Contemporary Slant on Group Purchasing

Nebraska ACO signs agreement for cardiac rhythm management devices. More will follow.

One of the more intriguing and talked-about aspects of healthcare reform – the accountable care organization – has intersected with one of the oldest supply chain techniques for lowering prices – group purchasing – to make a dent in medical device prices. It occurred in Omaha, Neb., where the Accountable Care Alliance – an accountable care organization formed by The Nebraska Medical Center and Methodist Health System – signed a deal with three vendors of cardiac rhythm management devices.

The Accountable Care Alliance was formed in January 2010 to improve the quality and efficiency of patient care while reducing costs to the patient. At the time of its creation, the Alliance made this statement: “The ACA network will make it possible for The Nebraska Medical Center and Methodist Health System providers, collectively, to improve communications, reduce duplication of tests and procedures, and work together to improve the care experience of our patients.”

Mother of invention
The ACA’s approach is one that is born of necessity. “What is clear is that we are going to be reimbursed differently in the future, and I personally think fee-for-service will decrease or disappear, particularly in large, urban areas,” Dennis Goeschel, MD, ACA board chairman and medical director of ambulatory services for UNMC Physicians, was quoted as saying on the one-year anniversary of the founding of the Accountable Care Alliance. “Payment will be based in part on how well we provide and report quality, and we will see more bundled payments, payments for episodic care and capitation. I don’t see how we can avoid these changes, but we can do something about them and try to get ourselves prepared to respond to them. Physicians and hospitals are going to have to partner together and take joint responsibility for the care of their patients.”

Collaboration between the Medical Center and Methodist isn’t new. The University of Nebraska Medical Center sponsors extensive clinical rotations at both institutions, and many community-based physicians hold active staff privileges at both as well. The complementary strengths of each system – Methodist Health Systems’ network of primary care providers, The Nebraska Medical Center’s academic and transplant programs – are said to ensure that the necessary elements are in place for a successful accountable care initiative.

Clinical protocols
One of the ACA’s primary goals from the get-go has been to develop common clinical protocols to improve quality of care and reduce waste. Since its founding, the ACA has focused on clinical areas with high-volume, high-variation and high-cost DRGs. One of the first quality improvement projects was to standardize care for total joint procedures. Other projects have included developing protocols for percutaneous coronary intervention (angioplasty), and large and small bowel procedures, says Rita Potter, director of managed care, The Nebraska Medical Center.

Another major focus has been on reducing 30-day hospital readmissions. To that end, the ACA established procedures to review readmission processes and develop best practices, including a discharge plan for those at risk for readmission, and a care transition plan that has been implemented for patients who are discharged to nursing home care or a skilled nursing facility. This year, the ACA will work on developing protocols for coronary bypass procedures, says Potter.

Joint contracting
Contracting with payers was a subject of discussion among the ACA team from the outset, says Linda Burt, vice president of finance and CFO, Methodist Health System. “But from the very beginning, we talked about how we could leverage our combined volumes insofar as purchasing is concerned. So I would almost say we dual-tracked it.” In fact, says Burt, such discussions began even before the ACA was officially launched. “It was a common goal for both organizations. We wanted to reduce our costs anywhere we could find opportunities to do so.”

The two institutions collaborated on agreements for oxygen, suture, some implants, and other products, says Jim Koraleski, director of logistics, Methodist Health System. “They weren’t necessarily joint single agreements, but they were mutual agreements where we both benefited.”

The decision to pursue an agreement in cardiac rhythm management may have been more a result of serendipity than anything else. “We didn’t have protocols in place for cardiac rhythm management, but the vendors knew we were moving in that direction,” says Ruth Freed, director of clinical alignment, Methodist Health System. (In fact, the ACA intends to standardize clinical protocols for cardiac rhythm management sometime this year.)

