The Fiscal Responsibility
of
Value Analysis
April 2009
Dee Donatelli
Vice President VHA
Learning Objectives
• Outline how integrating best practices from
P&T model to value analysis can produce
better results.
• State key fundamentals of P&T and value
analysis.
• Identify areas of application.
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Key Functions of Value Analysis
• The value of a product will be interpreted in different ways by
different customers.
• Its common characteristic is a high level of performance,
capability, emotional appeal, style, etc. relative to its cost.
• This can also be expressed as maximizing the function of a
product relative to its cost:
Value = (Performance + Capability)/Cost
Value is not a matter of minimizing cost.
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Google….Value Analysis
in Health Care
Remember, costs (utilization and value mismatches)
are always our enemy, we must always be on the
attack! We must always seek out new and
innovative methods to UNCOVER and drive out these
unwanted and unnecessary expenditures before they
seriously damage our bottom line.
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Fundamental Benefits of Value Analysis
 Takes product and service evaluation from subjective to objective
 Provides a formal, customized, collaborative approach to reduce
and manage expenses
 Involves interdisciplinary teams
 Includes all supplies and services
 Ensures optimal benefits because of staff buy-in
 Integrates the Medical Staff into the ongoing process
 Supported by clinical documentation which maintains and/or
improves quality and customer satisfaction
© 2009 VHA Inc. All rights reserved.
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Stakeholder Involvement in Value Analysis
Physicians
• Decision Process
• Product Selection
• Structure
Clinicians
© 2009 VHA Inc. All rights reserved.
Operations
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Key Functions of a Drug Formulary
• The Drug Formulary is a list of prescription drugs and supplies
that reflect the current recommendations of the Pharmacy
and Therapeutics (P&T) Committee.
• The P&T Committee consists of physicians and pharmacists
dedicated to providing patients with high-quality, costeffective drug therapy.
• The P&T Committee meets regularly to maintain an up-todate and comprehensive formulary that follows current
medical practices.
• Drugs are selected for addition to the formulary after
considering safety, efficacy, uniqueness and cost.
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From P&T to Value Analysis
the Purpose of a Product Formulary
• A product formulary is a component of a larger supply chain strategy.
• What do you want it to do?
– A formulary can identify opportunities for standardization.
• On formulary vs. Off formulary spend.
– A formulary can be the tool requestors use to source products.
• What is the right product to buy.
– A formulary can help control inappropriate spend.
• If it isn’t in the formulary, you can’t order it. (locked formulary)
• Two Types of formularies:
– Driver (proactive approach)
– Control (reactive approach)
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Driver Formulary
• Premise 1: In the past year the hospital has purchased
everything they have needed to do everything they have done.
• Premise 2: No one has died in the halls nor been sent home
due to the lack of supplies needed to treat them.
• Steps:
– Capture and classify all existing items in the item master file
as either “in formulary” or “out of formulary”.
– All repeat specials will be identified and added to item
master and classified.
– Develop reports to identify areas of opportunity.
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Control Formulary
• Premise 1: An active value analysis committee is in
place.
• Steps:
– Capture “In Formulary” and “out of Formulary”
products as a result of a the value analysis
process decisions.
– Formulary will grow as more projects are
completed and more areas are standardized.
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Clinical Buy In
• Driver Formulary: Original classification is based
primarily on financial criteria.
– Once areas of opportunity are identified, the buy in
comes during the value analysis or
standardization work where we normally seek buy
in.
• Control Formulary: Buy-in is accomplished during
the value analysis or standardization project work.
– Products are not classified until agreed upon by
teams.
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How to categorize
• Preferred / Non- preferred status: To identify the products that have
been reviewed, and approved for primary use.
• In general terms, a preferred product is the product you want the
vast majority of your clinicians and MD’s using the vast majority of
the time.
•
“Clinical Equivalency” (an MD determination) the product that
provides the most beneficial financial impact will be assigned
“preferred” status.
• Other clinically equivalent products in the same category may be
assigned “non-preferred” status. This may be dependent upon
contracting strategy.
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How to categorize “Preferred”
• Any product linked to a market share agreement (volume or $) of
50% or greater commitment should be assigned “Preferred” status.
• Any item that is determined to have a superior clinical benefit for
majority of patients, and is recommended as the clinical standard
for all users should be assigned “Preferred” status.
• Any product that is required for existing Capital equipment should
be flagged as “Preferred.”
• “Preferred” status is based on the assumption that all similar items
will be removed specifically if they provide a lesser clinical value,
and that attempts will be made to enter into some type of beneficial
contract on the “preferred” product.
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How to categorize “Non-preferred”
• Any product that is approved for use as an exception, i.e. this is
only used in specific clinical situations will be assigned “nonpreferred” status.
• Any product approved for a specific MD, when a preferred product
exists in that product category will be assigned “non-preferred”
status.
• Any item that does not meet “preferred” status will be assigned
“non-preferred” status.
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Supply Formulary Business Rules
• Any item add that is generated out of the value analysis process
should have its preferred status entered, and if it is replacing
and existing product, the existing products status should be
reviewed and modified as needed.
• Any routine item add that doesn’t replace an existing item
should have a status entered based on criteria above.
• Any item that is being added to an existing contract should have
a status added or modified to duplicate other items within the
same contract or product family on that contract.
• Any Mass Contract changes should have a status entered for
each item, and any items being replaced should have their
status reviewed and changed as is appropriate.
• Basically, anytime we add, remove, or change and item, the
preferred status needs to be reviewed.
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Maintaining a Supply Formulary
• Strict business rules must be maintained.
– Who can enter or change status
– What process must be applied to make changes
• Status should be applied at the item level.
– Not all items on a contract may be determined to be
“preferred” just as items not on a contract or on a competing
contract may be classified as “non-preferred”.
• Lawson users can add this as an item attribute.
• If this is not an option, a separate database will need to be
maintained to house the formulary classification.
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Supply Formulary Use
• Used primarily at the Materials level to:
– Identify areas of opportunity or where there is a
significant amount of “Non-preferred” spend.
– Supply chain staff or value analysis teams can
focus on Non-preferred spends and determine if
there is financial or contractual benefit to target
for standardization.
– Once standardized, move to the elimination of all
non-preferred items and prohibit their being
ordered.
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Supply Formulary Value
• Identifies areas for review and possible standardization.
• Flags departments or locations that are not purchasing
“Preferred” products.
• Allows tracking of “Preferred” vs. “Non-preferred” spend
as a metric.
• Provides an organized “Preferred” list of products for
clinician use and ordering.
• Utilizes a systematic approach to supply management.
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Thank You
Dee Donatelli
Vice President VHA
Performance Services
ddonatel@vha.com
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