Published on March 4, 2014
Technology, Capital Equipment, and Specialized Services Medical Devices and Competing in the “Hospital Business Environment”
This slide presentation is for illustration purposes only and to show how AH2 & Beyond can help you devise a plan to drive business growth in the hospital space with your new medical device/technology
Introduction This presentation will discuss the business issues surrounding technology and capital equipment, and the role of specialized patient care units and non-acute patient care facilities as part of the hospital business environment. Subjects in this presentation will include: Describing the process of how technology & capital equipment is purchased. Explain several types of care that are delivered through specialized hospital units. Explain how hospitals use for-profit subsidiaries to strengthen their business model. Describe ways in which hospitals are growing their business and how you can work with them to maximize yours.
Background The purchase of “Medical Capital Equipment” is a multilayered process, involving several departments, and the authorization of hospital executives. In addition, capital equipment needs to be managed and maintained after purchasing. Hospital units are often specialized, in order to care for specific medical needs. These specialized units will have unique equipment, training needs, and pharmaceutical use. Hospitals have developed for profit outpatient services that serve the purpose of attracting patients to the hospital, managing health care needs more efficiently, and increasing the hospital’s profit margin. Hospitals need to compete for patients within a given geographical area. Specialized inpatient services, which can be marketed to patients and physicians can help grow the business of the hospital.
Technology & Capital Equipment Technology has relieved in part, some of the burden of patient care in the hospital. Monitors and pumps that regulate the delivery of medication are examples of technology that has advanced care and improved efficiencies. Hardware, software, computerized drug delivery and drug inventory make it possible for larger hospitals to operate more efficiently as hospital costs continue to increase. Electronic procurement, ordering, billing and meeting purchasing thresholds have allowed progressive hospitals to remain profitable.
Purchasing Capital Equipment Key Elements in Purchasing Capital Equipment (Hospital Perspective) Legal purchase order forms Authorization to make the capital purchase A clearly defined requisition process A list of approved suppliers An established procedure for obtaining competitive bids from suppliers A method of tracking and expediting open purchase orders Ensuring proper credit is issued for returned goods A method of monitoring and documenting supplier performance A method of monitoring timeliness and effectiveness of the performance of the purchasing department
Purchasing Capital Equipment Purchasing capital equipment is a top-down process. Expensive equipment purchases, such as intravenous pumps, electronic monitors, and respirators are carefully considered by multiple departments and stakeholders in the hospital. Such capital expenditures frequently require the approval of the CEO of the hospital, finance committee and the board of directors. Competitive bidding is a standard procedure used in order for the hospital to get the most favorable price on capital equipment. Requests for bids are sent out to preferred vendors and evaluations of those bids are made
Specialized Hospital Units The development of specialized units leads to greater efficiency and quality of care for several reasons. Patients with similar diagnoses typically require similar equipment, medications, procedures and staff with experience in a special group of disease states or medical conditions. For example, grouping all patients with cardiac conditions on a cardiac nursing floor will allow the hospital to have the correct equipment (cardiac monitors, defibrillators) and specially trained staff placed in the most useful location. The nurses who are trained to work on such a unit will develop a great level of expertise in the use of the required equipment, and in administering the array of medications that cardiac patients will need.
Non-Acute For Profit Subsidiaries Hospitals often offer a variety of services: Home Health Care Services Urgent Care Centers Home Infusion Services Diagnostic Imaging Facilities Ambulatory Surgical Units Ambulance Services Outpatient Therapy Centers Specialty Clinics Offering a variety of outpatient services to the public provides advantages including meeting the healthcare needs of the community and generating additional revenue. Hospitals strategically market their services to the socioeconomic area they serve, such as meeting special language or cultural needs of patients within a community. Finally, many hospitals find that these complimentary outpatient services offer a higher profit margin than inpatient hospital care.
