I was talking to a colleague the other day about how the economic challenges faced by both healthcare delivery systems and their vendors may actually create the impetus we need to better align goals across the supply chain. Misaligned incentives have been a major factor in the historic lack of trust between providers and suppliers, which has hampered their ability to lower the cost of doing business together and, in turn, the cost of healthcare. Unfortunately, Wall Street’s almost myopic focus on top-line growth could impede efforts by many healthcare suppliers to make the kinds of changes I believe are needed to position them for success in an era of healthcare reform.
The US Supreme Court’s decision to review the constitutionality of the healthcare reform law will certainly create some good fodder for political pundits, with the oral arguments occurring during the height of the presidential campaign season, but it does little to address the more pressing question: how to lower the escalating cost of healthcare, without negatively impacting patient care and without waiting on the courts or the political process. No matter where they stand on the law, the hospital and healthcare delivery system executives I talk to all agree, they cannot wait; they have to take action to cut costs NOW.
Those who have visited The Healthcare Hub before know I spend a fair amount of time talking about collaboration. I’m not alone in my interest in the topic. It’s showing up on agendas of industry conferences and on the research agendas of major analyst firms. The problem is, while most folks say they want to collaborate more, whether with others in their own organizations, or with their trading partners, few really know how to develop a truly collaborative relationship, and more importantly measure the results. Did it really make a difference, for both parties, and is it sustainable and repeatable?
Something very special happened in Chicago this past week. A group of healthcare manufacturers and hospital executives came together and gave me hope, for the first time in a while, that we may actually find the answers to our current healthcare crisis through collaboration. And I got to thinking, “What if our lawmakers in Washington, who cannot seem to agree on anything including healthcare, could have listened to this conversation?”
When it comes to elevating the role of the supply chain in hospitals, we may be our own worst enemy. That was one of the takeaways from the most recent national executive survey on supply chain management presented at the 2011 AHRMM Conference in Boston. Recently, I had a chance to sit down with Jamie Kowalski, who has been researching perspectives about the healthcare supply chain for AHRMM – The American Hospital Association’s membership organization for supply chain professionals - for nearly 30 years.
In recent months, I have heard both hospitals and suppliers agreeing on a topic that has traditionally put them at odds, that is, their attempt to influence physician preference for items such as cardiac stents and replacement joints. These items are among the most expensive products, are associated with the most profitable service lines, and potentially have the greatest impact on patient care. Rather than putting the physician in the middle, there is growing recognition among hospital and supplier executives that they need to work together WITH physicians if we are going to achieve a more patient-centric healthcare system.
I had the chance to hear Jamie Orlikoff, one of the better consultant-type speakers, at the AHRMM Conference yesterday. It was actually the third time I have heard Mr. Orlikoff speak, but each time I gain some new insights. His message is not necessarily new (Healthcare expenditures are on an unsustainable upward trajectory), but he positions the problem in a manner that – while certainly dire – should provide some clues as to how we got into this mess and what we need to do about it.
The biggest takeaway: despite the best of intentions, our healthcare system is doing a disservice to its customers, the patients. Consider these statistics that Mr. Orlikoff shared with the audience:
Supply Chain Revolution is the theme for the 2011 AHRMM conference, being held this week in Boston. For those who may not know, AHRMM – which is part of the American Hospital Association – stands for the Association for Healthcare Resource & Materials Management. What’s worthy of note is the transition from use of the term “materials management” to “supply chain.” Just yesterday, I met a woman who said her health system had recently changed the name of her department – and her title – from materials management to supply chain. While it might sound like just semantics, I think the change is more significant. It reflects a growing appreciation for the scope and the role of the healthcare supply chain.
Quick update. We learned this week that the proposed UDI rule from the FDA (requiring manufacturers to assign a unique device identifier or UDI to their products) will likely not be out until August or early fall. While you are waiting, here’s something to do. Click here to watch/listen to a webinar featuring Jay Crowley, the FDA’s point person for UDI, on what manufacturers can expect in the proposed rule and what they can be doing NOW to prepare.
The FDA held a call this week for the media and other interested parties on what it calls the Pathway to Global Product Safety and Quality. The new strategy is designed to help the agency ensure the quality and safety of medical and food products in an era of increasing globalization. While I welcome comments and perspectives on the strategy, two of the core themes appear to make a lot of sense to me: one is a need for greater cooperation and coordination among global regulators, and the second is a recognition of the importance of leveraging public and private partnerships.
