Success key No. 1: The team approach
When it comes to selecting medical devices, physicians often rely on their favorite vendors or tools. That can be costly for hospitals, many of which are trying to rein in docs through negotiations to lower costs. Physician engagement and responsibility is one of the most important aspects of reducing a hospital's medical device costs.
The Beaumont Health System involves physician leadership on teams who evaluate the costs of medical devices. By strictly monitoring physician relationships with vendors and eliminating devices deemed too expensive, the system reported a nearly 20% reduction—more than $6 million—from $35 million budgeted for implants, says Martin, the administrative director for sourcing and value purchasing.
Beaumont's value analysis teams are considered central components of the health system's work toward reducing costs and engaging in cooperative agreements with purchasing organizations. The group focuses on implants, especially for knees, hips, and spines.
Physician involvement has been a key component of the teams, says Martin. The VATs work with a group purchasing organization and vendors to eliminate items they do not want to buy, and to get the best price and quality for the items they will use. Team members include physician leaders and an administrative representative with supply expertise, management engineers, and an RN. An oversight committee for the shared savings program is headed by a CMO.
"How do you align physicians? We struggled with that at the beginning," Martin says. "For the physicians, we said, 'What's good for the hospital is good for you.' We knew we were asking them to make a change. The physicians have to support it; the physicians can't come back saying, 'This is the device I want to use.' "
The hospital spurred physician involvement by establishing a program where members of the orthopedics team would receive incentives under a shared savings program whenever they reduce costs for medical devices, says Martin. Over time, the hospital increased the amount of money that physicians could use for training, education, and clinical work once they achieved savings, he adds. Initially the shared savings program allotted 20% for physician projects, and later it increased it to 50%.
The shared savings program "has been a great way to provide incentives for the department," Martin says. "The strategy centers on reducing the number of vendors in the space and changing market shares."
Success key No. 2: Collaboration with other health systems
Large and small hospitals are coordinating their programs in an effort to reduce implant costs, especially those related to orthopedic surgeries.
A group of Northeast Ohio health systems formed a purchasing collaborative in 2011, Community Health Collaborative, to improve efficiency and effectiveness of care. In 2013, the health systems joined with University Hospitals and Premier, a large performance improvement alliance of more than 2,800 hospitals and 93,000 other healthcare sites, to form POWR, the Purchasing Organization of the Western Reserve. It focuses on managing costs of medical devices, and within a year University Hospitals saved nearly $1 million in spine implant and other medical device costs, says Wilde, the system services vice-president at University Hospitals. The reduced costs included $250,000 on physician preference items.
The larger collaborative enabled the smaller hospitals to obtain better prices on items because of the ability of the larger organization to expand its volume. "We didn't see a downside at all," says Wilde.
"University Hospitals benefits as well since aggregation often leads to better pricing for all because the additional volume drives better price points," Wilde says. "Cooperating in purchasing also can lead to our hospitals working together more closely in the clinical areas."
Further south, in Missouri, Mercy health system's for-profit supply chain management company, ROi, is run as a separate unit from Mercy and handles supply chain management for the system's acute care hospitals. ROi not only negotiates pricing directly with manufacturers but also purchases and distributes supplies from its own 100,000-square-foot consolidated service center in Springfield. Through its total joint program, ROi reported that it generated cost savings of 10% for Mercy.