Addressing the Fee Free-for-all
Hospitals have been using pacemakers, joint replacements, interocular lenses, insulin pumps, and other physician preferred items (PPI) to save and change lives for almost 70 years. While the medical technology has evolved by leaps and bounds in that time, the billing process has not. The medical device industry fully controlled the billing process and hospitals were at their mercy.
Transactions were usually tracked using handwritten paper bills. Methods for checking price accuracy and contract compliance remained entirely manual. Cost controls in this environment were difficult to achieve and even harder to sustain.
When two former medical implant sales reps and a business executive joined forces to consult hospitals on how to control surgical costs, they stepped into a busy hive of vendor contract complexities that no amount of macro-fueled spreadsheets could manage. They needed a novel, modern solution to a legacy problem.
The team combined the considerable depth of their pooled industry knowledge with the agility and scale of a low-code development platform to build Kermit. Kermit is an app that offers hospitals real-time visibility into PPI transactions, which makes it possible to control costs and identify savings opportunities. Kermit is helping hospitals realize a 30% average savings on PPI costs.
“Vendors control how the invoicing works,” said Rich Palarea, Chief Executive Office and cofounder. “Customers don’t really understand what they’re paying for, so a lot of that early experience translated very well when we came over and started Kermit. We knew we had stumbled upon something very meaningful.”
“We saw an opportunity to do some good for the hospitals that are overpaying for these products,” said John Owens, Managing Director of Services & cofounder at Kermit. “I was a medical device rep, and I saw the disparities that do exist from one hospital to the next for the prices that are being paid for the exact same items.”
Data-Driven Game Changer
The company was confident about the value they can provide to their customers and offer a pay-for-performance pricing model. In their initial foray, the team negotiated and managed new implant contracts on behalf of hospitals, proving the efficacy of the team’s process. Jason Smith, Chief Operations Officer, Kermit cofounder, and former RN said, “We quickly realized that shortly after doing that, the vendors started their tricks again. They were trying to find the loopholes in the contracts.”
The vendor’s continued business practices sparked a pivotal change. “We really need a tool to be able to manage this so it’s not somebody sitting behind a desk going through a hundred billing sheets or invoices, just to whittle them down and turn around the next day to do it all over again,” Smith said.
What started out as an intelligent billing sheet that performed audit and compliance for the hospitals had potential to be so much more. Smith said, “it just started amassing all this rich data that we were collecting at the point of use. That’s when we said, ‘Hey, we have something here.’”
The Kermit team understood the disruptive nature of their process and product. “We’re taking a 50-year-old process that’s been paper-based for many, many, years and we’re turning that into a digital process,” said Palarea. “We’re taking that data, which was never quantified before, structuring it and harnessing algorithms to show the hospital what’s actually happening in their environment. The proliferation of healthcare data has hospital executives trying to figure out which analytics are meaningful and can drive change.”
“We expose things that aren’t easily identifiable through just manual, or human interaction,” said David Zentz, Kermit’s Lead Developer. “Kermit provides audit and compliance within the operating room, during the procedure. We’re able, through automation, to quickly identify any type of compliance issue as it relates to a contract, as it relates to the specific procedure, like something that’s been added to the procedure that necessarily isn’t part of the procedure,” he says. “We actually prevent these issues by holding vendors accountable for what they’re bringing into the operating room and offering to surgeons for use in surgery.”
Launch, Evolve, Repeat
The drivers to build the app with the Mendix low-code platform were speed to market and cost savings. “We were able to develop Kermit in its first iteration with one developer, a very low budget, and in only nine months,” said Palarea. “I had been involved in other companies where I had led development teams in similar efforts, in a typical traditional stack architecture…and to do the effort that we did here with Kermit would have taken probably a staff of 10, and at least 12 months to accomplish, at a considerably larger sum of money.”