“We were looking for opportunities to save money, and both of us [the Medical Center and Methodist] had [cardiac rhythm management] agreements coming up at the same time,” says Tom Strudl, director of resource control, The Nebraska Medical Center. “If there is an opportunity for us to combine our volumes and negotiate better contracts, we’ll meet and evaluate it together.” This was such an opportunity, and the decision was made to pursue a CRM agreement under the auspices of the Accountable Care Alliance.

Coming to an agreement
If the intent of an accountable care organization is to stimulate and exploit cooperation among IDNs and their clinical staffs, the CRM agreement is a case in point.

Rather than trying to identify just one or two CRM vendors with whom to sign an agreement, the Medical Center and Methodist wanted to give their medical staffs some choice. “We have variability across our physician groups,” says Strudl. “Physicians – even within the same organization – have experienced different performance levels from different manufacturers.”

Says Koraleski, “We sat down with the clinical folks at both facilities and said, ‘What do we think we can do?’” They decided to pursue capitated agreements with multiple suppliers. In other words, the ACA would determine beforehand how much it would pay for CRM-related devices, then sign agreements with those suppliers that met that price. Determining the capitated price took a bit of work by both institutions, including some value analysis and benchmarking.

But when the Medical Center and Methodist teams reconvened, they discovered that their benchmarking prices were pretty similar. So the decision was made to move ahead. In the end, three of the four vendors – St. Jude, Medtronic and Biotronik – responded to the bid, and were awarded contracts.

Although the ACA is committed to demonstrating measurable improvements in quality and patient outcomes, at this juncture, it did not attempt to tie the CRM products directly to outcomes, says Freed. But that may change in the future. “I think that in the next negotiation, we’ll tie in quality indicators, and narrow the field. I don’t think we’ll ever go to just one vendor, because there has to be some choices.”

“I think we would always want to have at least two vendors, in case you have a problem or recall with one,” adds Koraleski. “That’s especially true for cardiac devices.”

Future joint contracting opportunities
The supply chain executives at the Accountable Care Alliance are looking ahead. At press time, the ACA was preparing to convene its cardiac surgeons to draw up some care protocols in that discipline. The result could be contracts, says Koraleski.

The ACA was also putting the finishing touches on an outsourced arrangement with a dialysis provider. Unlike the CRM agreement, the award was to go to a single supplier. “And there will be quality discussions around what that supplier will provide,” says Potter. “For example, what will they do to monitor 30-day readmissions?” ACA teams are also discussing opportunities in the lab and pharmacy. “We’re less apprehensive about picking up the phone and talking about what makes sense for us to do together,” she says.

“We’re seeking opportunities where we can merge our volumes and drive efficiencies,” adds Strudl. Courier services is one area, biomedical services another.
And this is where supply chain is able to support the accountable care organization. “When you have a defined vision, you have a focus that guides the effort,” says Strudl. “When you’re sharing [clinical staff], it makes sense to have common products.”

Keeping people well
The caregivers at the Accountable Care Alliance, like those at all ACOs, intend not only to treat those with acute conditions more efficiently and with better outcomes, but also to help their patient population stay in good health. To that end, they will closely monitor those with chronic conditions, such as diabetes or congestive heart failure. The precise role of contracting may need to be refined in these areas.

Chronic diseases may not have as many supplies associated with them as some acute conditions, says Freed. Rather, the emphasis in these areas is on preventive health and home health, that is, keeping patients out of the hospital, and helping those in the hospital make the transition to home. That’s why the ACA is working on clinical protocols for such conditions as diabetes, pneumonia and congestive heart failure. That said, monitoring patients with these conditions will call for home health monitoring equipment and supplies. “All these things are on our list to work on in 2012,” she says.

“The work we’re doing now is proving that we can deliver high quality care at low cost, and keep people well,” says Burt. While it’s true that the healthcare reform law is being challenged and may evolve over time, “I think the work we’re doing will fit in with whatever healthcare reform turns out to be.”