Wants and Needs

Balancing your physicians’ preference items with what the IDN can afford is more than just a matter of controlling spending.

Dictating to your physicians what products they must use is like telling them how to practice medicine. And, while few administrators wish to take patient care out of the experts’ hands, the age-old question persists: How does the integrated delivery network (IDN) minimize spending without compromising patient outcomes?

While there’s no one solution for all hospitals, a new mindset is evolving, according to experts. Getting the most value for the money does not always revolve around spending less. And products that work well in one hospital system may fail in another. In short, without collecting physician input Ð or data Ð and carefully interpreting that data, an IDN risks making ineffective purchasing choices. And even the cheapest failure can cost a hospital plenty.

Physician involvement
There is no silver bullet for making contracting a win-win situation for both the physicians and administrators, notes Greg Firestone, CEO of NCI, a Tampa, Fla.-based healthcare consulting and education firm. But, one thing is certain: Contracting professionals need clinical input to make cost-effective decisions. “[Administrators] should bring doctors to the contracting table and involve them in analyzing data and cost outcomes,” says Firestone. While no one approach works for all hospitals, it’s important to get physicians more connected with contracting issues. “IDNs must know their climate and determine the best means for involving physicians,” he adds.

Now that IDNs realize they can’t force physician preference, they’re developing more models for working with doctors, says Tom Hughes, executive director of Scituate, Mass.-based Strategic Marketplace Initiative (SMI), a consortium of executives representing healthcare providers and medical supply chain companies in developing health initiatives. “In the past, [IDNs] would write contracts or utilize GPO contracts and tell the doctors to use them,” he says. “Today, we are finding the best way is to work with doctors upfront and provide them with more choice, but fewer suppliers.” It’s not realistic to give them 100 percent choice, he continues. But, it’s feasible to get some specialty groups to narrow down their selections to two or three suppliers. “If, say, the orthopedic surgeons agree to use any of three types of implants, [the contracting professionals] can still look for a good deal. In fact, IDNs that can move market share to fewer suppliers will not only get the best price, but will have the lowest cost of doing business.”

Working with a limited number of manufacturers can reduce the amount of variance throughout each hospital and facilitate greater patient safety, Hughes points out. And, with fewer transactions to negotiate, administrators can keep costs down. A hospital’s success can be measured in terms of how much variation can be removed from the system, while at the same time reducing costs, says Hughes. Rather than focus only on standardization, IDNs should look at product consistency. “Remove variance by narrowing down the doctors’ choices, and then get them to comply with those choices.”

Smart shopping
Keeping costs down is really a much greater issue than simply controlling spending, suggests Frank Brown, chief supply chain officer at Memorial Hermann Healthcare System (Houston). Negotiating the best prices is not the only means of limiting expenses. Some IDNs are discovering the importance of better utilizing items, he says. “With regard to physician preference items (PPIs), there must be protocols in place to ensure hospitals and physicians are using the right items.”

If IDNs approach contracting from a clinical perspective, they will be more likely to purchase the right devices, Brown continues. “For any given physician preference item, there may be [several] companies, with a range of prices. The item that costs the most won’t necessarily offer the greatest quality.”

“Cost must be a consideration,” Brown acknowledges. “But, it’s important to ask, ‘Are we using the right technology?'”

At the same time, administration must do a better job of educating physicians on the cost of some of these items, adds Brown. Indeed, experts agree that for certain product areas, such as orthopedics, vascular, cardiac and spinal, where the technology is more involved and more expensive, physicians and contracting administrators may find it difficult to find a happy middle ground. This is especially so due to the lack of alignment between reimbursement rates and increasingly expensive technology.

“Reimbursement is not going up with the higher cost of new products,” says Firestone. “While doctors are aware when they are not being reimbursed enough, they often don’t understand that hospitals are not being reimbursed well either.” Yet, they feel the heat to use certain products.

“[IDNs] must balance patient success with the cost of a product,” continues Firestone. “If a more expensive product enables a patient to live longer, it offers a good return on investment.”

Sound contracting strategy
There are several models for devising the best contracting strategy to address physician preference items, says Ed Hisscock, president and CEO of Appleseed Healthcare Resources (Wixom, Mich.). Appleseed provides interim leadership and education for healthcare providers. “I’ve seen a lot of experiments [with contracting],” he says. “The larger, national GPOs are too [distanced] from physicians to effectively contract for physician preference items. So, today, hospitals and regional IDNs are looking into approaches that might work.”

