How Banner Health Used a Supply Chain Blue Book to Lower Costs

How Banner Health Used a Supply Chain Blue Book to Lower Costs Claire Agnew, CFO AZ East Region, Banner Medical Group Raymond Davis, SCM Director, Banner Gateway Medical Center, Banner MD Anderson Cancer Center, Banner Ironwood Medical Center, Banner Medical Group

23 Acute care hospitals Medical group with 917 providers Behavioral / home care Outpatient surgery $5 Billion in revenue 36,725 employees 76% of revenue in Arizona 2

Overview Learn how one organization created and implemented a Supply Chain Blue Book to improve supply expense reporting and benchmarking to achieve supply savings. 3

After this session, you will be able to: Identify the benefits of a Supply Chain Blue Book. List useful reports and charts to be included within the Blue Book. Plan a successful implementation of a Supply Chain Blue Book. 4

Step 1: Identify the benefits of a Supply Chain Blue Book. Unlike Paul Newman, who seems to think that salad dressing is the cure-all to America s ills, I m a man of action. -- Stephen Colbert 5

Supply Expense 17-23% of Net Revenue* 15-21% of Hospital Operating Expense* Before After % Change Net Revenue $100.0 $100.0 0.0% Supply Expense 19.0 18.8-1.0% Total Operating Expense 95.0 94.8-0.2% Operating Margin $5.0 $5.2 3.8% Operating Margin % 5.0% 5.2% *Sources: Supply Chain Benchmarking Presents Opportunity for Added Cost Savings, HFM, November 2012 & Berger, Steven Back to the Basics: 5 Ways to Pick Low-Hanging Fruit, HFM, August 2012 6

Original State Identification of the need Timeliness of external benchmarking. Lack of internal benchmark reports by service line or account in Supply Expense. Existing variability in accounting by facility. Limited Supply Expense reporting. System strategic initiative to decrease supply expense. 7

Functional Intent Create an actionable tool to identify further savings within supply chain. Provide internal benchmark reporting by service line. Present differences in utilization by service line through volume-based metrics. Identify opportunities in inventory management. Address differences in accounting practices. Supply detailed reports to identify variances and opportunities on a monthly basis. 8

Target Audience Senior Management Supply Chain Leadership Finance Accounting & CFOs Department Directors and Managers Clinical Discipline Teams: OR, Pharmacy, ED, WIS, Culinary, Supply Chain, Imaging, etc. Anyone who has impact in supply charges/utilization. 9

Construction Homegrown SSAS from Lawson GL to Excel Exempt employees ROI 10

Supply Chain Blue Book Creates a new transparency in supply expense reporting. Empowers a financial, supply chain or clinical leader to identify variances in total or per unit of service basis. Supports a new relationship dynamic between supply chain and clinical leadership from push to pull. 11

Step 2: List useful reports and charts to be included within the Blue Book. I love the truth. It s the facts I m not a fan of. -- Stephen Colbert 12

Useful Reports & Charts Service Line reports Budget variances for total expense Statistic variance Cost per UOS variances Rate versus volume variances By account Graphical representation of trends and comparisons Internal benchmarks 13

Trended Cost per Unit of Service 14

Budget Variance Report 18

Budget Variance Report 19

Budget Variance Analysis 20

Budget Variance Analysis 21

Graphed Cost per Unit of Service Medical Supply Cost per ED Visit 22

Graphed Cost per Unit of Service Office Supply Cost per ED Visit 23

Useful Reports & Charts Inventory Reports Inventory Turnover reports & comparisons Inventory Turnover = YTD Medical Supply Expense per department annualized Inventory balance for the department 24

Inventory Turnover 25

Useful Reports & Charts Supplies per Adjusted Admission Stacked graphs by expense category Medical Devices Blood Pharmaceuticals Commodities Food Other Nonmedical Benchmarked by internal Adjusted Admission peer group 26

Supplies per Adjusted Admission 27

Useful Reports & Charts Executive Summary Key Service Line cost per UOS comparisons to budget Trended Supply Expense per Adjusted Admission 28

Executive Summary Graphs 29

Useful Reports & Charts Hospital Summary Select Service Line cost per UOS comparisons to budget Supply expense variances Supply per Adjusted Admission variances by expense category Supply as % of Net Revenue by expense category 32

Hospital Summary 34

Hospital Summary 35

Hospital Summary 36

Hospital Summary 37

Hospital Summary 38

Step 3: Plan a successful implementation of a Supply Chain Blue Book. Making a better tomorrow, tomorrow. -- Stephen Colbert 40

Implementation Reports Development Team CFO & SCM Director Supply Chain & Finance Draft approval Feedback Clinical Discipline Teams Presented to each clinical team Explained concept Answered questions In-Action demonstration Refined Completed in final format Global production Identified need Gained Executive conceptual approval Began the build 41

Implementation CFO & SCM Director Identified need Gained executive conceptual approval Began the build 42

Implementation Feedback: reactions comments criticism advice opinions views Supply Chain & Finance Presented to Supply Chain Board & Hospital CFO Groups Draft approval Feedback 43

Implementation Clinical Discipline Teams Presented to each clinical team Explained concept Answered questions In-Action demonstration More feedback 44

Implementation Reports Development Team Refined reports & tool Completed in final format Global production 45

The Final Word = 46

The Final Word I report, I decide. -- Stephen Colbert Ctrl-C Fun in Finance Like maybe a life? CFOs unleashed 47

Supply Chain Blue Book Tools and Takeaways Tools and internal benchmarks for achieving supply chain savings Service Line reports Budget variances for total expense Statistic variance Cost per UOS variances Rate versus volume variances By account Graphical representation of trends and comparisons Internal benchmarks Inventory reports Inventory Turnover reports & comparisons Supplies per Adjusted Admission Stacked graphs by expense category Medical Devices Blood Pharmaceuticals Commodities Food Other Nonmedical Benchmarked by internal Adjusted Admission peer group Executive Summary Key Service Line cost per UOS comparisons to budget Trended Supply Expense per Adjusted Admission Hospital Summary Key Service Line cost per UOS comparisons to budget Supply expense variances Supply per Adjusted Admission variances by expense category Supply as % of Net Revenue by expense category

Sample report pages and graphs