Adopting a Cost Benefit Methodology
in Supply Chain Decision Activities
William Stitt, CMRP, FAHRMM, CPHM
Corporate Director, Materials
Management
University Community Health
Tampa, Florida
Overview
 The decision making process related to healthcare
products and equipment is dynamic, and many cases
personal to the requestor.
 This session will focus on an objective cost benefit
analysis approach to evaluating new projects and
conversions.
Key Points
 Discover the “Value Proposition”
 Concurrent consideration of project factors.
 Operational
 Clinical
 Financial
 Think quantifiable, not conceptual.
 Neutrality from a supply chain perspective.
 Validation determines success.
Types of Initiatives
 Cost Neutral
 Cost Savings
 Cost Increase
 While the methodology is
consistent, the approach
may change . . .
Common Methodology
Cost Application
Is cost the same, higher or lower?
Is the quality better, worse or the same?
Has functionality or benefit increased?
Are there?
Revenue
 Contract Considerations
 Lower Cost per Procedure
 Logistical Issues
 Reduced LOS
 Staff Education/Training
 Reduced Labor
 Other Issues
 Reduced Turnaround time
Validation
 Are the assumptions related to cost, quality and
functionality being actualized following implementation?
 Validation is critical to determine whether or not your
evaluation methodology is sound.
Methodology
 Every initiative will have a specific factor that
influences the rationale for the decision, but
concurrent consideration of all criteria is important.
Process Considerations








Cost
Utilization
Workflow
Clinical Quality
Efficiency
Revenue Enhancement
Labor Resources
Service Delivery
Other Issues to Consider




Who has ownership and to what extent?
Levels of “Granularity” in the analysis process.
Consistent formatting and information delivery lends credibility.
Determine the level of Administrative involvement.
Product Marketing Gone Bad!
 Project-Hand Sanitizing Agent w/motion dispenser
 Factors
 Increased Cost Per Use ($10k annually)
 Non contracted vendor
 No clinical benefit
 Rationale
 Reduced usage
 More efficient product delivery
 Approval Criteria
-Labor Savings & Efficiency
Quantify This!
 Each product would reduce the hand cleanliness process time by 6
seconds.
 32 processes day X 6 seconds=192 seconds X 210 nurses=40,320
seconds saved (672 minutes/day)
 11 hours day X hourly nursing salary of $24.50 = Daily Savings of
$269.50 or 1.37 Nurses!!
 Vendor project ROI=38 days and increased productivity of nurses in
the first year of 22%
Other Issues to Consider
 Labor reallocation is normally not a good factor to consider in a
cost benefit analysis, unless there is a significant change to
workflow or positions are reduced.
 Be cautious of vendor marketing claims in preparing your cost
benefit analysis. It needs to be based on your operation and the
appropriate factors.
Analysis Tools
Preliminary Analysis
Materials Project Prioritization Form with DropDowns.doc
Cost/Benefit Analysis - Equipment
Great Hospital / Breast Care Center
Description:
Purchase new equipment for the new Imaging Breast Center including two Mammo Digital Units, 4 Reading Work Stations, Mammography Reporting System, Biopsy System, CAD
System, IDX Interface and MRI.
Date:
7/6/2007
Approved
Capital
Budgeted:
Department/Cost Center:
$1,800,000.00 Suggested Vendors:
Fletcher/ Radiology/10-7043
Requested by:
Harry Dower/ Ext. 51130
General Electric, iCAD, Siemens, MRS,
Hologic, R2 and IDX.
Value Technology Team:
Harry Dower,Christine Rotell Walsh,Theresa Winsey,Jay
Monpara, John DeFiore,Rhonda Coleman, Ali Al-Ababneh
Price Comparison Technology Assessment
Qty
Description
2
4
4
2
1
1
2
Sub Total
SDS(Small Detector)
Workdtation
RIS Synchronization
2D Biopsy Optical localizer
Training
Cash on Account
Trade in
Option B
Vendor Price
$579,500.00
$317,200.00
$38,400.00
$5,202.08
$8,350.00
$4,000.00
($3,763.60)
$948,888.48
N
/A
Options
Digital Mammo
Option A
Total
Qty
Description
Vendor Price
$1,084,800.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
2
4
4
2
1
1
2
SELENIA(Large Detector)
Workdtation
RIS Synchronization
NEEDLE LOCALIZATION KIT
Training
Cash on Account
Trade in
1
4
SecurView(DX) Manager
Multi-Modality Workstation
$0.00
$0.00
1
Two Week Bio-Medical Service Training,Cost is for
$0.00
tuition only. Travel,room and board at customers expense.
