teaming up to take down costs
At
In 2013,
Applying pressure to vendors to reduce cost is the key strategy in this initiative, particularly when it comes to medical supplies. The mark-up from the distributors to healthcare systems is an expense not seen for the same products in retail care setting.3 By linking specialty-specific clinical teams with supply chain experts,
Since the initiative was launched in January ?oi3, Saint Luke's reduced medical supply costs by more than
How Saint Luke's Did It
Saint Luke's vision for cost reduction originated with Saint Luke's Care (SLC), a volunteer physician quality organization created in 2007. From its inception, SLC's role has been to help physicians make collective decisions about how to most effectively implement standardized best practices across the health system. The organization today includes about 63o physicians, or about 75 percent of the physicians employed by or affiliated with
Since 2007,10 evidence-based practice teams assembled around each subspecialty or disease state have successfully implemented systemwide policies, clinical pathways, and more than 400 order sets. In addition to reviewing clinical research to ensure that treatment pathways and order sets remain up to date, SLC also is responsible for educating physicians via newsletters, emails, phone calls, group meetings, and continuing medical education about the ongoing evolution of evidence-based care across the system.
In the fourth quarter of 2012, SLC's medical director learned that Saint Luke's planned to review supply chain expenses as one component of a systemwide cost-reduction initiative to be completed by 2015. The initiative was to be driven by the expectation of reduced levels of payment due to payment reform and increased competition in the post-healthcare-reform environment. A not-for-profit organization, Saint Luke's was aware that investor-owned hospitals may enjoy supply chain ratios that are up to 3o percent lower than the same ratios for not-for-profit hospitals.b
SLC's medical director approached health system leaders about the potential for SLC to partner with Saint Luke's in this process. SLC leaders hoped that integrating physicians into the supply chain cost-reduction planning process would increase the likelihood that physicians would be satisfied with the results, would create a mechanism for physicians to contribute ideas and insights based on their experiences at the point of care, and would prompt the health system to enlist physician participation in the vendor-negotiation and product-purchasing process.
SLC's leaders believed that enabling physicians to drive the cost-reduction process would generate new and effective solutions while helping to ensure that physicians "owned" the decisions. This level of physician involvement, in turn, would avoid the ill will that can develop when cost-reduction initiatives are created unilaterally by administrators and imposed on the physician community.
Representatives for SLC and Saint Luke's materials management department began the cost-reduction process by developing a collaborative model that could be replicated across clinical departments. Both SLC and Saint Luke's agreed that a materials management specialist should be embedded within each of the evidence-based practice teams to provide physicians with information about historical spending, cost trends, and materials pricing. The hope was that the supply chain specialist could stimulate discussions about product standardization and cost-reduction strategies. SLC staff helped to facilitate these meetings.
Orthopedic surgeons were among the first to embrace the new approach. Five physicians, including representatives from most of Saint Luke's hospitals, joined with a materials management resource manager to create a value-analysis team (VAT).
Because the surgeons also had served on Saint Luke's Surgery Evidence-Based Practice Team, it was hoped that the careful analysis used to achieve consensus in that arena could be transferred to the cost-saving realm. Efforts also were made to ensure that orthopedists who did not participate directly on the VAT but who were responsible for large numbers of procedures were included in the value-analysis efforts through individual meetings and phone calls. All participants were asked to self-report and sign a conflict-of-interest form before the meetings began.
A resource manager made detailed presentations to the physicians at early-morning and evening meetings in an approach that was later duplicated across other subspecialties. The objective was to convey existing cost information and usage patterns regarding medical devices, including both knee and hip prostheses and joint cement. During these meetings, the materials management associate was able to demonstrate that the health system's costs for joint implants were not within a reasonable comparative range when measured against average
In addition to assessing cost data, Saint Luke's physicians also reviewed available quality and performance information from a knee and hip registry developed in
After considerable discussion, the physicians made it clear that preserving choice was a priority. However, they expressed a willingness to convert from their preferred vendors if the financial goals of the cost-reduction effort were not met. Materials management staff suggested ways the VAT could decrease costs, but the physicians were the ones who ultimately came up with a viable and successful proposal.
