The hospital excludes certain vendors who are not aligned with the program for as many as 90 days, which frustrates them and delivers incentives for them to become involved in the hospital pricing. "When you can't come back for a full quarter, that's very impactful" to vendors, Martin says.
While organizations such as Beaumont and Loma Linda are making inroads in cost reductions for purchases, health officials elsewhere are making a concerted effort to study why costs for implants and medical devices are so varied.
Success key No. 4: A cost-reduction journey
The 333-staffed-bed Jefferson Regional Medical Center often relied on its orthopedic surgeons to offer advice on what devices to use for total joint replacements or similar procedures. But the expenses mounted, so in 2010, the hospital decided to change its implant purchasing policies, says Larry Kennedy, CMRP, director of materials management.
The change was worth it, Kennedy says: The hospital saved more than $1.3 million in implant costs over a two-year period from 2010 to 2012 and saved $1.9 million from 2010 to 2013.
One of the first things that the hospital did was reduce the number of vendors with which it would negotiate and from which it would purchase items. Eventually, the hospital moved to single-source purchasing after the vendor agreed on a discount. Savings were seen quickly, particularly with total joints and orthopedic trauma devices, Kennedy says. Within the first year of the program, the hospital saved $661,000 for total joints.
Jefferson Regional Medical Center was able to negotiate the savings through a joint task force, particularly with involvement of its orthopedic surgeons, he says. At the outset, surgeons told hospital officials they focused on certain vendors.
"The physicians tell us point-blank: It's got to do with representation and relationships," Kennedy recalls. Hospital officials had a differing view: "A total knee is a total knee, a total hip is a total hip," he says, noting that the product and the quality are important, not the vendors specifically. "We tried the best approach to maximize contract savings."
Meeting with physicians, Kennedy and other hospital leaders involved in device purchasing outlined potential costs, savings, and quality outcomes. "We broke down each price component of the device for each physician; how many cases each physician did each year, who did the most knees, who did the most hips, the total cost per case. The physicians looked at the DRGs, the actual payouts over the past several years, and the margins."
Physicians appreciated what hospital leaders had recommended for the sole sourcing, Kennedy says. "The 100% sole sourcing offered the best amount of savings."
In the end, "it took some persuading. The [physicians] didn't want to do it; they didn't want to change," says Kennedy. "But they saw the value for the community and the hospital, and how much money it would mean for the hospital. We can't stress enough the need for partnership with the physicians. Overall, it's a tough journey, but we showed it can be done."
This article appears in the October issue of HealthLeaders magazine.