Hospitals and IDNs are much closer to physician interests, he continues. Because these groups have a clearer understanding of each facility’s dynamics, they can better facilitate collaboration among physicians.

Bruce Clark, assistant vice president of clinical and professional services at Intermountain Health Care (Salt Lake City) agrees. “We generally collect input on clinical/technical requirements from clinicians representing the individual hospitals,” he says. “Then, we make contracting decisions at the IDN level.”

Balancing spending and physician satisfaction depends on a few fundamentals, notes Hisscock. “It is critical to let the data articulate what can and cannot be done [during the contracting process],” he says, referring to data on supplier economics, hospital economics and physician economics. “Understand the economics of these groups and the underlying motivations.”

Hisscock recommends using these facts as the groundwork for discussion between physicians and contracting administrators. The facts usually disclose that the supplier is in a position to forgive some of its margin, he points out. “But, don’t go into a contracting meeting with this mindset,” he adds. While Hisscock believes suppliers continue to make high profit margins while physicians and hospitals earn less money than they once did, he warns against allowing this perspective to polarize contracting discussions. “Approach the contracting table with an open mind and let the facts speak for themselves,” he says.

Traditional standardization models are no longer holding up, adds Hisscock. “Administrators must let doctors take advantage of the best technology,” he says. “They can’t allow price to dictate here. Physicians need the best quality technology for the best patient outcomes.” Technique is another consideration. “Give physicians access to [devices] they are most comfortable using,” Hisscock says, adding that if he were the patient, he would want the physician to be at ease using his or her instruments.

Successful models
At Intermountain, administrators strive for outcomes-based contracting decisions, according to Clark. “We want products that will produce the best clinical outcomes,” he says. To achieve this, Clark and his cohorts have established clinical teams made up of physicians, nurses, technicians and other health professionals who represent the IDN’s 21 hospitals.

“These teams look at supplies and equipment from a clinical perspective,” says Clark. “They determine what criteria need to be met and which suppliers’ products meet the criteria.” Once the team has identified which vendors meet its criteria, Intermountain contracting administrators can negotiate with these companies for favorable prices.

“Administration issues RFPs to [ensure] it ends up with [products] that meet both our cost and clinical criteria,” says Clark. “We’ve found this approach helps us standardize supplies and equipment, reduce the number of suppliers we work with and save money. It’s a win for the doctor, who gets to use the device [he or she] wants, as well as a win for us.”

Intermountain has yet to perfect its model, notes Clark. Whereas the system has proven successful in radiology, cardiology and pharmacy, the IDN still struggles with some product areas Ð particularly orthopedic implants. “It has been difficult to limit the number of suppliers here,” he admits. “At this point, we’re operating with a negotiated discount from list model, which provides our facilities with opportunities to improve pricing by standardizing to fewer suppliers.”

“We have made more progress in cardiology,” he continues. The key is to find a vision leader who can work well with the other physicians and staff. “We have a physician champion in cardiology. The bottom line is that we’re most effective at establishing win-win contracts when we approach the process as a partnership between the clinicians and the hospital system,” he says.

At Memorial Hermann Healthcare System, which is comprised of eight acute care hospitals, one children’s hospital and three long-term care hospitals, the IDN works through a three-step algorithm for establishing contract protocols. To begin with, it has established an enterprise-level clinical resource management committee, according to Brown. “We include doctors who represent each of our hospitals across 14 clinical specialties,” he explains. “These doctors help administration understand the best practice to follow.”

Step two involves the doctors narrowing down product categories for each specialty and determining which products will offer the best patient outcomes. Finally, the committee members narrow down the choices to two or three products. “If we are looking at two devices, we need to know under what clinical circumstances we will want to use the $5,000 device vs. the $10,000 device,” says Brown. “We may need both devices. Or, the less expensive device may provide the best solution.” It all depends on clinical circumstances.

Device and drug companies still put pressure on doctors to use their products, Brown acknowledges. And, at times, these products may, indeed, be the best ones to use. “But, with our method, if a product passes our clinical efficacy test, this will become apparent,” he says. “And, if a device company is pressuring our doctors to use a product that does not work as well, this, too, will come out.”

As more and more IDNs explore different approaches to contracting, a bottom line emerges, and it’s not always about cost. Patients want their doctors to like the products they use and to feel comfortable using them. “This means, we’ll always have physician preference items,” says Hughes.

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