$948,888.48
CAD
The Cash on Account is money charged to add any new modality to PACS, GE has quoted $4000 while Hologic is estimated at $10,000. .
Biopsy
System
2
1
1
Total
1
iCAD Second Look
Replace the exisiting R2
Mammography Digitizing System
Stereotactic Breast Biopsy System
iCAD
iCAD
iCAD
$79,500.00
$0.00
$34,100.00
$113,600.00
Siemens $150,000.00
2
1
1
1
$0.00
$0.00
$0.00
R2 ImageChecker D Digital
Upgrade kit to version 8.5 of the R2's
Mammography Digitizing System
Stereotactic Breast Biopsy System
Hologic
$0.00
$638,635.00
If UCH agrees to become a show site for the Siemens system the price will be $150,000 otherwise it will cost $170,000.
MRI
1
MAGNETOM PE Sonata
Siemens
MRS
1
Mammography Reporting System
Interface
1
IDX Interface
$638,635.00
1
MAGNETOM PE Sonata
Siemens
MRS
$88,000.00
1
Mammography Reporting System
MRS
$88,000.00
IDX
$22,000.00
1
IDX Interface
IDX
$22,000.00
$1,961,123.48
Total Price
$1,833,435.00
There are 3 additional items under option B (4 Multi-Modality Workstations,Training and Manager) which are worth $79,800.00.
Director Approval:
Harry Dower
Comments:
Option A
Option B
Executive Sponsor
Approval:
Jeff
Oskin
Please review the quotation to make sure that we have covered all bases as far as operations and accompanied equipment
Technology
Assessment
CBA Example
2007.xls
Cost Analysis Detail Worksheet
Month:
Jul-07
(revised 8/7/07)
University Community Health
Do not
populate
Supply Reduction Initiatives
Initiative #
Conversion of Trocars from Ethicon
to Applied
Old
Old
Lawson# Manufacturer
Old Man. #
Old
UOM
Old
BUY Old Price Per
UOM
BUOM
New
Lawson#
New
Manufacturer
New Man. #
New
UOM
New
BUY
UOM
New Price Per
BUOM
EA
Cost
Diff
Do not
Do not populate populate
EA Mo
Utilization
BUOM Mo
Utilization
Do not populate
Monthly
Savings
5mm Trocar
200622
Ethicon
B5LT
6
bx
298.04
202092
Applied
C0104-S
6
bx
144.32
25.62
144
24
3,689.28
12 mm Trocar std
200623
Ethicon
B12LT
6
bx
394.46
202099
Applied
C0130
6
bx
187.65
34.47
60
10
2,068.10
11mm Bladless trocar
200624
Ethicon
B11LT
6
bx
344.82
202096
Applied
C0658
6
bx
187.65
26.20
48
8
1,257.36
12mm Trocar, Blunt
200625
Ethicon
H12LP
6
bx
378.00
202102
Applied
C0718
6
bx
156.00
37.00
126
21
4,662.00
12mm sleeve
200626
Ethicon
CB12LT
6
bx
226.38
202101
Applied
C0652
12
bx
178.24
22.88
0
0
0.00
11mm Sleeve
200627
Ethicon
CB11LT
6
bx
298.72
202098
Applied
C0651
12
bx
178.24
34.93
0
0
0.00
5mm sleeve
200628
Ethicon
CB5LT
6
bx
208.08
202095
Applied
C0529
12
bx
76.32
28.32
180
15
5,097.60
196877
Ethicon
ER320
3
bx
305.46
202109
Applied
CA080
6
bx
366.60
40.72
12
2
488.64
196908
Ethicon
Pouch
6
bx
521.98
113058
Applied
CD001
10
bx
662.50
20.75
150
15
3,112.00
196874
Ethicon
5DCS
6
bx
459.96
202297
Applied
CB010
10
bx
385.00
38.16
130
13
4,960.80
Open Heart Bundle
114539
Cardinal
PCHFOBUHC
1
ea
140.06
114539
Medline
CDS840405
