Hospitals set supply cost-cutting targets, push
physicians to change behavior
Posted:
August 17, 2013 - 12:01 am ET
Tags:
Hospitals, Purchasing, Special Feature, Specialty Hospitals, Supply Chain, Systems, Top Stories
Patients
with a new cardiac pacemaker have an advantage over patients who have received
standard pacemakers: they can undergo MRI scans as a part of their care without
the risk of adverse events.
But
the new device costs hospitals $1,300 to $3,000 more than a traditional
pacemaker and could cut into a hospital's margin because Medicare and other insurers pay the same rate for
implanting MRI-compatible pacemakers as they pay for the standard pacemakers.
From a clinical perspective, physicians are put in the position of having to
predict which patients are likely to need an MRI and should receive the new
pacemaker.
It's
one of many supply-chain decisions hospital administrators have to make where
they must weigh the benefits of a new technology—such as the fact that the new
pacemaker doesn't improve immediate outcomes for the patient but may have
additional benefits in the long term—against its higher costs.
These
executives face similarly difficult decisions to slash millions of dollars in
supply expenses each year. In the case of the MRI-compatible pacemaker, one
executive says his system likely will pay more for the new pacemaker when
appropriate and seek offsetting cost reductions elsewhere in the supply chain.
“It's
one of those things where to make the quality of life better for our patients,
we're going to incur new costs,” says William Mosser, vice president of
materials management at Franciscan Missionaries of Our Lady Health System in
Baton Rouge, La.
Facing declining revenue and
reimbursement, hospital systems across the U.S. are making it a priority to
sharply reduce spending on supplies including gloves, syringes and hip
implants. Supplies typically make up hospitals' second-largest expense, after
labor costs. Hospitals spent about $255 billion on supplies and nonlabor
services in 2011.
Budget
pressure has led to increased scrutiny of the costs, clinical outcomes and
utilization of products. Many hospitals are setting cost-reduction targets,
evaluating the effectiveness of their group purchasing organizations, and
pushing for better data and analytics on products to persuade physicians to
accept changes to the types of devices or supplies being purchased.
More
than 60% of the hospital supply-chain executives who participated in Modern Healthcare's 2013 Survey of Executive Opinions
on Purchasing said they were very satisfied or satisfied with
their primary GPO. About 40% were somewhat satisfied or not satisfied.
Meanwhile, 59% of respondents said their primary GPO was very effective or
effective in controlling costs; the remaining 41% said their main GPO was
somewhat effective or not effective.
Cost reduction, clinical integration
“Everyone
that we deal with at the hospital level today is focused on cost reduction and
clinical integration and managing
patients to outcomes with a bent toward resource reduction,” says John
Bardis, chairman, president and CEO of MedAssets, one of the nation's largest
GPOs.
But many hospital executives say there
are cultural and operational challenges that can slow these kinds of
cost-cutting initiatives.
One major factor is that physicians
often have relationships with particular medical device manufacturers or have
used certain devices for a long time and are resistant to changing to other
devices.
Another is that the higher costs of new technologies touted as improving
quality of care can set back savings efforts. And in many cases, there is a lack of validated clinical data that can definitively prove whether a
particular product yields better results for patients.
“The
biggest hurdle we have is there is not a consistent and large enough base of
validated evidence,” Mosser says.
Like
many other hospitals, Franciscan is undertaking an initiative to cut millions
of dollars in annual supply expenses as it faces the prospect of significantly
lower reimbursement rates in the coming years. The program, which it calls
Healthy 2016, aims to cut $165 million in operating expenses, including $31
million in medical and surgical supplies and purchased services, over the next
three years.
Related Content
Download
the 2013 Modern Healthcare Survey of Executive Opinions
on Purchasing charts.
Other
hospital systems have implemented cost-cutting initiatives similar to the one
at Franciscan. Over five years, Lahey Health, based in Burlington, Mass.,
plans to cut
$40
million out of the $300 million it spends each year on medical and surgical
supplies. BJC HealthCare, a 12-hospital system based in St. Louis, plans to
reduce its $850 million in annual supply spending by $54 million this year,
and it's seeking to cut out an additional $150 million over the next three
years.
“This
is a primary focus across the system, from the CEO down,” says Nancy LeMaster,
BJC's vice president of supply chain. “In the last three years, as the
reimbursement pressures have been getting tighter and tighter, people have
really started to see how this could impact us. We call (supply chain) a
sustainable advantage rather than just a back-office function.”
Hospitals are undertaking a number of
strategies, including standardizing the types of products clinicians use, optimizing appropriate
utilization by physicians, nurses and other staff, and continuing to negotiate
lower prices for supplies. Many but not all hospitals have value-analysis
teams in place.
