ACOs and the Supply Chain

SMI releases new executive briefing, “The Healthcare Supply Chain in the Era of Accountable Care”

Legislative and commercial forces alike are targeting greater accountability in healthcare to improve safety and quality, lower costs, and ensure long-term system stability. Strategic Marketplace Initiative (SMI®) and Medical Distribution Solutions, Inc. (MDSI) have partnered to publish “The Healthcare Supply Chain in the Era of Accountable Care”, based on aggregate data from MDSI’s Major Accounts Exchange (MAX) and interviews with prominent supply chain executive, including Dave Hunter (Providence Health), Mary Beth Lang and Patrick Flaherty (U of Pittsburgh Medical Center), Deb Templeton (Geisinger Health), and Brent Johnson (Intermountain Healthcare).
The following is an abstract of the full SMI Healthcare Supply Chain Executive Briefing, which is available at

ACO precepts
Two key precepts of ACOs are that physicians must be the key decision-makers to align the economics and quality of care, and that payment models can incentivize providers to become successful episodic care managers – a crucial step toward population health management. As a result, there has been an unprecedented consolidation of physician organizations over the past four years. Only 39 percent of doctors are now independent, compared to 57 percent in 2000. For example, Providence Health & Services in Renton, Wash., employs about 3,200 physicians today, more than double the number from 2011. In addition, new partnerships or ownership positions between payers and either physician organizations or IDNs are popping up all over the country. MDSI’s MAX data showed approximately 250 Medicare ACOs and about the same number of commercial ACOs in operation at the end of 2013.

ACO strategies seek to control inpatient utilization, manage population health, and use the most cost- and quality-effective tools and settings for care. Tactics are to incentivize safety and quality outcomes, manage pharmaceutical use, minimize ED utilization, promote wellness and self-care, screen at-risk populations, monitor chronic conditions, shepherd and electronically track patient care, and create and follow evidence-based guidelines. In addition, cost transparency is trending upwards as a way to allow informed decision-making and promote competition.

The shared risk that underlies accountability will require alignment of incentives among all stakeholders, including patients, providers, payers, and suppliers. Mary Beth Lang, Vice President of Health Care Pharmacy and Supply Chain Management Commercial Operations at University of Pittsburgh Medical Center (UPMC), points out that in the fee-for-service environment, for instance, hospitals have been incentivized differently than physicians, so changing that model will have a different impact on hospitals and IDNs, which need to manage an entire patient experience, than on physicians.

Provider and supplier supply chain professionals need to be parties at the table in this new environment, where physicians are now key decision-makers; quality and safety are not only stressed but must be measurable; and ambulatory care, supply and medication management, and value-based purchasing are rising in prominence.
Five elements of accountable care will have the largest impact on the supply chain over the next several years: Physician Integration, Alignment of Incentives, Clinical Integration, Information Management, and Supply Chain Engagement.

For the full SMI Healthcare Supply Chain Executive Briefing exploring these five elements, go to

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