receive less than the PO quantity?
  • What happens when we enter multiple receipts against the same line?
  • What happens if someone tries to change the PO quantity after we have entered a receipt?
  • What happens if one changes the PO quantity at the same time we are entering a receipt?
  • What happens when we reverse a receipt?
  • What happens when we reverse a receipt after it has been paid?
  • What happens if the ordered unit of measure is different from the stocking unit of measure?
  • What happens when we receive an early shipment?
  • What happens when we try to receive against a cancelled PO?
  • What happens when we change the receipt location?

After the system has been thoroughly tested, employee training begins. Remember, dealing with unexpected issues is the norm; you don’t also need to be training employees after the system is supposed to be operating.

Hands-On Training

The training should consist of hands-on training and include written procedures for the tasks performed.  For most positions, make sure that each employee has entered the equivalent of at least a full day’s transactions during the training.  Using an actual day’s transactions is a good way to make sure the variety of transactions an employee is likely to encounter have been experienced. The most common mistake made in training is a lack of adequate repetition. Just because someone was able to perform the task once, during a training session on a Saturday three weeks prior to “going-live” does not mean they will be able to perform the task with system start-up. If they have repeated the task many times over a series of training sessions, they are much more likely to remember how to do it. 

Assessment

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Watch the data. During and immediately after the implementation it is incredibly important to watch the data and make sure everything is working as planned. Monitor the status of orders, purchase orders, and delivery orders paying specific attention to “stuck orders” or other exceptions. Conduct some aggressive cycle counting of fast-moving items to make sure transactions are working correctly. 

Conclusion

So, tell us what you think about your hospital’s SCM software implementation? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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Hospital Materials Management Information Systems [Part 1]

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Fundamentals of Inventory Software Selection

By David J. Piasecki; CPIM

By Hope Rachel Hetico; RN, MHA

By Dr. David Edward Marcinko; MBA

The singular focus of any Hospital Materials Management Information System (HMMIS) is to deliver significant improvements in the ability of hospital facilities, networks, and other healthcare organizations to optimize the processes and work flows associated with materials management systems and reduce the costs related to inventory, durable medical equipment, pharmaceuticals and supply chain management (SCM).

Understanding Strategies

Strategically, hospitals must exploit contemporary technologies and connectivity with suppliers and trading partners to:

  •  improve patient care and safety,
  •  increase efficiency,
  •  drive down costs, and
  •  optimize inventory levels.

Software Selection

Software selection and implementation services have become big business for consulting firms as well as the software vendors themselves.  Even with outside assistance, selecting the right software for hospital operations and having a successful implementation can be an extremely difficult undertaking. Horror stories of failed enterprise resource planning (ERP) system implementations are unfortunately very common.  Anyone who frequently reads business publications have read stories where large healthcare corporations, posting smaller than forecasted profits, cite problems associated with the implementation of a new software system as one of the causes.  Whether these claims are legitimate or not is up to debate. What is true is that hospitals are highly dependent on information systems and failures in the selection and implementations of systems can result in anything from a minor nuisance to a complete operational shutdown.

Those unfamiliar with business inventory management software should be prepared to be bombarded with acronyms and buzz words.  E-business, web-enabled, E-procurement, E-fulfillment, E-manufacturing, collaborative, modular, and scaleable are just a sampling of the terms used to describe (sell) hospital software inventory products.

Inventory Tracking Software

Healthcare enterprise inventory tracking software with implementation ranges in price from a few thousand dollars to millions.  In fact, up until recently, if you were a medical clinic with annual revenues of less than $200 million, many of the top enterprise software vendors didn’t even consider you a potential customer.  Fortunately, this arrogance has been tempered recently due to economic conditions (primarily the software vendors’ cash flow). Unlike five years ago, when the software vendors felt they held all the cards, today it is truly a buyer’s market. No matter how big or small an entity, many vendors will be vying for software dollars. That’s the good news. The bad news is that you must sift through all these products to find the one that best meets your business needs.

Process Definition

The most important part of the software selection process is defining the processes within your health organization and determining functionality that is critical to your medical operation.  Many times clients get distracted by the bells and whistles and forget about their core healthcare business functions.  As a healthcare entity in the DME distribution fulfillment business – focus on functionality related to order processing, as well as warehouse and transportation management. Be wary of the software vendor that claims packages that work equally well in all environments.  Most software packages are initially designed with specific situations in mind; asking the vendor about their biggest customers will often give you an idea as to the type of operation the software was designed to work in.