Hospital Business Growth (Opportunities for Device Manufactures) Hospitals have several methods of growing their business. Inpatient and outpatient services can be marketing tools to generate additional interest in the hospital and increase inpatient hospital revenue. Hospitals compete with one another using breadth of services and accessibility to meet the needs of the community and attract physicians and their patients. Outpatient Services and clinics are a rapidly growing area that hospitals use to attract patients: Opportunities for Device Manufactures: Manufactures should investigate the impact that their product may have upon the use or need for capital equipment. Any product which simplifies, user friendly, efficient and reduces hospital cost will be attractive to the hospital administration. Offering “Best In Class” educational programs and insight into the most efficient ways to handle the specific medical needs of these units. Manufactures can capitalize on the market value of their product if they have an understanding of how that product will make the hospital more attractive to patients and the physicians who refer them.
Inpatient Revenue Streams & Reimbursement Arrangements
Medicare & Hospital Reimbursement With today’s aging population, approximately 50% of a hospital’s revenue may come directly from Medicare. Medicare Part A is "Hospital Insurance." It helps pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care and hospice. Medicare Part A is financed primarily through federal payroll taxes (FICA taxes) paid into Social Security by employers and employees. The current FICA tax is 7.65 percent on both employees and employers (15.3% total). Of this, 1.45 percent (2.9% total) goes to the Medicare Part A Trust Fund.
Medicare & Hospital Reimbursement Medicare structure its reimbursement to hospitals by: Cost finding which is a process of determining the amount and cost of services that each cost center in the hospital (such as pharmacy, laboratory, waste management, laundry, etc.) provides to, or receives from, other cost centers. Costs can be broken down into direct costs (costs of providing patient care) and indirect costs (administration, telephones, housekeeping, etc.). Reimbursement is no longer based on the cost finding process, hospitals still use cost finding principles to supplement their regular accounting procedures.
Medicare Hospital Payment System In 1983, Medicare instituted a payment system designed to drive efficiencies rather than paying for services based upon a collection of costs. Prospective Payment System (PPS): is a system of using predetermined prices to reimburse hospitals for services. Diagnosis Related Groups (DRG): are the classification system that is used as the basis to determine what payment will be made under PPS. Example Illustration: DRG Relative Weight DRG Description 127 209 148 088 Heart Failure & Shock 1.0135 Major joint reattachment 2.0902 Major complicated bowel 3.3417 COPD 0.9314 Average Length of Stay 6.0 5.0 12.3 5.1 Average Medicare Payment $6,667 $8,572 $17,893 $$3,873
Medicaid & Hospital Reimbursement Medicaid operates as a vendor payment program, with payments made directly to providers such as physicians, hospitals, and pharmacies. Each state has relatively broad discretion in determining (within federally-imposed upper limits and specific restrictions) the reimbursement methodology and resulting rate for services, with three exceptions: 1. For institutional services, payment may not exceed amounts that would be paid under Medicare payment rates. 2. For disproportionate share hospitals, different limits apply, and 3. For hospice care.
Reimbursement Methodologies Device Manufactures: Should understand how their product will affect the various cost centers in the hospital such as purchasing, materials management, CFO, pharmacy, nursing, laboratory, engineering, PACU etc. Hospital administration will be interested in products that can demonstrate savings or efficiencies in the overall cost of providing patient care. Reimbursement Methodologies Types of Reimbursement Methods ► DRG ► Straight Charge (% discount) ► Per Diem ► Case Rates
Reimbursement Methodologies Diagnosis Related Groups (DRGs) represents a fixed payment to the hospital for a single admission for a single patient. Straight Charge Structures In this methodology, hospitals control the mark up on each of the services (through the charge master) and therefore control their profit margin. Per Diem Reimbursement a fixed payment is assigned per day to cover all services provided during the hospitalization. Case Rates are a fixed reimbursement payment methodology based upon specific procedures or diagnosis and have a strong similarity to DRG reimbursement. A device manufacture who can demonstrate that their product will increase the efficiency of medical care delivery will get the attention of hospital decision makers. Providing “PROOF” on how your product will affect the cost and complexity of care, use of resources and length of stay will go a long way in demonstrating how your product should be preferred over others.