I’ve noticed a fundamental change over the past few years in the conversation between providers and suppliers, one that is focused less on where they disagree and more on how to navigate an uncertain, but certainly challenging, future course together. Rather than just lamenting about how we need more trust and collaboration in the healthcare supply chain, people are talking about what they can actually do…and in some cases already are….to make a measureable difference in performance and quality.
Case in point: the executive roundtable discussion held at the 2011 GHX Healthcare Supply Chain. A group of about 30 representatives of manufacturers and healthcare systems, from North America and Europe, participated in a 3-hour conversation on just this topic. Early on, I knew the tenor of the dialogue had changed, when Alan Edwards, vice president of supply chain for Mary Washington Healthcare in North Carolina, said, “The days of beating the supplier up on pricing are gone.” Edwards was not alone, as several other providers added that they were focusing their attention on becoming better customers, by helping their vendors lower SG&A (selling, general and administrative) costs, which include both the direct and indirect costs of sales. Gartner Research has noted that SG&A costs for healthcare suppliers are nearly twice those of companies in other industries recognized as having highly efficient supply chains.
This week at the SMI Forum (www.smisupplychain.com) work continued on the relationship between the healthcare supply chain and Accountable Care Organizations (ACOs), just as the American Medical Group Association (AMGA) submitted comments to CMS that the majority of its members would not participate under the proposed rules that they said were "overly prescriptive, operationally burdensome, and the incentives are too difficult to achieve to make this voluntary program attractive."
David Blitzer, chairman of the S&P 500 Index Committee, appeared recently on CNBC, discussing the rising cost of healthcare. While the rate of increase is slowing, albeit slightly, healthcare costs continue to rise at 3 to 4 times the cost of inflation. Chairman Blitzer noted, accurately, that “Despite all the excitement about technology and drugs, healthcare is a very labor intensive activity, and people — labor — costs a lot of money, and that seems to be the key factor driving it up.” He’s right: labor is the single highest cost for most hospitals, but as I have noted in earlier posts, supply chain related-costs are the second largest expense and on a path, according to SMI
Like Elvis, it’s left the building, or if not, it should be heading for the door. That according to Vance Moore, president of Resource Optimization & Innovation (ROi), the supply chain division for Sisters of Mercy Health System. Vance says the supply chain can no longer function within the four walls of a hospital or healthcare system, but needs to move out to where care will be increasingly delivered – in the home, in retail clinics, in ambulatory surgery centers, all places that are often more convenient and certainly less expensive than the acute care setting.
According to research published recently by the IDN Summit, the majority (80%) of healthcare executives do not believe healthcare reform should be repealed. These executives are busy working to meet the objectives and requirements of the bill, but they are doing so in an environment of uncertainly, with both legislative and legal attempts to repeal or overturn the bill. The question then arises, how are these leaders expected to transform their organizations and the way they do business if the rules of the game may change. That was one of the questions we asked former Senate Majority Leaders Bill Frist and Tom Daschle during the opening keynote session of the GHX Supply Chain Summit today. In his remarks, Senator Frist predicted that the US Supreme Court will find the individual mandate in the bill unconstitutional, a point that Senator Daschle contested, but surprisingly that was one of the relatively few points where the two disagreed. Both urged the healthcare providers and suppliers in the audience to continue working together to find ways to drive down the cost of healthcare. As Senator Daschle said it, "the [political] disagreement is over the role of government. But we are in agreement on many things, like cost. If nothing changes healthcare will be 32 percent of the gross domestic product and that is unsustainable. There is no disagreement that there is a cost problem, an access problem and a quality problem."
The 2011 Healthcare Supply Chain Summit kicked off today, highlighted by an executive roundtable discussion featuring suppliers and providers from North America and Europe. The discussion began with a focus on the challenges faced by hospital and health system supply chain leaders in the US, after which Chris Slater, head of supplies for Leeds Teaching Hospital in the UK, commented, “It’s amazing how the issues we face are really the same,” noting that providers in Europe and North America all need to cope with rising supply chain costs in an environment of little or no growth in revenue. There was also general agreement among the providers that their response to the economic challenges has to change. As Slater put it, we need to find ways to lower our internal costs and to use technology to help providers and suppliers alike. Another provider – from the US – put it a bit more bluntly: “We’ve got to control costs, but the days of beating up the suppler for lower pricing are gone.”
At last week’s GS1 Global Healthcare Conference, Jay Crowley, the FDA’s point man for the unique device identification (UDI) system, said he expects (but don’t hold him to it) the proposed UDI rule to be out in June. Those who are counting on the regulation to finally get the healthcare industry to move forward with standards for product identification have questioned why it has taken the FDA so long, given that legislation calling a UDI system was passed in 2007. But a closer look at what the FDA and regulators from other countries have been up to for the past four years demonstrates a deliberate attempt to ensure the regulation’s success on a global level.
