As the White House and Congress pursue comprehensive healthcare reform, one fact remains clear: the status quo is unsustainable and the growth of healthcare spending must be slowed.
From the perspective of the hospital supply chain, where many products and commodities are purchased every day, misaligned financial incentives discourage collaboration, efficiency, and improved quality. Gifts and financial incentives can result in marketing trumping sound science. Too often, insufficient evidence about what works best leads to using the latest and most expensive—but perhaps not the most clinically appropriate—new technologies. The result? Healthcare costs continue to soar with no parallel increase in quality.
It doesn't have to be this way. America's healthcare providers buy almost $350 billion in products annually through group purchasing organizations. A recent analysis by our organizations, using the Premier alliance's clinical and financial database, found that national health expenditures can be reduced by $317 billion over the next 10 years by giving GPOs additional tools to help members and other healthcare providers control their supply costs.
In a June 12 letter to President Obama, we proposed that these tools will allow us to eliminate inflationary cost increases for medical supplies and pharmaceuticals by creating a more competitive and transparent purchasing environment.
But what reforms will deliver on this promise? How will they be paid for? And what expenses can be eliminated while still allowing hospitals to deliver high-quality, affordable healthcare?
In virtually every other sector of our economy, supply prices decrease over time as innovative companies enter the market and compete to meet demand. But in many cases the cost of healthcare products has increased year after year—a pattern our nation can no longer afford.
Our analysis identified seven specific savings opportunities that could help strategic purchasing alliances reduce purchase prices and improve efficiency in the supply chain.
Improved alignment between physicians and hospitals
With better collaboration, hospitals and doctors can work together to better standardize practices, uses of medical supplies, and processes that could help hospitals reduce waste, costs, and unsafe behaviors. But today, physicians make the clinical treatment decisions while hospitals bear the costs. If hospitals could share the savings they realize as part of an effort to improve and standardize processes, analysis suggests savings of 2%-4% a year on high-cost cardiovascular, orthopedic, spine, and ophthalmic procedures, which could yield 10-year cumulative savings of up to $128 billion.
Implementation of unique device identification
The creation of a national unique device identification system is a large, critical piece to fully recognizing savings and improving patient safety. It is implausible that in 2009 there is no uniform bar coding system for medical devices, particularly since Congress directed the Food & Drug Administration to implement such a system nearly two years ago. We can track thousands of items, speed recalls, and efficiently manage the supply chain for a grocery store, but we can't do the same for medical devices in a hospital. If the FDA were to issue the regulations needed to automate supply management by developing a standard method to identify devices, we could improve efficiencies and patient safety. These improvements would generate $16 billion in annual savings, according to independent analysis from the Efficient Consumer Response study "Improving the Efficiency of the Healthcare Supply Chain."
Transparency in payments to physicians by manufacturers
Requiring manufacturers of drugs, devices and medical supplies to publicly report financial relationships with physicians would help expose payments that could create conflicts of interest. These conflicts can encourage inappropriate and more costly care, such as the greater use of more expensive branded drugs rather than equally effective generics.
Removal of price confidentiality contracts
Today, many hospitals are prohibited by contract restrictions from sharing the information on the prices they paid for high-cost medical devices with physicians or other hospitals. Removal of gag clauses in contracts for high-cost medical devices would give hospitals the necessary information to engage with physicians in making informed, evidence-based decisions. Further, disclosure of price points would improve hospitals' ability to negotiate with manufacturers to reduce costs. The power of this type of collaboration is evident in the $36 billion in annual savings already achieved through hospitals and clinicians working with GPOs to aggregate supply purchasing and improve systems and processes that maximize efficiency, labor and expenses.
FDA evidence-based oversight of reprocessing
The Food and Drug Administration (FDA) currently provides oversight and regulates the reprocessing of single-use devices (SUDs). Despite FDA regulation, many hospitals do not reprocess SUDs because of the single-use label. FDA could require manufacturers to show evidence that a medical device is unable to be reused, including studies that indicate reuse would render the device unsafe.
Allowing follow-on biologics
Granting manufacturers of biologic products a set number of years of market exclusivity, similar to one that makers of traditional drugs already have, would allow follow-on biologics manufacturers to enter the market and compete to drive down prices. The Congressional Budget Office estimates that follow-on biologics will produce a savings of at least $5.9 billion ($6.6 billion if increased tax revenues are included) over 10 years.
Comparative effectiveness research
Comparative effectiveness will fill a missing evidence gap on what drugs, devices and procedures work best for the average patient with a given clinical condition. Armed with this knowledge, physicians will have more reliable information to guide decision making and purchasers will have better insights as to what new, and old, technologies and drugs to buy. This, too, will stimulate greater evidence-based market competition.
While lawmakers worry that efforts to reign in healthcare spending could be jeopardized by the price tag of expanding health insurance, the hospital community can do its part right now. GPOs, working in conjunction with their member hospitals, have a real opportunity to significantly reduce costs within the healthcare supply chain. Sensible reforms can produce a more transparent, ethical and evidence-based supply chain. The millions of patients we serve every day can't afford to wait any longer.
Lee H. Perlman is chief financial officer and senior vice president, administration, of the Greater New York Hospital Association, and president of GNYHA Ventures, Inc. Susan D. DeVore is president and CEO of the Premier healthcare alliance. They may be reached at Perlman@gynha.org, and susan_devore@premierinc.com, respectively.