Product Functionality

When you look at the detailed functionality of a product it will be important to have listed detailed functionality requirements of your healthcare operation.  This is where hospitals often make mistakes by emphasizing functionality that they currently don’t have, but would like, and overlooking core healthcare processes that their current system handles well.

Example:

For example, if you are awestruck with functionality that allows remote access to a medical charting system from an Internet browser on an ambulatory device – and as a result – overlook critical functionality related to order entry or demand planning, you may end up with a system that provides great visibility to the fact that patient revenues are failing. Never assume a software package “must” be capable of handling something considered a standard function.  Some examples of detailed functional requirements are as follows:

  • E-commerce capabilities
  • Multi-facility demand planning
  • Postponement and configure-to-order functionality
  • Forecasting and demand planning
  • Back-order processing
  • Lot or serial number tracking
  • Forward pick location replenishment
  • Batch or wave order picking
  • Returns processing
  • Back flushing DME inventory
  • Co-product processing
  • Outsourcing specific operations
  • Multiple stocking units of measure
  • Product substitutions
  • Blanket orders
  • Shipment consolidation
  • Multi-carrier rate shopping and manifesting
  • First-in first-out processing

documents

Assessment

Don’t settle for “yes, we can do that” responses from the software vendor. It’s your responsibility to verify that not only can they do it, but also that they can do it to the level required. Ask detailed questions as to exactly how it works in their system. Look at the specific programs used to achieve the task and verify that the data elements required to achieve the task are present. Don’t allow the software vendor to sidestep your questions by retreating into obfuscating technical jargon

Conclusion

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RFID versus WiFi Hospital Inventory Tracking Systems

Understanding Competing Wireless Technologies

By Davd Piasecki, with

Hope Hetico; RN, MHA

www.HealthcareFinancials.comHOFMS

The two wireless technologies currently competing to provide hospitals with better systems for managing equipment inventories are (WiFi) and active RFID.

Wireless-Fidelity [WiFi]

WiFi is the name of the popular wireless networking technology that uses radio waves to provide wireless high-speed Internet connections. The WiFi Alliance is the non-profit organization that owns WiFi (registered trademark) and the term specifically defines WiFi as any “wireless local area network products that are based on the Institute of Electrical and Electronics Engineers’s 802.11 standards.”  Yet, less than 5 percent of North American healthcare facilities are equipped with these real-time locating systems, so the market is currently up for grabs.

WiFi Pros

The advantage of WiFi-based real time locating systems (RTLSs) is that most hospitals already have WiFi networks in place, and many medical devices are equipped with WiFi functionality. Moreover, WiFi vendors such as Aeroscout, Ekahau, and PanGo market their products based on a standards-based non-proprietary functionality. The downside of WiFi systems is that hospitals will need to install additional access points to bring the needed functionality to existing networks.

RFID Pros

On the other hand, RFID vendors such as RF Code and Radianse point to the wide application of RFID for asset tracking, and to the technology’s longevity in the industry. Still, RFID tags remain suspect because their ability to efficiently track DME may not be private or secure. Increasingly, WiFi seems more ubiquitous than RFID.

Finally, of the three WiFi major vendors, only Ekahau makes a point of stressing that its inventory system is based only on WiFi and not RFID, so the issue isn’t clear cut.  Perhaps it will take both technologies to deploy RTLSs for hospitals.

General Recommendations

As a general recommendation, RFID is not yet practical for most small to mid-sized healthcare entities or medical clinics looking to automate their inventory-related transactions (though it does work for other applications such as with returnable containers and asset tracking).

RFID Hype

Despite the hype over RFID, bar codes are not becoming obsolete and are still very effective at quickly and accurately identifying products, locations, and documents. Unless there exists an application where bar codes simply don’t work, or where RFID offers a significant advantage over bar codes, use bar codes. Even if an application that cries out for RFID exists, hospital material management administrators may want to consider waiting (if possible) as the cost of the technology comes down.

Both RFID and WFI Needed

According to Robert M. Wachter MD, Professor and Chief of the Division of Hospital Medicine and Associate Chairman of Department of Medicine, and Lynne and Marc Benioff Endowed Chair in Hospital Medicine, University of California at San Francisco, and Chief of the Medical Service at UCSF Medical Center [personal communication], both should be used.

