The Pulse of Purchasing Hospital Equipment
The COVID-19 pandemic has elevated awareness of hospital equipment availability in hospitals.
While the main focus has been on ventilators, pumps, monitors and beds for infected patients, it raises an important issue with hospital equipment evaluation and purchasing. The average hospital operating margin is 1.6% (pre-COVID-19), which means many hospitals are now operating with negative margins. As these hospitals struggle for profitability, there has been more consolidation, with larger health systems acquiring smaller hospitals.
At the same time, hospital executives have indicated identifying and managing cost reduction strategies is a top priority in 2020 and has been a top priority for years.
It is the perfect storm:
- Operating margin pressure prevents adding technology and resources
- Technology and resources are often needed to improve operating margins
- Available resources have limited bandwidth due to competing priorities
Axiom’s 2020 Healthcare Financial Outlook
In Axiom’s 2020 Healthcare Financial Outlook, 120 hospital executives were surveyed to measure hospital progress with performance management. Below, we have included a few of the key takeaways.
According to the Axiom’s 2020 Healthcare Financial Outlook, these were the top three priorities given for 2020:
- Identifying and managing cost-reduction initiatives
- Improved performance management and reporting to operational and C-suite leaders
- Predicting and managing the impact of changing payment models
Further research shows that the third priority listed, predicting changes in payment models, is absorbing a disproportionate amount of time and resources compared to the other priorities. As hospital leaders try to keep up with shared risk and value-based reimbursement, there just is not much time for anything else.
Axiom’s survey further reports on this dynamic:
- 87% of hospitals indicate cost reduction as top priority
- 76% of hospitals indicate resource constraints are affecting financial planning and analysis in their organization
- 54% of hospitals indicate they have insufficient data
- 15% of hospitals shared they have zero tools in place
As hospitals try to keep up with changes in reimbursement, Stars Rating, hospital re-admissions, HEDIS, and emerging socioeconomic data, there is little time left for other cost-saving strategies.
Insufficient Actionable Data
While hospital executives indicate they have insufficient data, drilling down further shows they have insufficient actionable data. In fact, there has never been more data available in healthcare.
The following sources are just a few areas contributing to the massive amount of data hospitals are dealing with:
- Tests and procedures
- Claims processing
- Patient charts
- EMR records
- Clinical interventions and outcomes
- Socioeconomic data
- Genomics data
- Patient generated data
- Drug data
- Wearable device data
- Financial reporting
While having access to data can be very positive, without the necessary analytics and insights, it can be paralyzing and mostly useless. Analysis of the collected data that shows trends, patterns and outcomes is needed for actionable insights.
The issue hospitals are facing is not a lack of data, it is a lack of actionable data to make better decisions.
Challenges in Device Purchasing
There are multiple stakeholders in the hospital that may participate in equipment and device purchasing, with committees being formed that include physicians and executive leaders. And purchasing equipment can be an extensive process, sometimes taking a year or longer.
While providers will most likely focus on treatment and patient care, there are also conflicting priorities with other stakeholders. Finance and operational leaders need to find a balance between clinical outcomes and financial commitment. The evolution of value-based care has caused more focus on cost containment and operating efficiency.
The purchasing committee is one side of the spectrum where extensive evaluation and discussion take place before making capital investment decisions. The other side of the spectrum is equipment acquisitions throughout the enterprise made as one-off purchase orders. There is often a lack of controls or processes in place to make data-driven decisions.
Physician focus has also changed over the past 15 years with private physician practices being consolidated into larger health systems. As healthcare has changed over this time, it has been imperative for private practices to access the scale of larger IDNs to achieve profitability.
Pharmaceutical and medical device manufacturers continue to focus their messaging on clinical outcomes and patient care, not realizing the changing landscape requires them to balance these important areas with the cost.
As a result, equipment is purchased across the enterprise without data to support these purchasing decisions. There is a lack of equipment standardization between hospitals, physician offices and surgery centers, and health systems have a growing amount of outdated equipment that will need to be replaced.
Read about the latest updates to Accruent's Data Insights platform.
Actionable Purchasing Data with Accruent Data Insights
Hospitals will spend nearly $100 billion on equipment and medical devices in 2020. According to Healthcare Finance News, hospitals are spending $25 billion more than necessary on the supply chain.
Hospitals are spending more money on equipment than necessary and lack the insights to make data-driven equipment purchasing decisions.
To help combat this, Accruent has pulled together a team of data experts to create a report that helps hospitals make more informed decisions about equipment purchases.
Accruent Data Insights analyzes data from 287 million work orders and 17 million assets to provide analysis that can inform a hospital’s equipment purchases, maintenance and lifecycle costs.
See the latest updates to Accruent's Data Insights in our 3.0 release webinar.
Including the following data points:
- Life expectancy
- Total Cost of Ownership (TCO)
- Mean Time Between Failures (MTBF)
- Failure rates
Accruent Data Insights Case Study:
A hospital looking at refreshing their pumps without complete operating data, and using only acquisition cost as their decision metric, would have made the wrong choice.
The American Hospital Association expects infusion pumps to last 10 years, which is what most hospitals plan their capital and depreciation schedules around. Using useful life, labor and materials data, it is clear that over the 10-year life expectation, choosing the more expensive pump could ultimately lead to a potential $1.4 Million in operating cost savings!
1 - Assumes fleet size of 500 devices.
With operating margins as low as they are, being able to make cost-saving equipment purchasing and maintenance decisions based on analysis of real-world data is an easy way to make a quick and significant impact in your bottom line.
Accruent Healthcare is offering FREE COVID-19 tools to help healthcare organizations respond. Visit our COVID-19 special reports from Accruent Healthcare page to learn more.