At the recently completed GHX Healthcare Supply Chain Summit, I had the opportunity to ask former Senate Majority Leaders Tom Daschle and Bill First if Congress gives much consideration to the global implications of healthcare reform. The Senators agreed, probably not enough. Fortunately, as I mentioned in an earlier blog post (April 10), the FDA has, as it has worked with other regulatory bodies to achieve some consistency in how countries around the global plan to implement regulations to require the unique identification of medical devices.
There is certainly no shortage of educational programs available on accountable care organizations (ACOs). I personally have attended at least 3 webinars and 2 conference presentations in the past couple of months, not to mention a myriad of articles that I have read on the subject. Most have been very informative, raising a number of issues that healthcare providers will need to address to make this new model successful, such as how to fully understand the total cost of providing care across the continuum. One issue I have not seen addressed relates to the skills that will be required of those leading ACOs.
So, I did it. I tweeted. (My children will be so proud.) In addition to all the buzz about meaningful use, ICD-10, accountable care organizations, mHealth, and the like, Twitter took the stage at the 2011 HIMSS conference and exhibition. The conference organizers set up a Social Media Center where newbies like me could go online, set up a Twitter account, and send tweets to those following the show using the hashtag #HIMSS11. To be honest, I had actually set up an account several weeks ago but never used it. I felt better when I heard former HIMSS president John Glaser, Ph.D. tell an audience that he, too, had an account but had never actually “tweeted.” As he put it, he was waiting for the right thing to say.
On the plane to Orlando for the 2011 HIMSS Annual Conference and Exhibition, I spent some time reviewing the conference program in detail and finalizing my schedule for the week. That can be a daunting task for most, with so many booths to visit, sessions to attend and colleagues to meet – even over the course of four days. Unfortunately, it’s much easier for those of us focused primarily on the supply chain, which HIMSS has paid very little attention to in the past decade, despite the fact that it continues to be the second largest and the fastest growing expense for most hospitals. This year, HIMSS even cancelled the supply chain pre-conference symposium that AHRMM and the HIMSS Supply Chain Special Interest Group (SIG) helped organize the past four years, selling out twice. But if you are interested in the supply chain – and in particular the role it can play in advancing the objectives of healthcare reform – take heart. There are several sessions on the agenda worthy of note.
Surprising, but I actually read something about politicians and healthcare reform this morning that gave me hope. Former Senate Majority Leaders Tom Daschle and Bill Frist have formed a partnership to find creative ways at the state level to implement healthcare reform. Read the story in politico.com. While the two gentlemen certainly have very different viewpoints on the issue and the bill passed last year, I must credit them for focusing their attention on finding solutions to the challenges of implementation as opposed to staying mired in the debate over whether the bill should be repealed or not. As I have stated previously, keeping the conversation at that level does no one any good, especially those working in healthcare who need to take action now and the patients that depend upon them.
As the House of Representatives prepares for tomorrow’s planned vote on whether to repeal the healthcare reform bill, the task remains the same for those responsible for the delivery of healthcare – they must seek new models of doing business in order to cut costs without sacrificing quality. The belief that this is critical to the long-term viability of our nation’s healthcare system, if not the survivability of many organizations, appears to be the one point of agreement in an otherwise highly contentious debate. So, while Republicans and Democrats continue to wage war (although with a much more civil tongue in the wake of the Tucson shootings), and the American public remains split, nearly 50-50, on whether they support the law, I take heart in the fact that the political (as well as legal) uncertainties are not distracting providers and suppliers from the task at hand.
I am a fan of global supply chain standards for product and customer/location identification and the role they can play in improving operational efficiencies and patient safety. I am NOT a fan of how we talk about standards much of the time. Certainly the sheer volume has catapulted the industry toward adoption, such that this time, I think we just might get there. Certainly many of the major players, like Mayo Clinic and Sisters of Mercy Health System on the provider side, and Abbott and BD on the supplier side, have recognized the value and prioritized standards adoption and implementation. My concern is that the way we talk about standards, often more about the standards themselves than the problems we are trying to solve, is not compelling enough to convince the majority of hospitals and suppliers to take action. Studies find that a substantial portion of providers and suppliers, as much as half, are still waiting for someone to tell them what to do, including which standards to adopt, or for a compelling business case. They won’t push standards with their leadership until they know the return on investment. Problem is, a study proposed last year to determine the cost/benefit was so expensive, someone would have asked for an ROI study on the ROI study. And as the grocery and publishing industries, among others, have found, it takes widespread adoption before the benefits can be adequately measured.