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.
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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
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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.
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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.
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Construction
•
•
•
•
Homegrown
SSAS from Lawson GL to Excel
Exempt employees
ROI
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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.
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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
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Trended Cost per Unit of Service
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Trended Cost per Unit of Service
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Trended Cost per Unit of Service
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Trended Cost per Unit of Service
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Budget Variance Report
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Budget Variance Report
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Budget Variance Analysis
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Budget Variance Analysis
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Graphed Cost per Unit of Service
Medical Supply Cost per ED Visit
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Graphed Cost per Unit of Service
Office Supply Cost per ED Visit
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Useful Reports & Charts
• Inventory Reports
 Inventory Turnover reports & comparisons
Inventory Turnover =
YTD Medical Supply Expense per
department annualized
Inventory balance for the department
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Inventory Turnover
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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
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Useful Reports & Charts
• Executive Summary
 Key Service Line cost per UOS comparisons to
budget
 Trended Supply Expense per Adjusted
Admission
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Executive Summary Graphs
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Executive Summary Graphs
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Executive Summary Graphs
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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
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Hospital Summary
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Hospital Summary
35
Hospital Summary
36
Hospital Summary
37
Hospital Summary
38
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Step 3:
Plan a successful implementation
of a Supply Chain Blue Book.
“Making a better tomorrow, tomorrow.”
-- Stephen Colbert
40
Implementation
Reports
Development Team
Clinical Discipline
Teams
Supply Chain &
Finance
CFO & SCM
Director
•Draft approval
•Feedback
•Refined
•Completed in final format
•Global production
•Presented to each
clinical team
•Explained concept
•Answered questions
•In-Action demonstration
•Identified need
•Gained Executive
conceptual approval
•Began the build
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Implementation
CFO & SCM
Director
• Identified need
• Gained executive
conceptual approval
• Began the build
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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
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The Final Word
=
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The Final Word
“I report, I decide.”
-- Stephen Colbert
• Ctrl-C
• Fun in Finance
• Like maybe a life?
• CFOs unleashed
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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