Utilization Control and Cost-Containment Mechanisms
Hospital Objective In order to survive as an organization, hospitals must operate efficiently, balancing their revenue and costs well enough to pay their employees, maintain their facilities, and prepare for investing in the future. The practices of Precertification, Preadmission Testing, Retrospective Review, Disease Management, Managing Length of Stay and Cost Shifting, as well as decisions regarding the use of outpatient facilities, and alternatives to acute care, all influence the financial well-being of the hospital while meeting the medical needs of the patient.
Cost Containment Mechanisms Precertification is the process of seeking approval from the third party payer for benefits and payment before any services or admission to a hospital occur. Preadmission Testing Centers are being recognized for their efficiency and cost effectiveness, and are being established by many medical centers. Length Of Stay is the number of days a patient stays at a facility. An average LOS can be calculated for the entire facility and can be a general indicator of utilization for the facility. Cost Shifting refers to the need for a provider such as a physician or hospital to bill some patients or payers at higher rates to make up for reimbursement from patients or payers that don’t pay, or pay at greatly reduced rates.
Key Takeaways for Device Manufactures Understanding patient mobility through the processing steps will identify product placement and where to provide value based on length of stay and appropriate care guidelines. Products that can help a patient transition from hospital care to home care can be important to the hospital’s cost containment strategy. Manufactures should understand how such a product may be useful in promoting alternative site care. Length of stay is an important variable in cost containment strategies. Manufactures should understand how their product can improve the efficiency of patient care and how it can help shorten the overall length of stay.
Regulatory Environment and Quality Assurance
Regulatory Environment It is important for Device Manufactures to recognize that changes made to the established system of care, including delivery systems, medical devices, and medications, can impact the record keeping, monitoring requirements, and other tasks of personnel in affected hospital departments under the watchful eye of JCAHO standards. JCAHO quality improvement initiatives encourage measurement to establish a quality baseline, assessment of current practices, and evaluation of opportunities for improvement. JCAHO has developed an indicator measurement system, focusing on the outcomes of clinical care, rather than standards of the process of care. JCAHO is so well respected for quality standards, that many states accept JCAHO accreditation in lieu of performing state surveys.
JCAHO Established Standards EXAMPLE: JCAHO has established standards related to pain management. These standards: Recognize the right of patients to appropriate assessment and management of pain. Record the results of the assessment in a way that facilitates regular reassessment and follow-up. Establish policies and procedures that support the appropriate prescribing or ordering of pain medications. Ensure that pain does not interfere with a patient’s participation in rehabilitation. Educate patients and their families about the importance of effective pain management.
Quality Assurance (Risk Management) Risk Management refers to the hospital’s systems put in place in order to minimize the risk of injury to individual patients. In most cases causes of medical device issues have been demonstrated to be 85% systems failure, and 15% individual failure. Thorough Risk Management Plans help to identify and investigate adverse incidences and near misses. Risk Management is an important function of the hospital administration, and may involve a risk management coordinator, and a risk management team. The Risk Management Team is responsible for investigating incidents, determining adverse events, evaluating exposure, managing claims, supervising litigation, and structuring indemnity payments.
Example (Risk Management) Failure Modes and Effects Analysis (FMEA) is a systematic method of proactively improving a process to prevent failures from occurring. FMEA is frequently used in the hospital to manage high risk procedures such as administering dangerous IV medications. JCAHO has requirements for hospitals to perform FMEA on at least some procedures on a regular basis. IV patient controlled analgesia has been a common target for FMEA. An FMEA identifies the opportunities for failure, or "failure modes," in each step of the process. A complicated process such as IV-PCA has many processes such as compounding drug cartridges, programming the pumps, and cleaning the equipment. Each process step or “failure mode” can be assigned a numeric score that quantifies (1) how likely the failure will occur, (2) how likely the failure can be identified, and (3) how serious a problem the failure is likely to cause. A complicated process such as IV-PCA will have much more risk involved in it than other types of pain management, such as oral or IM analgesics. Device Manufactures should keep in mind that the hospital is always trying to manage patient care, cost and risk when making decisions about purchasing medical technologies in the hospital.