Specifically, the physicians believed that Saint Luke's should establish flat, "fixed and final" rates for knees and hips, or prices the physicians collectively considered to be fair and reasonable, and then approach the prosthetic manufacturers about meeting the numbers. If a vendor refused, the company's contract would be canceled. Before moving forward, members of the VAT and materials management personnel spoke about the proposal individually with other orthopedic surgeons across the health system who had not been able to attend meetings. The physicians all expressed support for the idea-albeit cautiously in some instances-and agreed that they would be willing to convert from their preferred supplier in the event the manufacturer was unwilling to reduce prices.
A series of meetings was held with seven prosthetic vendors. In the end, only one company refused to lower its prices to meet the targets. One hip replacement manufacturer that had initially refused to negotiate came back to the table and matched the proposed price after two physicians stopped using its product. The price ultimatum eventually resulted in a 33 percent reduction in aggregate annual knee costs and a i3 percent reduction in hip costs.
By following the physicians' recommendations, projected savings in orthopedic surgery increased from a few hundred thousand dollars to approximately
Avoiding the Red Sticker
Saint Luke's neuro-interventional radiology (NIR) team was the next physician group to employ the health system's innovative approach of joining a resource manager with an evidence-based team. The three-physician group practices at the health system's quaternary-care flagship hospital,
Depending on the manufacturer and contract, the thrombectomy devices range in price from about
They did, however, recognize the need to become cost-effective. Contracts with vendors prevented disclosure of prices to competitors and also prevented price tags from being affixed to inventory. Nonetheless, the team developed its own unique approach to illuminate coil implant and thrombectomy device costs in the interventional radiology storeroom. At the physicians' suggestion, the lowest-cost coils were placed in a bin marked with a green sticker, the mid-range coils were in a bin with a yellow sticker, and the most expensive coils were put in a bin with a red sticker.
Usage was monitored on a weekly basis by materials management personnel. Over a period of several weeks, utilization of inventory in the green and yellow price bins increased, while demand for the inventory in the red price bin declined.
The physicians took it upon themselves to use the lower-cost devices whenever equivalent devices were available in multiple bins. In doing so, they were able to pull down the overall materials costs of the department. But even more significant was the response from the vendors whose products had been consigned to the red price bin. Unhappy with the decline in sales as well as the stigma associated with being the most expensive provider, the manufacturers soon altered their pricing structures to bring the products in line with competitors.
The upshot was that after nearly all suppliers "got out of" the red bin, the NIR team was on track to save
Surgeons Rebuff High-Cost Suppliers
Like orthopedics and NIR, a third department that embraced the evidence-based sourcing approach was able to bring pressure on device vendors to lower prices. Plastic surgeons involved in breast reconstruction had long relied on two different suppliers for the necessary expanders and implants. One of the companies had provided an 8 percent discount on the devices, while the other charged full list price. After discussions with the surgeons, the materials management resource manager sought discounts in a more aggressive range from both vendors.
In response, the company that had previously offered an 8 percent discount agreed to further reduce its prices to meet Saint Luke's target spend. However, the second manufacturer refused to move from its full list price. As a result, a decision was made to stop purchasing from the company, and the physicians all agreed to convert their usage to the discounted provider. In this instance, the high-cost provider did not subsequently adjust its prices and is no longer sourcing product to the health system. Nonetheless, the physicians involved remain committed to reducing costs. Several, in fact, stated that they were surprised and somewhat offended that the long-time supplier did not show an inclination to work with the health system to bring prices down.
Teachable Moments
Although adoption of the collaborative valueanalysis approach has been largely successful at Saint Luke's, there were two instances in which a consensus could not be achieved. In these cases, the end result was an outcome that the physicians involved presumably hoped to avoid: a unilateral solution imposed from above.