Ultimately, of course, we do need both bar coding and RFIDs, and we need rigorous studies looking at what works and what doesn’t. But, you have to start somewhere. Even though the evidence continues to trail, based on what I know today, if I was a hospital ready to get into the IT game, I’d go with bar coding first. 

Assessment

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In the next few years, standards will be finalized, hardware prices will drop, software will become more readily available, and, more importantly, the bugs will be worked out of all these systems.   

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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On Healthcare Inventory Management

Understanding Fundamental Principles

By Staff Reporters

www.HealthcareFinancials.com

According to industry inventory management expert Mr. David Piasecki, healthcare inventory is a term that describes medical items used in the delivery of healthcare services or for patient use and resale. Much like Durable Medical Equipment, a certain safety margin of stock should always be available. Inventory ranges from normal administrative office supplies to highly specialized chemicals and reagents used in the clinical laboratory. It should be distinguished from capital supplies, such as major equipment, instruments, and other items that are not used up faster than inventory or related inventory wastes.

Historical Review

Historically, asset utilization ratios provided information on how effectively the enterprise used its inventory assets to produce revenues, or deplete its cash. For example, the inventory turnover ratio (ITR) determines the total volume of inventory turnover (change) during a pre-determined accounting period (month or quarter). It is defined as cost of inventory purchased for the period, divided by average inventory (AI) at cost.

Consulting Firms

Dunn and Bradstreet, the supply chain management – consulting firm and others, do not provide exact comparatives for private healthcare ITR. Nonetheless, ITR is useful as an internal performance indicator of inventory turnover speed and cash flow enhancement. Currently however, for public hospitals, 60 – 75 days is estimated to be the average time for inventory turnover.HOFMS

www.HealthcareFinancials.com

The main problem with traditional ITR, similar analyses such as AI and ICP, and the usual inventory costing methods (e.g., last-in first-out, first-in first-out, specific identification, average costs), and even just-in-time inventory costing, is that they do not embrace Supply Chain Inventory Management. This occurs because sources of profit or loss are not recognized in the traditional inventory cost accounting equation:

Assessment

Cost of goods sold = beginning inventory + net purchases – ending inventory

Conclusion

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Take the DME Inventory Switching Challenge!

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 Calling all Administrators and Management Consultants – Are You CMP™ Worthy?

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The new administrator for the ABC Medical Clinic understood that all inventory costing methods were acceptable to use in his Durable Medical Equipment [DME] department. LIFO, FIFO, specific identification, and the average cost method are all attractive methods under different circumstances in the business cycle, and companies may use the method that best fits their circumstances.

Reducing Taxes

For example, if ABC wished to reduce corporate income taxes in a period of inflation and rising prices, it would use LIFO. If matching DME sales revenue with the current cost of DME goods sold was desired, LIFO would also be used. Unfortunately, LIFO may charge against DME revenue the cost of DME not actually sold, and LIFO may allow the ABC Medical Clinic to manipulate net income by varying the time-periods it makes additional DME purchases. On the other hand, FIFO and specific identification method allows a more precise matching of ABC revenue with historic DME costs. However, FIFO too, can promote “paperless-phantom profits,” while specific identification can promote possible income manipulation.  It is only under FIFO that net income manipulation is not possible.

CEO – 2 – CFO [Case Model]

“Let’s go with FIFO,” the new administrator said to his Chief Financial Officer, Bert. “The profits will make us look good to the home office and we can always switch back to LIFO if inflation starts back-up again, right Bert?” He mused, but he was not amused because freedom of choice does not include changing DME inventory methods every few years, especially if only to report higher income. “The switching of methods violates the basic tenet of consistency, which requires the use of the same inventory cost and accounting methods in preparing financial reports and statements,” Bert emphatically stated.

Key Issues

1) Is this sort of inventory costing and maneuvering permissible?

2) What is its justification?

3) How is it notated in financial reports?

4) Is this sort of thing ethical?

Assessment

“The switching of methods violates the basic tenet of consistency, which requires the use of the same inventory cost and accounting methods in preparing financial reports and statements,” Bert emphatically stated.

