Shopping for the PPS-ready vendor.

A little help from your friends, the vendors, is a must in today's PPS environment

The shift from cost-based reimbursement to prospective payment has required skilled nursing providers to place greater emphasis on the bottom line and to recognize that sound business principles are necessary for financial viability. However, providers' cost-containment measures must coincide with their maintaining quality. This challenge particularly applies to the selection of vendors for a myriad of patient care products and patient care services.

Under the Balanced Budget Act of 1997 (BBA), skilled nursing facilities/units (SNFs/SNUs) must operate under formula-driven systems of reimbursement. SNFs and SNUs are no longer able to focus solely on patient outcomes from the services and supplies used during patient treatment. Now, in addition to quality, the costs of ancillary services must also be monitored.

Because the costs of products and supplies are now absorbed by the provider rather than merely being passed through to the government, skilled nursing providers should consider a number of cost variables when selecting vendors of products and supplies used in patient care. That means providers must select vendors according to well-defined criteria to ensure that the vendors will provide appropriate levels of service, quality, and cost-effectiveness and that they understand the fiscal constraints under which their skilled nursing customers are operating.

When selecting among vendors for a particular product, providers should do more than simply compare the purchase price to its level of quality. They should consider additional costs that might be incurred as a result of using the product. Inferior products can give rise to unanticipated patient care costs that could have been avoided through the purchase of a superior product.

Imagine, for example, a skilled nursing provider comparing the prices offered by two vendors of incontinence products. The first vendor offers supplies costing six dollars per patient day. The second vendor can supply the product at three dollars per patient day - an obvious "savings" of three dollars. If, however, the less costly product leaks, additional laundry costs will be incurred from soiled linens, as well as labor costs from changing bedding and using more product. Moreover, if the cheaper product causes increased infection rates, significantly higher treatment, supply, labor and pharmaceutical costs could be incurred. These cumulative costs won't take long to exceed three dollars per day.

Therefore, providers, in the evaluation of vendors, should request data illustrating cost-effectiveness and positive clinical outcomes that might justify paying more for higher quality. And it would behoove vendors to have such data available.

Another consideration: Vendors should be able to offer an appropriate level of education to the provider's personnel regarding the use of the equipment or supplies, principally through adequate literature and educational seminars.

When purchasing medical equipment, providers must be alert to such "hidden" charges as those for ancillary products that must be purchased regularly as the equipment is used, as well as ongoing maintenance fees. In fact, these equipment and ancillary products costs should be combined to allow the provider to easily determine the equipment's actual total cost. Similarly, providers should seek medical equipment suppliers who will maintain the equipment according to an agreed upon amount at the time of purchase or for an amount included in the original purchase price. Seeking actual costs combined in this manner will result in the provider's:

1. being able to compare equipment prices among different vendors more easily

2. being assured that expensive maintenance costs will not be incurred at a later date

3. being assured of the supplier's confidence in the quality of the purchased equipment, should there be a guarantee that maintenance costs will be borne by the supplier

Careful analysis of quality, cost and clinical results, including maintenance costs, is vital today. Skilled nursing providers must be increasingly demanding in their evaluations of vendors and their products.

Evaluating Vendors of Patient Services

Similar to supply and equipment vendors, vendors of patient care services must also be carefully selected by skilled nursing providers according to the cost-effectiveness of their services. One way to promote cost-effectiveness is to share risk with these vendors. Providers must identify patient care vendors who are willing to abandon traditional per-service unit billing in favor of a more managed care-oriented model. Vendors' economic success will then depend on their ability to achieve positive patient outcomes.

In addition to a willingness to share risk, vendors should be evaluated to ensure that they have the experience to perform in a PPS environment. It is helpful if they are able to demonstrate successful performance with managed care organizations and providers who already operate under a PPS-type arrangement.

Providers must evaluate other factors as well before entering into a contract with a patient service vendor - e.g.:

1. Cost

2. Clinical outcomes

3. References

4. Compatibility with the provider's goals

5. Organizational reputation

6. Appropriate accreditation and certification

In sum, ancillary services which once were a pass-through cost to the government are now paid for out of skilled nursing providers' bottom lines. By demanding more information from vendors regarding the cost-effectiveness of their products and services, skilled nursing providers can be confident that they are contracting with the most appropriate vendors for their particular needs.

Lyndean Lenhoff Brick, JD, is a senior vice-president and principal of The Murer Group, a healthcare management consulting firm in Joliet, Ill. Her expertise includes providing of long-term care management services to providers and health systems. For information, [phone]; e-mail: [e-mail]; Web site: http//www.murer.com