Smith agreed, “things that our programmers are doing inside of Mendix allow us to develop so much faster than traditional hardcore coding. That gets us to go to market faster.” The speed and agility of the platform helped them integrate the user perspective as they built. Smith said, “when we first started, we were fortunate that our initial customers allowed us to create Kermit in their midst. Because we leveraged a low-code environment, we were able to do it very quickly, efficiently, test it, roll it out and make modifications from customer feedback.”
The real-time data and analytics help identify trends, correct contracting issues, and identify actionable saving opportunities.
Kermit, as are all Mendix apps, is cloud-native. This allows stakeholders to become collaborators in cost reduction and spend management across the entire healthcare delivery system, deputizing surgeons, supply managers, and accounting employees to drive meaningful impact. The real-time data and analytics help identify trends, correct contracting issues, and identify actionable saving opportunities. Real-time contract compliance and price audits keep vendor agreements on track. This frees hospital employees from the onerous task of processing nightmarish piles of paperwork and makes it possible for them to focus on higher-value tasks.
“With the Mendix platform, if you can envision it, you can make it,” said Zentz, who is known to “void warranties” and break things so he can put them back together again. “It’s a very powerful tool and definitely speeds up the development. Obviously, you have your core modules that you can piece together. But then also you have the Mendix app store, which is a collaborative, open community. Everybody finds something that they needed to build within their own application, and if they feel that it’s something that others could use, they put it in the app store, and you can quickly add that functionality.”
Exponential Real-World Savings
Hospitals are under immense pressure to manage costs and increase savings. “Like many healthcare organizations, we’re operating on a margin that’s south of 3%,” said Dr. Andrew Pollak, Senior Vice President for Clinical Transformation at the University of Maryland Medical System. Pollak’s organization uses Kermit and has already seen meaningful savings, accrued across its 12 hospitals. “We’re north of $30 million in savings over a two-year period, about $15 million a year in savings,” he said. “What we’ve recognized as a result is an improvement in the value of the care. We have not compromised quality at all in paying less for the implants that we’re using to take care of our patients, but we’ve decreased the cost.”
“Kermit helps us understand our utilization of certain implants and devices on a per-patient basis,” said Pollak. “The software really allows us to capture information in the operating room and at the bedside about what’s being used by whom and when. It then allows us to reconcile that information against the contracts that we have and the agreements that we have with the vendors to make sure that the way we’re purchasing things is consistent with the way that we’re contracted to purchase them.”
“It’s one thing to save the money, but when the vendor tries to charge a higher price or slips in a new product that’s not on contract, we’re now there to catch it in real-time, at that moment,” Owens said. “We don’t just achieve savings; we maintain it for the client from that point forward.”
Innovate – Again and Again
The product development roadmap for Kermit is rich with features to eliminate or update antiquated processes from an opaque healthcare supply chain. “When a hospital goes through a Request for Proposal and receives vendor price offers, the resulting file could contain upwards of 50,000 product SKUs” said Smith. “Hospitals struggle with versions of spreadsheets and formulas to determine changes from pricing round to pricing round. We envision a process where they feed this into Kermit. Kermit can analyze it, classify the technology, and report back everything a supply chain professional needs to address with the vendor in minutes.”
Kermit has delivered on the company’s mission to “return the balance of power back to the hospital in the area of physician preferred instruments for cost reduction and improved patient care.” While they’ve realized their initial goal, the team is already looking beyond that achievement to bigger, newer ideas.
Owens, Palarea, Smith, and Zentz will continue to build, create, and invent in the Mendix platform. “We all consider ourselves…developers, to an extent,” said Palarea. “Our culture is innovation and collaboration. It requires every member of the team, firing on all cylinders to make it work. I think that’s why we’ve been able to bring the solution to market so quickly. Every week we’re making a new release of the software, which years ago would have been unheard of.”
Smith views his entire team as being integral to the development and evolution of the app and of the company. “I feel like everybody in our organization is a maker of Kermit. We’re constantly innovating.”