A Common Front

One surgeon’s perspective of physician preference items.

People can change, even physicians who prefer certain products. But, it’s up to contracting professionals to help bring this change about.

“We do see an ingrained bias [among doctors],” says Eric Matayoshi, chief of general surgery at Kaiser Permanente Hawaii Region and member and former chair of Kaiser’s National Product Council. There are always a handful of doctors who simply don’t care about costs, he admits. “But, once most doctors get involved in the cost containment [process] and contracting, they can be more empathetic to the hospital’s situation.”

That’s not to say that cost containment is a done deal. For one, physician buy-in isn’t always easy to get. “Doctors are very dependent on vendors to teach them techniques for using products,” says Matayoshi. The more specialized the procedure (e.g., those that employ implants, rhythm management products, cardiology products, etc.), the more they rely on vendor input.

And the closer the relationship is between the vendor and physician, the more influential the vendor can become. “Sometimes it does become a personality issue,” Matayoshi explains. “Vendor reliability and personality are essential, but their likability and personality also play into it.”

The relationship between vendor and physician can cloud the contracting process. For example, there is the question of whether an upgrade in technology is absolutely necessary, or whether it simply is “a nice improvement and the vendor believes it is a better product,” Matayoshi continues. Sometimes an upgrade is an improvement over the original product, he adds. “But, is there a discernable improvement in the patient outcome? And, the real challenge is, how do you measure, track and document these clinical improvements, in order to say one product is better than another?”

Rising cost of healthcare
With or without physician buy-in, a number of factors have been driving up the cost of healthcare over the years, says Matayoshi. “If we don’t change the environment in which we deliver healthcare, the cost will continue to rise.” Expenses have risen as much as 40 percent in the last several years. Malpractice insurance, high patient expectations, competitiveness among surgeons and staff, and stricter government regulations all drive healthcare costs. “If these don’t change, then, yes, the cost of healthcare will keep going up.” In fact, he says, “we live in a world where cost escalation is built in, and we can just try to narrow it.”

Doing a good job
The good news for contracting professionals is that more physicians today are aware of the need to contain hospital costs. “I think everyone is doing a good job of trying to cut costs,” says Matayoshi. “Everyone appears to understand that the cost of products is too high. When doctors are more involved in cost containment [through value analysis teams], I think they feel a stronger commitment to their institution.” And, being very data driven, when doctors see how their choice of products affects the hospital’s bottom line, they are more likely to work with supply chain managers, he adds.

Still, “physicians as a group are very individualistic,” he continues. “They like to drive things themselves.” That’s why, with regard to physician preference items, doctors often prefer following a payment capitation model, which imposes price ceilings for particular items, rather than a formulary model, which limits the number of manufacturers from which physicians can choose PPI devices. “The cap model gives doctors more flexibility to choose [products] they believe are best for their patients.”

However, some physicians may not realize that the payment cap model can be very difficult for supply chain directors to manage. “The higher the complexity of a product line, such as a spine implant, which uses many small materials, the harder it is to categorize and price items,” says Matayoshi. The hospital is capping its risk, while allowing for a lot of variability up front.

This system assumes there is no hospital control over physician preference items. If that’s the case, then the cap method works.”

Really, a method of cost containment that works for one hospital may not work at another. “The total cost of care means different things to different institutions,” Matayoshi says. It’s difficult to measure and document spending more on a preference item, which may achieve a more positive outcome for the patient. “Hospitals are volume-driven,” he says. They want to send patients home quickly, but without complications. “Hospitals don’t want patients returning with costly complications that Medicare won’t pay for.” So, as many experts point out, paying more up front may mean better patient results and less expense for the institution.

The challenge is for contracting professionals and physicians to agree where and how to spend their dollars.

About Laura Thill

Laura Thill is a contributing editor for The Journal of Healthcare Contracting.

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