Key Takeaways for Device Manufactures Device Manufactures should be aware of the impact that their new device can have upon compliance with accreditation standards and be able to discuss the advantages that a product has in this regard. Device Manufactures need to know how their product affects risk management issues for the hospital and for individual patients. Device Manufactures need to know how their product will help a hospital to comply with CMS standards for efficiency. Device Manufactures should understand the impact their product will have upon the finances of DSH.
Generating Product Demand
Generating Demand 4 Objectives: 1. It’s critical that you generate some type of “Inertia” that delivers your products core messaging to drive whole hospital acceptance following hospital committee approval. 2. From our previous discussion ensure that you are able to effectively tailor your product’s value and verbalize core messaging that will get wide user acceptance in the hospital. 3. Expect and react appropriately to key questions/objections you may receive regarding your product and develop a communication plan to address responses swiftly. 4. IMPORTANTLY, identify, develop, and implement KOL’s (Key Opinion Leaders) in targeted hospitals to help promote product throughout hospital. Allies are critical.
Typical Review Process Note: this process could vary hospital to hospital Product Status Review Device Approval Process Executive Committee Review Hospital Forms Committee Review Hospital Training process Product Utilization Review Hospital Protocols Standard Order Forms Hospital Policy/Procedures Nursing Flow Sheet Educational Program Nursing Training (In-Service) Director of Nursing Hospital Medical Education Dept
Accelerating User Access: Education, Demand & Protocols Product Pull-Through Education/In-servicing Hospital Policy/Protocol Standard Order Forms Nursing Algorithms Pharmacy Generating Demand Nursing Flow Sheets Surgery Sell the Value Proposition Hospital Purchasing Members of the Anesthesia Committee Sell the differences of the delivery method Narcotics Pharmacist Anesthesia (Example) Sell every Health Care Provider involved with the utilization of product Members of Anesthesia Committee
Accelerating User Access: Education / In-Servicing Example Medical Education Department 200 Trained KOL Speakers (Surgeons, Anesthesiologists, Nurses and Pharmacists) 200 programs budgeted through fiscal year 800 programs budgeted through fiscal year Sales Representative In-Servicing Key Health Care Providers Anesthesiologists, Surgeons, Nurses, Pharmacists, Anesthesia Committee, Other Nurse In-servicing “Nurse Response Team” Resident/Fellow In-servicing “Inspiring Innovation Program”
Accelerating User Access: Generating Demand Selling the device’s “Value Proposition” Selling the difference in “Delivery Method” Strategic targeting of “King-Pin” customers Selling every Health Care Provider involved as the end user of the chosen product
Accelerating Use Access: Hospital Policy / Protocol Device Manufactures will work with Health Care Providers according to hospital policy and protocol. Appropriate “Patient Selection” is critical Heath Care Provider Training and Support Inappropriate use can lead to unsuccessful product experience and dampen product uptake Numerous healthcare providers have a stake in appropriate use of device Educational resources and materials reflect HCP needs Device Manufacture should be committed to a comprehensive Risk Management Plan
Summary Before launching a new device/technology in the hospital setting, thorough profiling and planning is critical. Identifying and developing KOL’s/Key Customer Targets will be important in “Generating Demand” throughout the entire hospital. Understanding and adhering to the hospital’s policy/protocol will help the new device transition process and help the “Education Process”. Having a proven “Value Proposition” placed on the new device will demonstrate the “Economic Value” of the product to the hospital. Developing a “Pull-Through” strategy once the product is approved, proper utilization through a thorough “Risk Management” process and education to appropriate hospital personnel will ensure a favorable initial experience.
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Andre’ Harrell AH2 & Beyond Consulting www.ah2andbeyond.com 267-221-8529
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