PDF File: 

HCT2_wp_barrow.pdf

Amerinet

While most hospitals struggle to contain cardiology and orthopedic implant costs, some facilitieshave reduced their costs by more than 20 percent and built better physician relationshipsby following 11 key techniques.

As hospitals and health systems struggle to remain profitable, high-dollar cardiology and orthopedic implants – such as stents, implantable defibrillators, total joint replacements, and spinal implants – are coming under increasing scrutiny. Implant costs continue to rise, while reimbursement rates lag behind real costs, threatening profits. In fact, implant costs, the single largest expense in these procedures, can equal 50 to 100 percent of the reimbursement for the full length of stay. Emerging technologies threaten to reduce profits even further by increasing device costs by as much as 300 percent in some cases.

Government payers and private insurance companies face strong, conflicting pressures related to high-dollar implants and increasingly expensive new technology. While health care providers and consumers are lobbying for increased reimbursement rates to cover the costs of care, government payers face an aging generation of baby boomers with growing health care needs. At the same time, private insurers operate at minimal margins, even after a decade of premium hikes. Direct marketing from medical manufacturers to consumers further challenges payers. Consumers are requesting and receiving more expensive devices, instead of less expensive, but clinically acceptable, alternatives. Like health care providers, both government payers and private insurers would benefit from cost-control initiatives directed at per-procedure savings.

Health care providers seeking to control implant costs have struggled. While most hospital supplies are purchased by the materials management staff, implants are unique. Supplier sales representatives form their relationships directly with the physicians who decide which manufacturers to use and which products to purchase to deliver the best quality care for each patient. As a result, standardization and cost-reduction efforts mandated by senior management or materials managers fail and strain physician relations.

Fortunately, some health care providers are succeeding in cost reduction initiatives. These facilities have achieved savings of 20 percent or more by utilizing 11 key techniques.

• Define a manageable project scope;
• Set a clear timetable;
• Establish ability to move market share;
• Target measurable results;
• Obtain senior management commitment;
• Build a representative project team;
• Involve clinicians and address physician needs;
• Obtain project team support;
• Present comprehensive data;
• Evaluate and select cost-reduction options; and
• Develop clear communication strategies.

Define a Manageable Project Scope

Selecting the right project at the right time is critical to defining a manageable scope. If the facility is currently in contract or insurance negotiations with physicians, it is not the time for an implant cost reduction initiative. Also, if a particular department has recently had a bad cost-reduction experience, it is time to focus efforts on another clinical area. For example, if a recent initiative in cardiology had failed, the facility might instead focus its efforts on orthopedics.

Defining a manageable project scope also means targeting one implant at a time, generating a focused, efficient effort. By resisting the temptation to conduct several initiatives at once, facilities ensure that each project gets the attention required to get results quickly. Addressing one implant at a time also builds credibility for senior management and materials managers as they report repeated successes.

Set a Clear Timetable

Establish a clear timetable and stick to it. After initial data collection, turnaround time must be quick – ideally about 90 days.

Two factors drive the need for quick action. First, a single initiative can create savings of 20 percent or more on implant costs. For example, one 380-bed medical center identified the opportunity to save $1.2 million on pacemakers, implantable cardiac defibrillators, stents, interventional balloons, and guidewires. The promise of such a significant impact to the bottom line means the executive team will want immediate results.

Second, physicians’ time is valuable, and they want to know that it is being put to good use. Letting the project lag will make them doubt the sincerity of the effort and decrease their willingness to participate in future projects.

Establish Ability to Move Market Share

Assess your facility’s ability to move market share from one supplier to another before beginning negotiations with suppliers. Cost reduction initiatives will only work if physicians are willing to change suppliers. The physicians must be willing to approach the supplier sales representatives, ask for a discount, and suggest they may have to use another supplier if the discounts do not come.