Conclusion

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Medical Inventory Management Methodologies

Understanding Traditional Costing Methods

By David J. Piasecki, with
Hope Rachel Hetico; RN MHA, CMP™cmp-logo1

A good inventory management system offers opportunities for improved efficiency in any healthcare organization. The following traditional methods of inventory cost accounting and management are useful when one is calculating the cost of supplies (as opposed to medical items for resale and DME).

a. LIFO

The last-in first-out (LIFO) inventory costing method means the last items purchased are the first to be used (at least for cost calculations if the inventory consists of identical units). In times of rising prices, a lower total cost inventory is produced with a higher cost of goods sold. The last items purchased are most often the most expensive, and used first for the calculation. This happens because LIFO increases an expense (cost of goods sold) and decreases taxable income. Given the same revenue, higher expenses mean less profit. Deflation has the opposite effect.

b. FIFO

The first-in first-out (FIFO) inventory costing method means the first items purchased are the first to be used (at least for cost calculations if the inventory consists of identical units). In times of rising prices, a higher total cost inventory is produced with a lower cost of goods sold. This happens because FIFO decreases an expense (cost of goods sold) and increases taxable income. Deflation has the opposite effect.

Note: Any switch from FIFO to LIFO does not change reality, and although a decrease in reported incomes occurs, it does not increase cash outflows. However, for a taxable healthcare entity, after-tax net cash flow does increase.

c. Specific Identification

Specific identification is used for larger pieces of equipment, as it traces actual costs to an identifiable unit of product and is usually applied with an identification tag, serial plate, or radio frequency identification device (RFID) scanner. It does not involve flow-of-cost analysis. It does, however, permit the manipulation of income because healthcare entities state their cost of goods sold, and ending inventory, at the actual cost of specific units sold.

d. Average Cost

Average costing calculates ending inventory using a weighted average unit cost. When prices are rising, cost of good sold is less than under LIFO, but more than that under FIFO, and hence income manipulation is also possible.

e. Just-in-time Management

Although technically not a costing technique, JIT inventory management means that inventory supplies like DME are delivered as soon as needed by the healthcare organization, the prescribing doctor, or the patient. In JIT, inventory is “pulled” through the flow process. This is contrasted to the “push” approach used by conventional IM. In the push system, DME is already on-site, with little regard to when it is actually needed. In the JIT “pull” system, the overriding concern is to keep a minimum cost inventory, so that means having a system in which inventory is obtained on an as-needed basis.

The key elements of JIT consist of six parts:

1. a few dependable vendors or suppliers willing to ship with little advance notice;

2. total sharing of demand information throughout the supply chain;

3. more frequent orders;

4. smaller size of individual orders;

5. improved physical plant (hospital or clinic) layout to reduce travel flow distance; and

6. use of a total quality control system to reduce flawed medical products.

Using the JIT method, inventory is delivered when needed, rather than in advance, saving handling and storage costs. The healthcare entity never needs to stockpile inventory, and cash flow is enhanced. JIT is further characterized as follows:

  • little or no work orders;
  • little or no tracing of materials;
  • fewer inventory accounts or accounts payables;
  • reduction or elimination of work-in-progress or handling activities; and
  • no tracing of overhead and direct labor costs

JIT requires a dependable working relationship with suppliers and the precise calculation of inventory needs, especially for the following:

  • sterile surgical packs;
  • gastro-intestinal and gastro-urinary instrumentation;
  • orthopedic and OB-GYN inventory;
  • invasive heart and lung equipment;
  • radio isotopes and trace radiographic materials; and
  • equipment for almost all pre-schedule medical interventions and procedures.

Assessment

This means that, when JIT inventory monitoring is used, healthcare managers are better prepared with the proper inputs to control and reduce inventory, including when dramatic bursts or declines occur. This means a more rapid and higher cash flow balance, rather than inventory balance. Each of these traditional methods of inventory cost accounting is adequate for most healthcare facilities, but as inventory orders and costs continue to increase, economic order quantity [EOQ] costing may be the most effective means of accounting for inventory in DME-intensive organizations.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Can you think of any other inventory management technologies?  Tell us what you think. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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Medical Inventory Supplies and Management

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Understanding Traditional D.M.E. and Turn-Over Rates

[By Staff Reporters]

Healthcare inventory represents tangible medical items used in the delivery of healthcare services, or for patient use and resale, or durable medical equipment [DME]. A certain quantity of safety stock should always be available. Inventory ranges from normal administrative office supplies to highly specialized chemicals and reagents used in the clinical laboratory.

