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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.

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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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Implementation of the Healthcare Deficit Reduction Act

Signed by President Bush in 2006

By Gregory O. Ginn; PhD, MBA, CPA, MEd

By Hope Rachel Hetico; RN, MHA, CMP™

The Deficit Reduction Act (DRA), S. 1932, was signed by President Bush on February 8, 2006, and became Public Law No. 109-171.  Implementation of the act includes these provisions:

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Subtitle A – Provisions Relating to Medicare Part A

  • hospital quality improvement (section 5001);
  • improvements to Medicare-dependent hospital (MDH) programs (section 5003);
  • reduction in payments to skilled nursing facilities (SNFs; section 5004);
  • phase-in of inpatient rehabilitation facility classification criteria (section 5005);
  • development of a strategic plan regarding investment in specialty hospitals (section 5006);
  • demonstration projects to permit gain-sharing arrangements (section 5007); and
  • post-acute care payment reform demonstration programs (section 5008).

Subtitle B  Provisions Relating to Medicare Part B

  • title transfer of certain durable medical equipment (DME) to patients after 13-month rental (section 5101);
  • adjustments in payment for imaging services (section 5102);
  • limitations on payments for procedures in ambulatory surgical centers (ASCs; section 5103);
  • minimum updates for physician services (section 5104);
  • three-year extension of hold-harmless provisions for small rural hospitals and sole community hospitals (section 5105);
  • updates on composite rate components of basic care-mix adjusted prospective payment systems (PPS) for dialysis services (section 5106);
  • accelerated implementation of income-related reductions in Part B premium subsidy (section 5111);
  • Medicare coverage of ultrasound screening for abdominal aortic aneurysms; National Educational And Information Campaign (section 5112);
  • improvements to patient access and utilization of colorectal cancer screening under Medicare (section 5113);
  • delivery of services at federally qualified health centers (FQHC) (section 5114); and
  • waiver of Part B Late Enrollment Penalty for certain international volunteers (section 5115).

Subtitle C – Provisions Relating To Parts A and B

  • home health payments (section 5201);
  • revision of period for providing payment for claims that are not submitted electronically (section 5202);
  • timeframe for Part A and B payments (section 5203); and
  • Medicare Integrity Program (MIP) funding (section 5204).

Subtitle D – Provisions Relating To Part C

  • phase-out of risk adjustment budget neutrality in determining payments to Medicare Advantage organizations (section 5301); and
  • Rural PACE Provider Grant Programs (section 5302).[1]

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The goal of the act is to save nearly $40 billion over five years from mandatory spending programs through slowing the growth in spending for Medicare and Medicaid. Has it been successful to-date?

Assessment

We know from personal experience that the DRA can be implemented by all healthcare stakeholders to the benefits of the industry sector in the aggregate. But, has it been?

Conclusion

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Editors Note: Gregory Ginn has been a professor in the Department of Health Care Administration at the University of Nevada, Las Vegas, since 2000. He received his doctorate, MBA, M.Ed., and undergraduate degree from the University of Texas at Austin, and is an inactive Certified Public Accountant registrant in the States of Nebraska and Texas. Before his current position at UNLV, he spent time teaching at Clarkson College, College of Saint Mary, University of Findlay, University of Central Texas, Stephen F. Austin State University, State University of New York at Buffalo, University of Houston at Victoria, University of Texas at Austin, and the Southwest Texas State University. Prior to his academic roles, he was an accountant for Touche Ross & Co., and an Internal Revenue Service Tax Auditor. Dr. Ginn has also been a reviewer for organizations such as: Health Care Management Review and the Health Care Administration Division of the Academy of Management. He is Treasurer for the Nevada Executive Health Care Forum and was a member of the Southern Nevada Wellness Council. His graduate teaching experience in healthcare administration is abundant, having taught courses in: Management of Health Services Organizations, Quantitative Methods, The U.S. Health Care System, Health Care Systems and Policy, Health Care Finance, Group Practice Management, Long-term Care, and Health Care Law.  He has been published in numerous journals, including Journal of Healthcare Management, Hospital Topics, Nursing Homes, Journal of Nursing Administration, International Electronic Journal of Health Education, and Hospital and Health Services Administration. His current and former professional memberships include: American College of Healthcare Executives, Nevada Executive Healthcare Forum, Academy of Management, Association of University Programs in Health Administration, Certified Medial Planner (Hon.) and Heartland Health Care Executives.

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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

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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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Take the DME Inventory Switching Challenge!

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

 [By Staff Reporters]ME-P Logo.2

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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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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