Physicians Are Supply Chain Champions at Ochsner Health System

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  • Sep 16, 2019

From RevCycle Intelligence – September 16, 2019

Engaging physicians and making them leaders in the supply chain is key to achieving value at the large independent academic health system.

A physician’s top priority is always to deliver the highest quality care possible to patients. But in an increasingly sophisticated and difficult healthcare market, the providers are now finding their responsibilities to also include reducing costs, especially in the supply chain.

At least that is the case at Ochsner Health System in Louisiana. Ochsner is one of the country’s largest independent academic health systems and Louisiana’s largest health system with 40 hospitals and more than 100 health and urgent care centers. The health system is engaging physicians and putting them in leadership positions in the supply chain to achieve value in the changing healthcare market.

“I teach physicians that they are not only responsible for the traditional things, like quality and safety, but they’re also very responsible for cost,” explained Christopher White, MD, MACC, MSCAI, FAHA, FESC, FACP, medical director of value-based care and system chair for cardiovascular diseases at Ochsner.

“This is a new concept for doctors because traditionally hospitals were extremely profitable,” added the interventional cardiologist by trade. “The reason why physicians have not been engaged in supply chain is that they never needed to be.”

Physicians have not had to focus on controlling their resource use or associated costs under fee-for-service. Payers would reimburse them for their service volume and, in some cases, their rates would be determined through a “cost plus pricing” system in which the payer pays the hospital’s expenses plus a markup rate.

“At that point, using an expensive device was actually an advantage for some hospitals. So, physicians weren’t really necessarily so aware that they had to be controlling costs,” White said. “That has all changed over the last five to six years. We are now very much cost conscious and very much constrained with our revenue.”

Value-based care and reimbursement is changing how physicians and their organizations think about cost. The alternative to fee-for-service rewards providers who deliver the highest quality of care at the lowest possible costs while penalizing providers who do the opposite. Therefore, success in the new healthcare economy hinges on reducing costs at the point of care and for most organizations, that means reducing supply chain costs.

“There are a lot of fixed costs in our delivery system, so when we look at what can we do to lower costs, supply chain becomes a critical partner,” stated White.

The supply chain represents close to a third of the average hospital’s overall operating expenses and the department, which is responsible for purchasing all the items and supplies a healthcare organization needs to run smoothly, is slated to surpass labor as a hospital’s greatest expense by 2020, according to industry experts.

Reducing supply chain expenses is an easy win for hospitals and health systems implementing value-based reimbursement models. Research from the consulting firm Navigant shows that hospitals can cut costs by as much as 17.8 percent by reducing variation and waste in the supply chain.

But for supply chain cost reductions to be successful and sustainable, hospitals and health systems must engage physicians, White reiterated.

“You need doctors to talk to doctors,” he stressed.

For example, physician engagement and physician supply chain leaders have helped Ochsner tackle preference items.

Physician preference items, or PPIs, are supplies or devices that doctors choose to use for a specific procedure or service. These items, which physicians may prefer to use based solely on education or past experience, can constitute between 40 to 60 percent of a hospital’s total supply chain costs, according to Definitive Healthcare.

“PPI becomes a very big opportunity for most health systems,” White said. Hospitals and health systems can significantly reduce costs by consolidating vendors to achieve the right volume at the best price, he explained.

However, reducing the number of PPIs and their associated purchase contracts is one of the most challenging supply chain initiatives for hospitals and health systems.

“The problem with PPI is that physicians view their autonomy and their ability to practice medicine on individual patients as very high on their list of professional quality of life,” White said. “None of us went to medical school to learn how to take care of patients out of a cookbook. We all think our patients deserve individual care and attention, and they do.”

Hospitals and health systems have to balance rationalizing where the opportunities are for consensus regarding PPIs and meeting physician demands for certain items that enhance how they provide care. That is where physicians in supply chain leadership positions come in at Ochsner.

Physician supply chain leaders understand the reason behind preference items and can effectively communicate why the hospital or health system is considering an alternative device or supply, White explained.

The approach has worked better than the traditional strategy used by supply chain teams in which a non-clinical staff asks physicians to use a cheaper device.

“That tends to not go over very well with doctors,” White explained. “Nobody wants to use the cheap stuff. We want to use good quality technology, new devices, and the latest and the greatest for our patients.”

Physicians in the supply chain are able to discuss more than prices with their colleagues.

“They can approach physicians or physician groups, like orthopedists, neurosurgeons, or cardiologists, and ask them where they see an opportunity to change their devices or drugs and where we can consolidate vendors. We have that physician-led conversation,” White stated.

“I ask physicians to pick one or two devices that meet 90 percent of their needs, and then we work to consolidate vendors to achieve a lower price for a volume commitment,” he continued. “That makes sense to physicians.”

Technology is also making it easier to engage physicians with the supply chain, White added. Using software from Lumere, for example, Ochsner is able to quickly determine the value of alternative items and put that information in the hands of providers.

“I can go on Google and look up the last ten papers written on a robot device. But what Lumere does is digest a lot of that information and grade the evidence,” White explained. “They differentiate between a randomized trial with a government sponsor versus a company-sponsored, non-randomized trial that may have significant bias. The latter doesn’t actually get at the heart of the matter, which is if there is a true differentiating feature for this device that justifies its value.”

The software allows Ochsner to determine if it is willing to pay a premium price for an item or if a cheaper alternative is just as valuable. The information from the software can also be trusted by physicians when they have to consider using a different supply.