Target Measurable Results

Collecting and analyzing the data, building the project team, and negotiating discounts with the suppliers are the first steps. To ensure cost savings materialize, facilities must also set measurable savings and usage goals and monitor those continually. As soon as the supplier contracts are in place, begin collecting and reviewing usage and cost data for compliance and trends.

Tracking usage and cost data enables the facility to determine if the suppliers are complying with contracted prices, quantify the success of the program, build credibility for implant cost reduction initiatives in other clinical areas, and be equipped with current data when it is time to renegotiate the contracts.

To reap the full benefits of the contracting effort, the facility must establish an advisory panel to address noncompliance and exceptions.

Obtain Senior Management Commitment

Continual commitment from senior management helps keep the project moving and demonstrates the importance of the project to all hospital staff.

Even if the project originated in materials management, the materials manager should present the project to the executive team and win their support before speaking to physicians. Senior leadership must be willing to support the process, stay with it through difficult moments, and see it through on an ongoing basis.

Figure 1. Prices for the same procedure vary between seven different physicians at a single facility. Source: Amerinet Clinical AdvantageSM Program Benchmarking Study

Build a Representative Project Team

Because implant cost reduction initiatives affect a range of stakeholders in every facility, and quality of care must stay high, it is critical to include the right mixture of stakeholders on the team.

Physicians and clinical staff will support the final cost savings initiative if they are invited to work with senior management and materials managers through benchmarking, identifying cost reduction opportunities, supplier selection, and custom contracting.

Appointing a physician champion to the team further encourages support from the physicians. The physician champion should be a well-respected peer who performs a high volume of the targeted procedures. It is the champion’s responsibility to introduce the project to the other physicians before senior management and the materials manager deliver their formal presentation.The project team should include:

• CEO or COO;
• CFO;
• Vice president of medical affairs;
• Director of materials management;
• Surgery buyer or catheterization lab;
• Director of the targeted clinical area;
• Director of surgery and/or director of the catheterization lab;
• A physician champion;
• The physician team for the targeted clinical area; and
• Nurse managers from the targeted clinical area.

Depending on internal operations, a facility may choose to include others in the project team. Including all affected stake-holders reduces the risk of staff resistance to the final solution and ensures quality concerns are not overlooked.

Involve Clinicians and Address Physician Needs

With quality of care as their first priority, physicians drive the decisions about which implants they use and which suppliers are acceptable. Therefore, facilities must engage physicians throughout the process – from data collection through supplier selection and custom contracting.

Success depends on physicians’ full confidence in the integrity of the data presented and their voice in determining which implant/interventional products are acceptable. The physicians need to be kept in the information loop at all times. Any surprises can lead to active resistance.

To increase physician support, senior management can provide incentives for participation and compliance. Developing a marketing program for their product line, allocating a portion of the savings to capital equipment, offering on-site conferences with continuing education units, or even approving cash payments are all ways to motivate physicians.

Obtain Project Team Support

Maintain product team support every step of the way. Involving the right people and acting on their input throughout the process is one step toward winning support, but data is the real key.

Providing comprehensive, reliable data builds team trust and generates a sense of urgency. When the team recognizes the immense opportunity to affect the bottom line, it will want to participate in the project and make it succeed. Reliable data also helps team members put aside differences to reach the best solution for the facility. With comprehensive data to state the problem and identify opportunities, everyone is aligned toward the same goal.

Present Comprehensive Data

Anchoring the implant cost reduction in comprehensive, reliable data is critical to success. It is also a key to earning support from physicians and the rest of the project team.

The data should focus on actual costs for conducting procedures compared to reimbursements for those procedures. Collecting the data is a labor-intensive process, requiring facilities to examine their implant logs, purchase orders, and invoices. To ensure complete data, facilities should involve clinical department managers in the data collection process. Collected data should include:

• Number of procedures by facility and physician;
• Suppliers used;
• Dollar and unit volume for each supplier per case, hospital, and region;
• Cost variation between facilities and physicians;
• Physician brand preferences;
• Number of physicians;
• DRG reimbursement; and
• Nondevice costs.

