Unlocking the Full Potential of Your Item Master. Strategic Data Management is the Key

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1 Unlocking the Full Potential of Your Item Master Strategic Data Management is the Key

2 Executive Summary As health care organizations (HCO) move from a fee for service model to a patient satisfaction outcome-based model, implementing cost-savings initiatives are critical to empower facilities to redirect assets toward patient care and safety. As new rules and regulations sweep across the health care industry, leadership continues to refocus business operations toward a strategic and analytics-based approach. This provides HCO s the opportunity to compile large amounts of data, enabling integration into the supply chain process to gain better visibility into an organization s cost structure to better manage patient episode of care within the facility. Even the best HCO s often fail to realize the full potential hidden within their item master due to faulty data and segmented integration strategies. In this white paper, you will learn the true cost of dirty data, the potential impact on cost savings and best practices of implementing an effective data management strategy.

3 Unlocking the Full Potential of Your Item Master Throughout the country, health care organizations are identifying ways to cut costs, improve the quality of patient care and realize additional revenue opportunities. With mounting internal and external pressures, leaders are increasingly learning to rely on supply chain analytics to help navigate the untested waters in which they find themselves. Health care supply chain is transforming from the traditional order fulfillment operation to a strategic analytics-focused operation that supports an organization s leadership in making key business decisions. The ability to forecast, correlate and analyze a health care organization s supply and service spend is essential to an effective supply chain, as are opportunities to identify and act on cost-saving initiatives. To achieve these goals, organizations must understand the impact an incomplete item master can have on the supply chain. The master, or any data-driven solution, rests on finding innovative ways to incorporate critical data management processes into your control spend and enhance data with points of product differentiation to maximize effects of the clean and accurate data throughout the supply chain process. UNDERSTANDING THE IMPACT Supplies, purchased services and capital equipment acquired through the supply chain are consuming a greater portion of health care organization s operating expense budget, currently representing more 33 percent. The scope of an organization s item master file varies depending on hospital size. Most estimates place the size of a hospital s item master between 18,000 and 200,000 items. Considering that 30 to 40 percent of the files are inaccurate, the magnitude of the problem in terms of inventory and misspent dollars is apparent. DOWNSTREAM EFFECTS In order to get control of spending, hospitals need to account for the items identified and purchased from the item master, along with the unidentified items that may have been purchased manually, off contract or as a special. Without full transparency into spend, purchasers are unsure whether they are choosing the correct products and are more likely to bypass the process and order off contract, which inevitably will slow down the process. Unfortunately, for many organizations, it is not until these systems and processes begin to under perform that supply chain leaders will first notice that something is amiss.

4 How An Incomplete Item Master Affects The Supply Chain Process As a result of special orders or duplicate products being purchased off contract, your price index is not reflecting the complete picture of your total spend. This makes it hard to benchmark against the market, and that affects your ability to negotiate lower prices with suppliers. Product data that does not contain HCPCS Level II codes slows down the reimbursement process, resulting in lost revenue. TRACK MEASURE SUSTAIN OPPORTUNITY IDENTIFICATION Without valid information to present your case to support cross-reference views with physicians, you are relying on third parties for spend information data that may be inaccurate. This reduces your credibility. REVENUE MAXIMIZATION DATA MANAGEMENT VALUE ANALYSIS The ability to implement GPO and local contract savings through tier maximization cannot be done because the necessary commitment levels have not been captured. CONTRACT MANAGEMENT e-source Incomplete and erroneous product information can prolong the process to source the right product at the right time or inhibit the ability to identify criteria supporting agreements to a clinical equivalent product. WHY A CLEAN ITEM MASTER PAYS OFF HCOs, large and small, have begun to realize the importance of having a cleansed and standardized item master. The costs of rework, maintaining the workaround and misuse of resources necessitated by the effects of dirty data impede HCOs from successfully pursuing their directive to reduce costs and maximize revenue. In a commissioned primary research report on data management, Novation found that an ineffective item master with the following elements can have a significant financial impact on an HCO (see Chart 1): Reduction in rogue spending by % Prompter supplier payment % Improved contract management % Increased visibility into their spend analysis % What this means to HCOs: Based on a $40M annual supply chain spend, A MINIMUM OF 1.5% IMPACT EQUATES TO A $600,000 IMPACT OF LOST REVENUE OPPORTUNITY for a health care organization of like size. HCOs can realize additional non-supply chain spend by decreasing labor costs and inventory carrying costs. Improved resource efficiency, providing a 5 25 percent reduction in FTE allocation Inventory reduction, providing a 5 10 percent decrease in average inventory carrying costs

