In Age of Mergers, Hospitals Get Strategic with Medical Supply Purchasing

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  • Apr 11, 2016

At Baltimore-based Johns Hopkins Health System, achieving scale meant creating a system-wide supply chain infrastructure rather than allowing each facility to oversee its own device purchasing.

In the 1980s, the system encompassed just two hospitals. But as it slowly began to acquire new holdings, it adopted a new way of looking at its supply system.

“We have to be very sensitive to that in how we bring everything together,” said Tom Galloway, director of clinical value analysis for Johns Hopkins. “Everyone went to their corners and started protecting their turf. As we got better at communicating what the objectives were, and what the timeline would be, then people started settling down and working together.”

As health systems merge and expand, the old cost-saving models no longer apply.

[Also: CMS sets single payment amounts for durable medical equipment, supply contracts]

Johns Hopkins looked at best practices and tightened things up on the procurement end, and nailed down software programs that aided in conducting value analysis. The system joined a group purchasing organization to leverage the concomitant strength in numbers, feeling out vendors to negotiate the best possible prices for various products. Evaluation teams were dispatched to see what would work the best.

Then the organization did something bold — it started its own group purchasing organization, dubbed the Healthcare Supply Chain Innovations.

“You’d think this would be counterproductive to belonging to a big GPO,” said Galloway, “but what HSCI can do is refine our process and help us negotiate better prices, not just for our health system but for other members who want to join in with us. … We are learning how to work with HSCI, and learning to work together. We’re all sorting this out at the moment. We see a lot of opportunity for cost savings.”

It is important for any large-scale supply chain operation to engage with physicians, Galloway said. Clinicians historically haven’t been overly involved in supply chain or value analysis, but that trend is shifting, particularly as health systems become larger. Physicians are now serving on many value analysis teams, and their clinical expertise carries weight.

[Also: Trinity Health to create system’s own supply distribution centers]

“When it gets to a point where it’s too much for value analysis to deal with — something that requires clinical expertise — we will tap the clinical community,” said Galloway. “We bring them all to the table and they will explore all the opportunities from a clinical perspective first, and a cost perspective later, to see how they can make the process more efficient.”

Every new approach, however, brings new challenges. With engaging physicians, that can include compelling them to let go of certain favorite products, or ways of doing things. Dialogue can often be the best means of allowing clinicians to become comfortable with the idea of change, said Galloway.

“They have to believe in the bigger picture,” he said. “Sometimes changes are necessary for the betterment of a system, and for the patient. Sometimes you have to remind people, ‘This is why we’re doing this.’ Particularly with academic hospitals, not only are (the physicians) using the products, they’re oftentimes involved in the development of these products. So we need to be careful and find out who might have conflicts and why they might feel the way they do about a product. So we do a lot of work in that direction.

“It’s a struggle sometimes. But people understand why things have to be done in a certain way.”

A recent study by Procured Health that polled 101 electrophysiologists and orthopedic surgeons, found that clinicians don’t necessarily trust device company representatives when it comes to evaluating their products. Only around 10 percent of physicians reported that they were “very satisfied” with their colleagues in supply chain, including the value analysis coordinator and the supply chain vice president — who scored low in part because their role isn’t clear, and in part because of skepticism that they can truly drive value.

[Also: Stanford Medicine cuts medical supply costs through value-based ordering]

However, the same study found that many physicians are willing to change device vendors based on clinical evidence or patient needs. A well-run hospital is more important to them than unfettered access to certain devices.

According to Ed Bonetti, vice president of supply chain services at UMass Memorial Healthcare, the supply chain department needs to be there when physicians need them — and not simply showing up to advocate for cheaper devices in narrow discussions about cost.

That, he said, becomes increasingly more important as a health system grows in size.

“From a supply chain perspective, there’s a continuum — basic to very mature,” said Bonetti. “As you move along that spectrum, you need to have credibility and engagement with the physicians. There’s only so much that you can drive in negotiations with a vendor. You’re only going to be able to reduce the price of a widget so much. You need to look at the use of the products and correlate that to the results you’re trying to change.

“In a mature supply chain, you need to have engagement with the physicians, because if you don’t, it’s more dictatorial and more limiting. And they feel, rightly so, that supply chain isn’t advancing their ability to deliver care. If you don’t have engagement, it’s a real struggle.”

There are other challenges facing larger-scale supply chain operations, said Bonetti — chief among them being variability. There can be increased variability in contract calendars and terminology, which can make it more difficult to standardize. Also, there is often variability in how certain products may be used or in how they’re assessed.

“As you grow larger, you introduce variability into that equation, and that’s the enemy of efficiency,” said Bonetti. “You have to minimize that so it’s not disruptive.”

One key strategy in mitigating that disruptiveness is identifying the data that would be most useful to physicians.

“Clinicians are generally data-driven individuals,” he said. “A lot of their behaviors and a lot of their biases are because of the way they’ve been conditioned to make use of data.”

Bonetti’s approach is to present to the physicians any data that explains the impact variability and ask them to decide if the data matches what they’re seeing.

“The way that I’m looking at a particular problem, I may be looking at it through a certain lens, or only one way,” he said. “It’s a great way to have a dialogue, or to remove the confrontational aspect of things.”

For example, Before joining UMass Memorial, Bonetti said he held a similar role at an orthopedic joint center that identified significant cost variability in some of its hip implants. Two types of products were being used — implants coated in vitamin E, which promote bone growth but are also more expensive, and those that were not coated. When Bonetti’s team approached the surgeons, the surgeons revealed that the coated implants were ideal for patients under the age of 70, while patients over 70 generally didn’t benefit from the more expensive, vitamin-infused product.

By only using the pricier coated implants on younger patients, the joint center saved big on costs.

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“We had an engaged group of physicians,” said Bonetti. “It led to the appropriate clinical matching.”

Since medical devices and supplies represent about 20 percent of a typical hospital’s budget — second only to labor costs — opportunities to save on the supply chain side may only grow, especially with the rise of non-acute care organizations such as off-site dialysis centers, home and hospice care and ambulatory care centers. Bonetti said their growth will change the dynamics of the way supplies are being purchased.

“There’s a tremendous opportunity right now in hospital supply chain,” he said. “Historically, it hasn’t been treated as a strategic function. People are starting to recognize the important role it plays.”