Capital Supplies

Inventory should be distinguished from capital supplies, such as major equipment, instruments, and other items that are not used up faster than inventory or related inventory wastes.

Understanding Inventory Turnover

Historically, asset utilization ratios provided information on how effectively the enterprise used its inventory assets to produce revenues, or deplete its cash. For example, the inventory turnover ratio (ITR) determines the total volume of inventory turnover (change) during a pre-determined accounting period (month or quarter). It is defined as cost of inventory purchased for the period, divided by average inventory (AI) at cost.

Supply Chain Management

Dunn and Bradstreet, the supply chain management and consulting company; does not provide exact comparatives for private healthcare ITR. Nonetheless, ITR is useful as an internal performance indicator of inventory turnover speed and cash flow enhancement. Currently however, for public hospitals, 60 – 75 days is estimated to be the average time for inventory turnover.

Assessment

The main problem with traditional ITR, similar analyses such as AI, and the usual inventory costing methods (e.g., last-in first-out, first-in first-out, specific identification, average costs), and even just-in-time inventory costing, is that they do not embrace supply chain inventory management models. This occurs because sources of profit or loss are not recognized in the traditional inventory cost accounting equation:

Cost of goods sold = beginning inventory + net purchases – ending inventory. 

Conclusion

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Understanding HMO Negotiation Tactics

Tricks Often Used Against Doctors

By Dr. David Edward Marcinko; MBA, CPHQ, CMP™

By Hope Rachel Hetico; RN, MHA, CPHQ, CMP™

[Publisher-in-Chief and Managing Editor]dave-and-hope6

It is well known that stakeholders of the healthcare industrial complex often have different, and divergent, interests. Intra-as well as inter-stakeholder competition occurs; as well.

The Friends-Enemies [“Frenemies”]

For example, several decades ago, the authors were often at odds at the payer negotiation table.

He was managing partner of a large private medical practice, ASC and later PPMC. First, she was the representative of a national DME vendor, healthcare system and later, private insurance payer.

The Tactics

The following trick negotiating tactics can be used to gain an advantage over your opponent, or they can be used against you to your disadvantage. The key is to recognize them immediately:

1. Deliberate deception with phony facts about contracts, providers, patients, venues, demographics, prices, utilization rates or services.  Some MCO’s may even offer a fee-for-service fee schedule as enticement into the plan. Then, fees are dramatically reduced once the initial enrollment period has elapsed.

2. Ambiguous authority regarding negotiating intentions or power. One the deal is done and a firm agreement has been made, the other side announces that they must take the agenda to a higher authority for final approval and another shot at your resistance. 

3. Avoid stressful personal situations before beginning the negotiating process. Don’t negotiate when sick, your personal life in shambles, your children or spouse is sick or when you feel too mentally exhausted or “psyched out”.

4. Personal attacks can be in the form of verbal abuse or simply loud talking, avoidance of eye contact or asking you to repeat yourself, endlessly. Extremely offensive to most physicians, and increasingly used today, is the phrase “remember doctor, you are an over supplied commodity”.  Now ask yourself, do you really want to be on a plan that doesn’t respect your profession?  

5. The “good guy-bad guy” routine is a psychological tactic where one partner appears to be hard nosed and the other appears more yielding. Small concessions result which, upon repetition, become larger in aggregate.

6. The “take it or leave it” tactic can be easily avoided by knowing your BANTA [Best Alternative to a Negotiated Agreement]. More formally, this is known as a unilateral contract of adhesion.

7. Escalating or increasing demands occur when the opponent increases his demands or reopens old demands. Call their bluff on this one by pointing it out to them and replying that you are aware of its use.

Assessment

Always remember, today’s enemy – may be tomorrow’s ally.

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Conclusion

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Understanding MD/DO HMO Contracts

Pitfalls Physicians Must Avoid

By Dr. David Edward Marcinko; MBA, CPHQ, CMP™

By Hope Rachel Hetico; RN, MHA, CPHQ, CMP™

[Publisher-in-Chief and Managing Editor]dave-and-hope5

It is well known that stakeholders of the healthcare industrial complex often have different, and divergent, interests. Intra-as well as inter-stakeholder competition occurs; as well.