5 Chart 1: POTENTIAL IMPACT IN COST SAVINGS FROM IMPROVING DATA PROCESSING Minimum Impact Maximum Impact $600,000 $600,000 $400,000 $300,000 $100,000 $100,000 $200,000 $200,000 Reduction in Rogue Spending Prompter Supplier Payments Improved Contract Management Increased Visibility into their Spend Analysis Numbers based off $40M annual supply chain spend, commissioned primary research report However, many seem to be at a loss when it comes to knowing how to approach cleansing and enriching their item master. While most HCOs recognize the importance of addressing data quality in their item master, they are hindered by antiquated technology, interconnectivity challenges and siloed work flows. The cost of doing nothing to cleanse and standardize data in the item master wasted dollars spent on nonproductive manual labor and off-contract purchases is too high. The cost for some HCOs could be in the millions, depending on their annual spend. IMPLEMENTING AN EFFECTIVE DATA MANAGEMENT STRATEGY While the existence of dirty data in any organization can weaken its ability to carry out its objectives, it must acknowledge that dirty data is merely a symptom of a much larger problem the lack of an effective data management strategy. If your supply chain operations are an engine, enriched and standardized data are the oil that makes the engine run clean. But having that oil is not enough for the entire supply chain engine to function smoothly. The following are best practices for an effective and impactful data management process: 1. Centralize and streamline data processes by automating the data submission process. The automation of sending and receiving data frees up resources and decreases human errors from manual entry among the supplier, distributor, hospital and GPO. This means greater efficiency and more accurate transactions. Manual purchases and special orders are purchased outside the normal procurement process, and the items are not in the item file unless someone manually enters them into the system. Manual transmissions increase the chance of human error. 2. Make your item master all-inclusive. This is critical to managing costs. You must gain authority of your item master to get control of your spend. Manual orders and specials that bypass the item master limit your ability to view your facility s or system s complete spend. For example, when you see only 80 percent of your item master files, the missing 20 percent was not calculated as a part of the total spend. This prevents you from having an accurate view of your total spend, which is vital for successful contracting, procurement, inventory, accounts payable and reimbursement processes. As the data becomes centralized, it is used as a single source of information that feeds the rest of your supply chain, building on previously cleansed and enriched data. 3. Cleanse, standardize and enrich data, and continuously monitor data integrity. Organizations that regularly cleanse and refresh their data eliminate