The first situation involved a breast cancer imaging and biopsy team made up of three breast surgeons and six breast radiologists. Two separate manufacturers supplied the team with consoles and associated hand-held devices used to conduct breast biopsies. In meetings with the group, materials management personnel explained that consolidating around one of the systems could save nearly $i3o,ooo annually. The savings would stem primarily from lower costs associated with the vendor's single-use, disposable attachments. Despite the significant cost-saving potential, personal preferences regarding the respective systems among team members undermined efforts to reach agreement. Votes were conducted, along with secret surveys and ongoing discussions, but consensus could not be reached. As a result, the director of the oncology product line made the decision for the team and mandated use of the system with the lower total cost of operation.
A similar scenario unfolded when a group of newly acquired surgeons at one of Saint Luke's outlying hospitals was asked to begin using a surgical device that had already been adopted by other surgeons across the system. Called a trochar, the device is used to open an abdominal incision during laparoscopic surgery. The decision to convert systemwide to the specific trochar predated the creation of the surgical VAT. However, with the acquisition of the new surgical group, the VAT was brought in to ensure that the physicians understood the economic and safety benefits of conversion.
Unfortunately, the physicians did not welcome this input-perhaps because they had not been involved in the initial discussions surrounding the device-and consequently continued to use their preferred device. The hospital's CEO ultimately became involved and compelled the employed physicians to make the switch. Although the desired savings were achieved, lingering resentment toward the imposed solution among the new physicians has hindered subsequent efforts by the VAT to involve the physicians in cost-savings initiatives.
Despite these setbacks, Saint Luke's Care continued to expand the value-analysis collaborative model across other specialties, including ophthalmology; urology; general surgeiy; ear, nose, and throat; gastroenterology; spine surgery; nursing; and interventional cardiology. Preliminaiy results across the spectrum of value-analysis teams indicate a total projected savings of $i3 million for 3014.
Lessons Learned
The pursuit of lower surgical costs through standardization has been a key strategy for provider organizations nationwide. A novel aspect of Saint Luke's effort was the fact that the health system had already attained a great deal of physician alignment around its desire to provide high-quality care and had developed trusting relationships with physicians through the work of its evidence-based practice teams. These teams were used to facilitate a partnership between physicians and Saint Luke's materials management department in the pursuit of greater standardization in purchasing and lower costs. In the two instances when the health system's efforts were not successful, there was a lack of physician alignment, of trusting relationships, or of both.
As an end-user and customer, physicians have always been an essential, if passive, player in the vendor-hospital business relationship. By integrating physician-derived intelligence and insight with the purchasing guidance provided by supply chain professionals, highly effective supply chain strategies can result that create an optimal balance between quality and cost. At Saint Luke's, the evidence-based cost-reduction approach has demonstrated that physicians can play a central role not only in providing quality care, but also in helping ensure that the care is provided as cost-effectively as possible. Saint Luke's leaders strongly believe that the spirit of cooperation between physicians and supply chain at the health system will continue to bear fruit in the years to come. *
AT A GLANCE
* By linking specialty-specific clinical teams with supply chain experts,
* Since the initiative launched in
* In several instances, physicians have led the way in formulating cost-cutting ideas that exceeded the expectations of supply chain administrators.
SLC's leaders believed that enabling physicians to drive the cost-reduction process would generate new and effective solutions while helping to ensure that physicians "owned" the decisions.
About
The physicians believed that Saint Luke's should establish flat, "fixed and final" rates for knees and hips, or prices the physicians collectively considered to be fair and reasonable, and then approach the prosthetic manufacturers about meeting the numbers.
A TOP CHALLENGE FOR CFOs IN 2015: DIFFERENTIATING THE VALUE EQUATION
Preliminary results across the spectrum of value-analysis teams indicate a total projected savings of $i3 million for 21014.
a. Agwunobi, J., and
b. Berger, S., "Beck to Basics: 5 Ways to Pick Low-Hanging Fruit," hfm,
About the authors
Brant W. Baaslay, MD, FACP, CPHQ,
is CEO, Saint Luka's
is vice president, supply chain management,
Cola O. Martin, MD,
is an interventional neurologist and clinical associate professor of radiology,
is a healthcare freelance writer,
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