The Healthcare Hub

GHX provides a wide range of perspectives on how greater collaboration and visibility across the supply chain can improve both clinical and financial performance in healthcare.

Saturday, August 20, 2011

The Cost-Quality Equation: A Three-Part Solution

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.

Under healthcare reform, physicians, hospitals and suppliers will all need more insight into both the clinical efficacy and cost of products used in patient care. In a reformed healthcare world, the combination of cost and quality will determine reimbursement payments, which, in many cases, will be bundled to be shared by hospitals, physicians and other care providers.

This was a major topic of discussion at an executive roundtable held at the 2011 GHX Supply Chain Summit. As Dale Locklair, vice president, Procurement and Construction at McLeod Health, commented:

"I don't know how we get to the point of locking arms, but right now it's a fight between the hospital supply chain and physicians, the supply chain and suppliers. If we continue in that same fight, and we do what we have always done, we’ll get what we’ve always got."

The hospital executives in attendance agreed that data will be the driving factor - data around cost and outcomes - but they also concurred that getting to the data, especially in a manner that relates cost to quality, is a challenge. Many hospitals simply lack the IT capabilities to get supply chain data into the clinical arena. Lisa Thakur, corporate vice president of operations for Scripps Health, noted that while physicians are asking for information on cost, that data is not readily available at the time they are ordering products. When she has been able to share information with physicians, without telling them what to do, she says “It’s been shocking how fast they’ve changed their ordering practices.”

Another challenge is understanding the total cost of ownership (TCO) of a product, as opposed to just the sales price. TCO includes often overlooked factors such freight, rush charges and inventory carrying costs. Under healthcare reform, the total cost will also be impacted by the role quality plays in determining reimbursement levels. Orthopedic surgeons will be particularly interested in this piece of the puzzle; they will be among the first to share bundled payments with hospitals and a replacement joint can account for 50 to 80 percent of the cost of some procedures.

Understanding the impact that products have on quality is expected to be the most challenging. Certainly, outcomes are highly influenced by the unique characteristics of the patient, as well as the capabilities and experience of the clinician(s) performing the procedure. But even in the absence of these critical variables, hospital executives say their quality folks – many of whom are epidemiologists – have trouble finding good, conclusive evidence as to the superiority of one product over another.

Natalia Wilson, MD, MPH added a physician’s perspective to the conversation. Dr. Wilson is co-director of the ASU Health Sector Supply Chain Research Consortium and spends much of her time studying topics such as comparative effectiveness research, clinical registries and physician engagement. With increased federal funding for comparative effectiveness research, Dr. Wilson believes there will be more data that clinicians and supply chain professionals can use to have informed and collaborative discussions about the products used in patient care. “Physicians, in general, have had strained relationships with hospitals surrounding cost-containment initiatives,” she said, blaming trust issues on a historic lack of transparency. Good credible information coupled with a positive collaborative attitude, she believes, is crucial to start forging better relationships.

Nancy LeMaster, vice president of supply chain for BJC HealthCare, has seen that approach work. She described a meeting she had recently with four spine surgeons. By providing the physicians with factual data on the cost of various products, two of the four surgeons decided, on their own, to shift their selections “in order to help keep the hospital whole.” She added, “I never thought I would have a meeting like that.”

Another hospital executive noted that sometimes working with physicians to find the best product, regardless of price, can be the most economical decision. His premise is, if his system can get the physicians to agree on which is the best product and standardize on that product, the system can increase its volume and qualify for a better price.

Another interesting discussion centered on the role of the suppliers’ sales representatives. When the sales rep is mentioned, these kinds of conversations often deteriorate into complaints about vendors bypassing supply chain and talk about how to control their access to clinicians. But that, too, is changing. Hospital executives participating in the roundtable repeatedly referenced the additional services sales reps often provide. As Jay Kirkpatrick, CEO for HealthTrust Purchasing Group’s MidAmerica Region, stated: “Many hospitals today have reps that routinely perform hospital FTE duties. These duties can include moving products throughout the hospital, room prep, and ensuring instrumentation is taken to central sterilization for cleaning. All of these activities should be performed by hospital staff. It’s real easy to say, ‘Okay, we want your reps out,’ but hospitals better do their homework to understand the implications.”

Hospital executives are starting to ask suppliers for tiered pricing related to service levels. As one participant stated, ”Rather than saying, ‘I’m going to beat you up over the price of a patella,’ I’d rather sit down and talk about the services vendor representatives bring to the hospital. I want to know what the price of the product will be without those services, and if I can get those services performed by someone else, either affiliated with the hospital or another vendor.” But this discussion, too, will need to involve the physician, many of whom rely heavily on manufacturers’ representatives in the operating room.

What the roundtable discussion clearly demonstrated was that there is considerable interest and rationale for changing the model, but that transformation will not come easily or quickly. And it’s more than a change management or trust issue. Those who take this topic seriously are uncovering both process and technology issues that must be addressed. What’s heartening is that they are starting to focus on barriers, not for the purposes of blaming or criticizing the “other” side, but rather to understand how their respective expertise can overcome those challenges, and how each member of the hospital-supplier-physician triumvirate can achieve its objectives, while ultimately serving the need of the most important player, the patient. 

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Karen Conway

Vice President, Healthcare Value