6 duplicate entries and erroneous information that have been included during manual input. An increase in standardization around product classification, UNSPSCs and GTINs can ensure consistency of use. Enriching the data with complete packaging information down to the unit or each level allows for implementation of measurements, such as price per unit. This provides you with the visibility to the most-used preferred products for tracking and measurement. 4. Verify and correct inaccuracies found in the cleansing process. When the item master comes across the spend file with only a supplier name, product and cost, it registers on the platform as an input error. This triggers a manual effort to find the requestor, get the manufacturer part number and identify what specifically the requestor was ordering. At this point, the preferred product can be submitted and added to the item file, and it becomes a part of your total spend for future tracking and cleansing. 5. Establish a supply formulary. The goal of the supply formulary is to reduce the variation of cost, quality, outcomes and the delivery of care by standardizing the use of products evaluated and proved effective through the value anvalysis process. By using UNSPSC standards as a part of this process when evaluating spend, unique number of vendors and items of preferred products, evidence-based decisions can be made attributing specific products to outcomes and quality. This lets you evaluate the equivalency between a requested product and a product in the formulary. By driving compliance through standardizing product usage, on-contract spending, off-contract and special order requests can be redirected to specific manufacturers so you can achieve a higher tier level, increasing your long-term savings. 6. Measure and report on key metrics. Important metrics give insight into the overall data quality of your item master. Metrics that track control of spend, data completeness and total data quality are essential to report in order to boost item master accuracy and value. Best practice scorecards include the following metrics on a monthly basis: Control of Spend Percent of special product spend, percent of total transactions run through the special order process, percent of purchase order/invoice transaction price discrepancy and percent of unidentified spend. Data Completeness Tracking the following areas for completeness: UNSPSC manufacturer information; packaging, mis sing conversion factors; and HCPCS codes. Data Quality Metrics that include the manufacturer catalog number discrepancies in the item master and in transactions, packaging that has not conformed to ANSI standards, discrepancies in UNSPSC and HCPCS coding. The ability to measure and report this information helps key stakeholders set goals that are aligned with the organization s data cleansing strategy. See a full list of Data Management metrics that measure the data quality of your item master here. Data Management Key Metrics Chart. OUR SOLUTION HCOs are turning to strategic partners such as Novation to cleanse, standardize and enrich their item masters. Our data management solution integrates automated data feeds from our members, suppliers and purchased data from an exchange partner for more than 8 million enriched and attributed products within our master data warehouse. The information is then synchronized with more than 30 million cross-referenced relationships in the general product master. Using the HCO s item master, spend information and contract portfolio, our Item Master solution views product details, aggregated spend and supply chain data metrics; formulary, compliance and opportunities; establishes preferred products and cross-references; informs the platform if the product requested already exists within the item master; assesses the product impact to contracts and formulary compliance; and monitors realized savings and noncompliance. The top third of hospitals that subscribe to our Item Master solution have 5 percent more products on contract than the top third of nonsubscribers. For an HCO with $30 million in supply spend and an average contract price advantage up to 7 percent, the financial impact is more than $100,000.

7 Our solution also supports supply chain customer service, including procurement, value analysis and revenue management. Is it time for you to consider a strategic partnership with Novation for your item master needs? Ask yourself these questions: 1. Do you have an easy way to let your organization know what products you prefer them to order? 2. How much time do you spend tracking down product details from catalogs and online searches? 3. Have you ever missed out on contract value because purchases weren t being counted under the correct contract? 4. Are you able to provide product information in a way that effectively supports your value analysis teams? 5. If you have plans to update your MMIS or ERP system, do you want to input product data that might not be optimal? DETERMINE THE HEALTH OF YOUR ITEM MASTER TODAY Dirty source data can inhibit your organization's effectiveness and its ability to actively identify and efficiently act on supply chain savings opportunities. At the core of an effective supply chain is strong source data supported by effective and proactive data management policies. Enriched, accurate source data will allow you to leverage valuable product information to support the processes necessary to identify and implement cost savings opportunities. Understanding the current state of your supply chain source data and what improvements are needed will all ow you to not only correct existing data quality issues, but also to review processes and ensure that proper controls are in place for long-term sustainability. To learn more about data management and business intelligence solutions for cost reduction, please visit novationco.com; or contact NOVATE ( ) or sales@novationco.com. 6. Is your finance team asking for HCPCS codes more frequently? Global Data Synchronization Network, Current Facts About Data Synchronization; ARHMM Website; accessed 3/14/2012; and Why the Item Master is the Center of Your Universe; Global Healthcare Exchange (GHX) white paper; John Cashmore; The Value of Cleansing Data; Materials Management in Healthcare; 2005.

8 Novation Visit novationco.com; OR CONTACT NOVATE ( ) or 290 East John Carpenter Freeway Irving, TX