As IDNs raise more questions about resource utilization and its effects on outcomes and processes of care, it’s time they bring suppliers into the equation.
Providers are facing big changes in how they get reimbursed for providing patient care. Accountable care organizations, for example, will receive bundled payments from Medicare for inpatient and outpatient care. Value-based purchasing, meanwhile, will move Medicare away from its fee-for-service approach to a more quality- and value-based system. Payments will be linked to results, including quality, efficiency, patient satisfaction, and other measures.
Add to the mix such concepts as present-on-admission (POA), recovery audit contractors (RAC), hospital-acquired conditions (HAC), pay-for-performance (P4P), HCAHPS (CAHPS Hospital Survey), “never” events and core measures.
If you ask a hospital CFO to estimate the amount of revenue at risk under these new payment mechanisms, most of them can get to five to 10 percent pretty quickly. Given that, supply chain executives should be pondering which avenues to take to address supply chain costs. Among their options:
- Aggressively address appropriate utilization with the help of data that integrates clinical outcomes with spend data.
- Pursue tighter standardization of suppliers among common products.
- Centralize key supply chain functions – such as procurement, contracting, logistics and operations – across more than one hospital.
A new relationship
One avenue that is less traveled is how best to integrate suppliers into the fabric of responsible patient care. Historically, the supplier-provider relationship has been characterized primarily as transactional, and it has focused on price, acquisition and basic service. Such relationships have been characterized by mistrust, simply because of the competing goals of the two: Providers seek best price, suppliers seek market share growth. Clearly, there are examples of innovative relationships that have evolved among providers and suppliers, but these have been in the minority and not necessarily “deep.”
It is true that price, standardization, and utilization are key determinants of performance within the supply chain. Certainly, contracting executives must ensure that newly negotiated, lower per-unit pricing finds its way into the general ledger. Likewise, they can achieve better pricing and help assure better, safer care by narrowing the number of suppliers that offer similar products (especially commodity items), equipment, and technology.
But even more critical is understanding how various products, equipment and technology are used within healthcare facilities. Without this understanding, supply chain executives lose the opportunity to drive out waste from the supply chain, as well as the ability to help clinical staff reduce inappropriate use – or maximize appropriate use.
And suppliers can help. By using their years of scientific research, knowledge and trials, suppliers can help providers manage chronic illnesses, such as heart failure, diabetes and chronic obstructive pulmonary disease. For example, why couldn’t suppliers monitor congestive-heart-failure patients?
In order to create these types of relationships with their suppliers, supply chain executives must move beyond the traditional supplier/provider relationship (built on price, acquisition and service), and instead build relationships centered on patient care and the appropriate use of resources. What’s more, they must see to it that sales reps are rewarded based on appropriate use, not simply market share growth.
Today, suppliers routinely issue rebate checks based on the provider’s level of purchases. But it is possible that in the future, providers will be the ones writing checks for their suppliers, based on higher levels of resource performance. Many providers already do a form of this, rewarding outside consultants willing to go to risk for achieving better resource control. The result is better alignment of the provider’s and the supplier’s goals.
Making it happen
Today, supply chain executives are in a better position than ever to help develop these supplier relationships. Supply chain leaders are now recognized as part of senior leadership teams, and many have operating responsibilities for the daily supply chain logistics and operations. More important, they have clinical staff on their teams, who use clinical databases to understand product variation and use.
Using these databases, these clinical staff are raising questions about why products, equipment and technology are being used in the manner they are. In the process, they are building stronger working relationships with clinicians and physicians in their facilities. More questions will be raised as to how resource use will affect outcomes or processes of care. Thus, it is reasonable for suppliers to be brought into these working relationships among supply chain executives, clinicians and physicians.
To help suppliers integrate themselves into the delivery of patient care, hospitals will have to define the key metrics of performance. Such metrics will drive how accountability of care will be shared. Using CT technology as an example, potential areas in which to establish metrics of performance could include:
- Total cost of ownership.
- Dosing levels.
- Utilization.
- Number of repeated studies.
- Average number of scans per unit.
While service (i.e., training, maintenance and use of equipment) is indeed a critical element, it may not be enough to reward a sustainable, future contract. In this example, CT manufacturers may have to consider how they can assist hospitals with technology planning, protocols that assist in proper utilization of CT ordering, or even how best to achieve the lowest dose per patient.
Not with every supplier
It is not realistic for hospitals to hold all their suppliers accountable in this way. Rather, they will have to choose critical patient care areas where products, equipment and technology play an essential role. They might consider starting with areas that are central to value-based purchasing, including:
- Hospital-acquired infections.
- Home health.
- Readmissions.
- Clinical quality – process of care measures.
Other potential areas are those for which managed care is bundling payment. For example, it is not uncommon today to find bundled payments for cardiovascular or orthopedic care. Look for the Centers for Medicare & Medicaid Services to pay hospitals a single payment for care administered before a patient is admitted and thirty days post-discharge.
Providers should also seek opportunities to share accountability with non-clinical suppliers. Resource management is a huge arena in which manufacturers can play a role of critical importance. Consider “Going Green” initiatives. By working with office suppliers, providers can determine proper order sets that conserve paper and favor environmentally preferred products. Furthermore, waste management suppliers can offer several approaches to help hospitals address control of waste management.
In summary, hospital and supplier contracts are going to have to address sustainable partnerships in the clinical spaces where suppliers may be part of direct patient care. Clinical resource management will be a critical control that will demand accountability among suppliers, not just among providers. Key to this success will be measurable metrics of performance that will drive the clinical responsibilities of care to be coordinated among suppliers and providers.
Finally, hospitals will have to build a culture that recognizes the patient care roles that could be filled by suppliers. Exploring and redefining supplier relationships as the health reform act is placed into action is a call to action that every supply chain executive should consider.
Tom Lubotsky is vice president, supply chain and clinical resource management, Advocate Health Care, Oak Brook, Ill.