Stanford Medicine cuts medical supply costs through value-based ordering

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  • Dec 15, 2015

As hospitals continue to look for ways to cut costs, a team at Stanford Medicine is looking at how facilities can shave dollars off medical device purchases.

These devices can be costly — particularly physician preference items, the tools that have become favored by clinicians due to brand loyalty or other factors.

But John Cunningham, head of supply chain at Stanford, said this area is ripe for cost savings.

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The key, he said, is to coordinate with the medical staff to ensure the devices they request are both cost-effective and result in good patient outcomes. The health system’s Value-Based Selection Committee looks at the cost efficiency of a wide swath of supplies and reviews their efficacy, along with their potential for reimbursement.

The committee looks at “how evidence-based the request is,” said Cunningham. “We really try to scrutinize the validity of what the requester is telling us about the device.”

The group then votes on whether to approve it.

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It’s part of a shift from a physician-centric culture to more of a cost, quality and outcomes-based approach. The shift began during the waning months of 2014, as Stanford recognized it needed a more tight-fisted approach to supply purchasing.

“We needed to apply a more rigorous approval,” said Cunningham. “We needed to look into how it fitted into our overall strategy.”

So far, the key to the approach’s success has been communication. Lisa Chernikoff, director of marketing for Procured Health, said basing decisions on evidence has been paramount.

“(The) shift required supply chain to better collaborate with physicians to help them make more informed decisions,” Chernikoff said in an e-mail, “especially in regards to determining which medical devices to use and when to use them, based on best practices and clinical evidence.”

Cunningham said the reaction from physicians has been positive.

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“They certainly relate to the scientific approach to how we make a selection,” he said. “They’re engaged and interested in the process.”

One key impetus for the new approach was the lack of awareness of how much certain devices cost. Now, with that issue being addressed by Stanford and other organizations, Cunningham said the next step will be a reduction in variation among devices.

If 10 different surgeons, for example, all perform similar knee replacement surgeries, all with similarly good outcomes, but the cost of each procedure is wildly different –that’s something that needs to be addressed.

“That’s very data dependent,” he said.

The team at Stanford is currently developing data software to analyze this cost variation, comparing different cases while allowing for discrepancies in the severity of each scenario.

Cunningham reports a savings of about $12 million in the first fiscal year ending this past September, and $2.5 million in savings so far in the new fiscal year.

“The key dependency is the relationship with the physicians,” he said.