The Friends-Enemies [“Frenemies”]

For example, several decades ago, the authors were often at odds at the payer negotiation table.

He was managing partner of a large private medical practice, ASC and later PPMC. First, she was the representative of a national DME vendor, healthcare system and later, private insurance payer.

Key Pit Falls to Avoid

There are seven key pitfalls to watch out for when evaluating an MCO contract.

1.  Profitability: Less than 52% of all senior physician executives know whether their managed care contracts are profitable. “Many simply sign up and hope for the best”.

2. Financial Data:  90% of all executives said the ability to obtain financial information was valuable, “yet only 50% could obtain the needed data”.

3.  Information Technology: IT hardware and sophisticated software is needed to gather, evaluate and interpret clinical and financial data; yet it is typically “unavailable to the solo or small group practice”.

4. Underpayments: This rate is typically between 3-10% and is usually “left on the table”.

5. Cash Flow Forecasting: MCO contracting will soon begin yearly (or longer) compensation disbursements, “causing significant cash flow problems to many physicians and physicians”.

6. Stop Loss Minimums: SLMs are one-time upfront premium charges for stop loss insurance. However, if the contract is prematurely terminated; you may not receive a pro-rata refund unless you ask for it!

7. Automatic Contract Renewals: ACRs or “evergreen” contracts automatically renew unless one party objects. This is convenient for both the payer and payee, but may result in overlapping renewal and re-negotiation deadlines. Hence, a contract may be continued on a sub-optimal basis, to the detriment of the provider. 

biz-book5

Assessment

Always remember, in the game of negotiations, today’s enemy – may be tomorrow’s ally.

Conclusion

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Healthcare Inventory Management

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Understanding Medical Inventory Cost Accounting

[By DavidJ. Piasecki; CPIM]

[By Hope Hetico; RN, MHA]

Prof. Hetico

Inventory cost accounting methods are seldom used by medical practitioners. After all, doctors and healthcare organizations provide a service, and generally do not sell things. However, inventory is playing an increasingly important role in the financial viability of procedurally based medical practitioners, clinics, and hospitals.

Durable Medical Equipment

This occurs because hospitals and these healthcare entities maintain, dispense, and use durable medical equipment (DME) more abundantly than ever before. Voice systems, RFID, OCR, pick-to-light and laser scanners, CCD scanners, hand-held batch and RF terminals, vehicle-mounted computers, and wearable computers are now all part of the modern healthcare system inventory data-collection and management picture.

A Decade Old Challenge

Ironically, the financial challenge of hospital inventory management was first articulated in the Efficient Healthcare Consumer Response Report (EHCR) in 1996. The report identified $11.6 billion of cost saving opportunities in the American healthcare system directly due to inefficient product movement and ineffective inventory control and materials management. Now, more than ten years later, this situation has only grown worse. As material costs have increased, our overburdened health system cannot afford such inefficiency.

For example, DME stock-out emergencies are real and costly. And, inventory models such as economic order quantity (EOQ) costing have been in existence long before modern data capture inventory costing methods, just-in-time (JIT) inventory controls, total quality management protocols, and the other supply chain inventory management (SCIM) initiatives often used to prevent them.

Medical Supply Chain Inventory Management

Medical SCIM is a method of accounting that takes into consideration raw materials, the construction of useful products, and the distribution of those products. Physician proceduralists, medical dispensers, and hospitals must understand SCIM, because a healthcare entity’s profitability will suffer if it has too much, or too little DME inventory on hand. DME can be both a cost center or revenue driver, depending on its management.

Perpetual Inventory Management

A perpetual [periodic inventory] costing method is the traditional way to account for DME usage. With periodic costing, the cost of inventory is determined once, at the end of the period. With a perpetual costing inventory, a new unit price is recalculated with each order.

EOQ Methods

How can the healthcare entity determine the proper DME inventory level? One uncommonly used, but increasingly important, approach is the EOQ method. Some astute clinic and hospital administrators are just now using EOQ to manage their DME inventory. They are increasing their financial benefits by determining the most cost effective answers to the questions: 

· How much inventory should I order?

· When should I order the inventory?

· How can I increase efficiency and reduce channel costs?  

Assessment

In other words, how can a hospital or healthcare organization optimize inventory levels, reduce expenses, and still improve patient care and safety?

Conclusion

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