6
ca
388.94
75.24
24
4
1,805.68
CABG CDS
113996
Cardinal
PCHFCBUHI
1
ea
332.93
113996
Medline
CDS840406
1
ca
322.40
10.53
19
19
200.07
Major CDS Womens Center
119037
Cardinal
PGHFMAUHG
2
ca
178.10
119037
Medline
CDS941222
2
ca
164.84
6.63
38
19
251.94
Arthroscopy
119200
Cardinal
SOP26AHUHG
1
ea
44.86
119200
Medline
DYNJ22913
3
ca
124.58
3.33
63
21
210.00
Laparoscopy
119529
Cardinal
SLC26LPUHG
1
ea
54.32
119529
Medline
DYNJ22914
4
ca
200.47
4.20
36
9
151.29
LAVH
119046
Cardinal
SNE26LMUHE
1
ea
173.41
119046
Medline
DYNJ22915
1
ea
160.58
12.00
13
13
156.00
Nasal Pack
118184
Cardinal
SEN26NSUHF
6
ca
255.78
118184
Medline
DYNJ22916
4
ca
157.83
3.17
56
14
177.66
ODSC Shoulder Arthroscopy
110548
Cardinal
SOP26SAUHI
3
ca
163.32
110548
Medline
DYNJ22917
3
ca
151.16
4.05
33
11
133.76
Pacer Pack
112991
Cardinal
SCV26PTUHF
2
ca
116.64
112991
Medline
DYNJ22918
3
ca
161.94
4.34
45
15
195.30
Peri Gyn
110028
Cardinal
SMA26PGUHC
3
ca
191.01
110028
Medline
DYNJ22919
4
ca
235.75
4.73
8
2
37.86
Radiology Pack
116602
Cardinal
SAN26RDUHC
3
ca
177.72
116602
Medline
DYNJ22920
4
ca
285.80
-12.21
112
28
-1,367.52
T&A
118509
Cardinal
SEN26TAUHG
6
ca
58.86
118509
Medline
DYNJ22921
8
ca
99.84
-2.67
32
4
-85.44
TMJ
118182
Cardinal
SEN26TMUHC
2
ca
176.76
118182
Medline
DYNJ22922
3
ca
245.42
6.57
3
1
19.72
Vag Hyst
116668
Cardinal
SMA26VHUHE
2
ca
195.78
116668
Medline
DYNJ22923
2
ca
181.21
7.29
10
5
72.85
Major
119194
Cardinal
SBA26MJUHE
2
ca
116.32
119194
Medline
DYNJ22930
3
ca
161.49
4.33
69
23
298.77
Neuro
199879
Cardinal
SNE26NEUHB
3
ca
177.12
199879
Medline
DYNJ22931
2
ca
113.46
2.31
92
46
212.52
Basic
111139
Cardinal
SBA26BSUHI
4
ca
105.70
111139
Medline
DYNJ22932
6
ca
171.66
-2.19
540
90
-1,179.90
Universal
115622
Cardinal
SBA26UNHEE
2
ca
184.38
115622
Medline
DYNJ22933
2
ca
170.66
6.86
14
7
96.04
Total Joint
199878
Cardinal
SOP26TJUHE
3
ca
198.99
199878
Medline
DYNJ22934
3
ca
184.17
4.94
120
40
592.80
EP
112896
Cardinal
SAN26EPUHA
3
ca
142.98
112896
Medline
DYNJ23000
4
ca
172.81
40
10
Chest Tube
119560
Cardinal
SAN26CTUHA
10
ca
334.00
119560
Medline
DYNJ23001
12
ea
410.40
-0.80
12
1
-9.60
Left Heart Cath
119205
Cardinal
SCV26LHUH3
2
ca
150.38
119205
Medline
DYNJ28419B
4
ca
162.86
34.48
396
99
13,652.10
Dental
197984
Cardinal
PEHFDNHEE
4
ca
49.32
197984
Medline
CDS980493
12
ca
153.88
-0.49
108
9
-53.28
Total Hip
195201
Cardinal
SOP26THEA
1
ca
146.85
195201
Medline
DYN22924
2
ca
268.63
12.54
6
3
75.21
Minor Ortho
191778
Cardinal
SOP26KAHEE
4
ca
137.64
191778
Medline
DYNJ22925
6
ca
194.56
1.98
12
2
23.80
Arthroscopy
194986
Cardinal
SOP26KAHEC
2
ca
114.72
194986
Medline
DYNJ22926
4
ca
191.94
9.38
36
9
337.50
Total Knee
195202
Cardinal
SOP26TKHEB
1
ca
113.91
195202
Medline
DYNJ22927
2
ca
189.51
19.16
12
6
229.86
CV Major
191849
Cardinal
SBA26MJSCD
1
ca
251.42
191849
Medline
DYNJ22928
2
ca
232.71
135.07
0
0
0.00