Focus on physician preference
A
big area of focus is usually physician preference items, such as hip or knee implants as
well as stents and other cardiac rhythm management devices. These are some of the costliest purchases
hospitals make.
BJC is focused this year on reducing
costs associated with spine implants. “This is an area of focus where the pricing does not appear correlated to the
cost to manufacture and sell the product, but rather has historically been
based on what the market would bear,” LeMaster says in an e-mail. “The market
can no longer bear this level of pricing.”
The
system's strategy focuses on first achieving market-competitive pricing with
the spine vendors, and then taking on utilization management and possibly
standardization.
Franciscan
is supporting a clinical variation project led by chief medical officers at
its five hospitals in Louisiana that seeks to better align the clinical
protocols of spine surgeons. That could reduce the number of vendors of spine
surgery products the system works with, from about 20 now.
“Spine
surgeons across our health system do things differently,” Mosser says. “Some
might overutilize. Some might underutilize. Some might use generic products,
and others are using different types of techniques. Our chief medical officers
are working down a path of aligning both the protocols and the practices from
a clinical perspective that will allow us to minimize (the) number of those
vendors.”
GPOs
say their core business is still supply contracts, but the other services and
technologies they offer to hospitals to help address a number of financial
pressures are increasingly becoming of interest to their members.
“You've
got to look at best demonstrated practices,” says Ed Jones, president and CEO
of HealthTrust, a Brentwood, Tenn.-based GPO that is part of HCA's Parallon
Business Solutions. “You've got to look at reducing clinical variability.
You've got to look at streamlining your sourcing decisions.”
Nearly
half of the hospital supply-chain executives who participated in Modern
Healthcare's purchasing survey said they planned to increase their use of GPO
contracts in 2013. Only 7.6% said they planned to decrease their use of GPO
contracts.
“If
a big system feels like their GPO can give them access to scale and aligns
that scale to drive better value than they can do on their own, they will tend
to work more with the GPO,” Jones says. “If the larger systems are in a
position where their GPO is not as effective in that regard, they're probably
going to do it on their own.”
Smaller
health systems and hospitals are generally more inclined to work with GPOs and
increase their spending with them to gain the scale and volume that they
provide, Jones says. In other instances, contracts with higher commitment
levels also are generating more interest because they often deliver better
pricing, he adds.
Lahey
Health says it plans to review its current GPO relationships with Novation, a
GPO based in Irving, Texas, and MedAssets and then sign a contract in October
with a single GPO that will handle at least $180 million of spending.
“It's
a partner to help us meet our margin targets as we worry about declining
reimbursements,” says Eric Berger, Lahey's vice president of supply chain. “We
really need to look at expenses, so having a GPO partner will help us do that.”
Looking at the data
As
hospitals dive deeper into the supply chain searching for ways to reduce
spending, new areas of focus are emerging. Not only are some hospital systems
bringing distribution in-house, but they are also hiring new talent, investing
further in data and analytics tools, and some are even forming their own GPOs.
While
many hospitals report that they have met cost-reduction targets ahead of
schedule, the cost of
high-priced implants remains a big barrier. Hospital and GPO executives bemoan
that the implantables market has not become more like the markets for other
commodities.
“These innovations in total knee and
total hip have been around a long time but they've had a strong hold on high
prices compared to the rest of the world, in large part because of physician
relationships,”
MedAssets' Bardis says.
On
the other hand, teaching hospitals and physician-owned hospitals are more
likely to continue to allow preference among physicians. “We will tend to give
them what they want, regardless of what the cost is, in order for them to want
to practice there,” says Bruce Kizzier, director of materials management at
seven-bed Lincoln (Neb.) Surgical Hospital, a physician-owned hospital.
He
believes his hospital has gotten the best prices, noting that the hospital's
physicians have participated in meetings with vendors to ensure that the
hospital was receiving competitive pricing.
“More
organizations are having these conversations with surgeons,” says Dr. Peggy
Naas, an orthopedic surgeon and vice president of physician strategies for
VHA, the parent organization of Novation. “More surgeons, seeing the pressure
to add value, are asking questions.”
Other
supply-chain executives say that while hospitals have done a poor job in the
past in educating their physicians about the costs of preference items and
keeping supply costs under control, that's changing and doctors increasingly
are facing up to the problem.
“They've
seen the impact of the sequestration, the federal law changes and
reimbursement drops have been very dramatic across the country for every
system,” BJC's LeMaster says. “They're really seeing that if we don't get it
out of supplies, then we've got to look at labor.”
Read more: Hospitals push docs to change behavior to meet
cost-cutting targets | Modern Healthcare http://www.modernhealthcare.com/article/20130817/MAGAZINE/308179905#ixzz2cWhLwahv
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