Pricing for high-dollar devices varies widely, sometimes even between two facilities in the same IDN. For example, a 900- bed health system discovered that the average cost per noncemented hip varied by $2,500 across five suppliers. A community hospital found similar variation in average total knee costs across its six physicians.

Therefore, it is critical to benchmark costs and usage patterns to identify opportunities for cost savings. The analysis should benchmark current costs both internally and externally and benchmark variances between suppliers and within each supplier’s pricing.

Evaluate and Select Cost Reduction Options

Identify several possible cost reduction strategies and involve physicians in selecting which to use. The best solution will deliver significant and sustained cost savings and use physicians’ preferred suppliers. To achieve the maximum bottom-line impact, facilities turn to custom contracting. The physician team must have a say in which suppliers will be involved in the contracting process. Common contracting strategies include:

Limiting Suppliers – With physician input, the facility designates a small group of acceptable implant suppliers. The discount each supplier is willing to offer should be a factor in determining the final list of suppliers. Most initiatives will involve limiting suppliers and an additional contracting option.

Discount Off List – The facility can negotiate a simple percentage discount off list price.

Tiered Pricing – The facility and supplier can set milestones that will trigger larger discounts for the facility. Common milestones include percentages of a facility’s total implant purchases or volumes of purchases in dollars or number of implants.

Capitated Pricing – The facility sets a price it will pay for an individual implant. The supplier must charge this price, no matter which accessories the physician orders or which model the physician purchases – ceramic coated versus standard metal joint, for example. The supplier and physician work together to determine which type of implant is appropriate for each case.

Risk Share – Some facilities are beginning to use risk share. Risk share is similar to capitated pricing; however, instead of setting a dollar amount limit for each implant, the implant price becomes a designated percentage of procedure reimbursement. With risk share, the actual implant price will fluctuate, but the revenue the facility earns for each procedure becomes less volatile.

In addition to direct savings on implants, the data may point to nondevice savings. Facilities should look at all costs involved in the implant procedure to get a more complete picture of where savings opportunities exist. For example, one 600-bed health system increased savings by eliminating equipment rental costs and freight charges and by contracting for supplies along with the implants.

Develop Clear Communication Strategies

Clear and appropriate communication between the physician and the supplier and between the facility and the supplier must occur for successful negotiations.

Physicians see supplier representatives as trusted partners in delivering quality care. Physicians are often concerned that the negotiation process may strain that trust. Providing suggested talking points for physicians can alleviate their concerns and increase the chances of success significantly. The talking points should include the following messages:

• For the sake of the hospital, we need your help; • Please play fair with us. If you offer discounts to others, please offer them to us; • The facility is not targeting just your implants. We are addressing implants in all clinical areas; and • If you cannot offer discounts, we may have to stop using your implants.

Be clear and honest with the suppliers at the negotiating table. Again, team involvement is crucial. Supplier negotiation meetings should be conducted in person and must include the materials manager, the physician champion, and either the CEO or COO. Facilities should clearly state their need to reduce costs, their cost reduction goal, and the strategy they have chosen.

Summary

Hospitals face an ever-increasing urgency to control costs on high-dollar cardiology and orthopedic implants, such as stents, implantable defibrillators, total joint replacements, and spinal implants. As implant technology continues to improve, prices continue to rise, and volumes increase, the challenge of generating profits from the cardiology and orthopedic procedures that use them will only increase. Government payers and private insurance companies share hospitals’ interest in controlling costs as they are challenged to remain financially viable in the face of a growing baby boomer generation, direct marketing to consumers, and rising health care costs.

Fortunately, profitability is possible. Some hospitals have already discovered a successful approach for controlling these costs using 11 key techniques. This approach centers on the reality of the implant market where physicians drive the decisions about which supplier and which implant to use for each case. By using the 11 techniques, facilities not only reap significant savings, but they also build better physician relationships.