Ligation and Endo Ligation
Clip Applier, Endo 10mm
Endo Pouch
Specimen Retrieval bag
Scissors
Scissors
Medline Pack Conversion
4.46
CBA Cost Analysis Detail Item Example 2007.xls
178.30
Final Analysis Example
QUALITY HEALTH SYSTEM
Final Cost Benefit Analysis-Summary Approval Worksheet
PRODUCT/PROJECT NAME:
Orthopedic Tissue Device
Project Scope: Single Product
Multiple Products
REQUESTING DEPARTMENT/PROJECT SPONSOR:
Product Details:
Product Source:
Use Unit of Measure:
Annual Usage
Distributed?
Product #
Chargeable?
Y
or
N
Y
or
N
Cost Per Unit
Inventoried
$0.00
Y or N
Product/Project Benefits/Outcomes:
1. Product reduces bleeding and associated swelling and scar tissue at Surgical site.
2. Patient experiences less pain related to the procedure.
3. Additional blood usage is eliminated or significantly reduced.
4. Equipment provided free of charge with probe purchase.
Project Factors:
1. Average 2-3 units of blood per total hip case.
2. 1 probe used per case (routine)
3. Blood fees include all ancillary service and lab charges
Cost Analysis (Per case):
Cost of Unit of
Blood
145.00
145.00
$
$
CURRENT
Device Cost
Blood Costs
Additional Fees
Total Cost
$
$
Additional Fees (Crossmatch,
Autologous, Type & Screen)
97.00
97.00
# of Units of
Blood/Case
2
3
$
$
Ext Cost of
Blood
484.00
726.00
Cost of Probe
$
475.00 $
$
475.00 $
2 Units
3 Units
PROPOSED
$0.00
$0.00 Device Cost
$290.00
$435.00 Blood Costs
$194.00
$291.00 Additional Fees
$484.00
$726.00 Total Cost
Increase/(Savings) per case with Probe (2 units of blood):
Increase/(Savings) per case with Probe (3 units of blood):
2 Units
475
0
0
475
($9.00)
($251)
Savings/Case with
Probe
9.00
251.00
3 Units
475
0
0
475
COMMENTS:
Copy of evaluation analysis with blood usage validation is attached. Period of evaluation was 60 days.
Project Sponsor Signature:__________________________________________
Materials Management Use Only:
Evaluation Information Verified (Date):
CVAC Deadline:
Aquamantys
Tissue Device
Example 2007.xls
_____ Item/Project is approved-proceed with implementation
_____ Item/Project is not approved-note course of future action:
_____ Resubmit in 90 days
_____ Continue trial for period of ______ days
_____ Hold for Administrative approval
Director of Value Analysis:_____________________
Corporate Director, Materials:
________________________
Final Points





Be objective
Use real data
Apply reasonable assumptions where necessary
Don’t let any one facet of the project determine the outcome
Embrace Change!
Summary
 Adopting a cost benefit analysis approach to your organization
can be a valuable tool and will help you to engage your
clinicians in the decision making process for supplies and
equipment.
In Closing
Your comments and questions are
welcomed at this time.
Thank you for attending the session.
William P. Stitt
WStitt@mail.uch.org