IU Health has a five-pronged strategy for hip and knee implant procurement, featuring pricing, contracting, physician engagement, vendor relations, and value.
Transparency and competition have become driving forces in the procurement of hip and knee implants at IU Health.
The approach has cut the cost of hip and knee implants at the Indianapolis-based health system by 25%.
"We have an open market that encourages competition between vendors," says Anthony Sorkin, MD, medical director of statewide orthopedic strategic service line.
IU Health's Orthopedic-implant Procurement Enhancement (OPEN) program has a five-pronged approach to lowering implant costs.
1. Pricing
The primary ingredient of the OPEN program is a red/yellow/green implant pricing board that is posted in IU Health orthopedic units, with red representing the most expensive implants and green representing the least expensive implants.
IU Health has 15 acute-care hospitals. Orthopedic surgeons at nine of the facilities have been participating in the OPEN program.
The pricing board is a powerful transparency tool, Sorkin says. "You create transparency for both the surgeons and the vendors, then you allow the vendors to do their job, which is to promote sales in a constructive environment."
Reducing implant pricing can achieve significant cost savings, he says. "For a standard procedure, whether it is a hip or a knee, about 80% of the costs are in the operating room. A significant part of that 80% cost in the operating room is the implants."
2. Contracting
Three-year contracts without re-bidding provisions are often financially disadvantageous, Sorkin says.
"In a three-year deal, like with any other commodity, the value of that commodity can and will decrease, while the health system is held to the contracted price."
The OPEN program has flexible three-year contracts for vendors, with rebidding allowed in six-month intervals. The rebidding process has stirred competition and put downward pressure on prices, Sorkin says.
3. Physician Engagement
For more than a year after launching the OPEN program, one-on-one meetings were held with surgeons about their performance metrics, surgical supplies and implants, says Megan Brown, an analyst in the clinical value analytics group at IU Health.
Physicians were given metrics based on their surgeries and patients, including overall cost, length of stay, and metrics for quality and performance improvement. "We would provide the surgeons with their implants from the surgical logs as well as all of the items that were used in the surgical procedure," Brown says.
"They were very surprised by the cost of a lot of the items they were using."
Meetings were also held on a quarterly basis with each surgeon and key members of the surgeon's operating room team, Brown says. "We would meet with the surgeon and operating-room leaders such as the manager, orthopedic or resource coordinator, or nurse circulator. We would talk about the utilization of products and what the items cost."
In addition to cost awareness, surgeons also have a financial incentive to embrace the OPEN program's drive for cost efficiency, Sorkin says.
"IU Health decided to allow gain-sharing with the surgeons. It's not much money, but it created a general attitude among the staff that they are involved in the process of value-based care, and that helped pull everybody along."
Gain-sharing is based on costs from admission to discharge, with an average cost figure established for the nine IU Health hospitals that perform hip and knee replacements. Surgeons ranking in the top 25th percentile for low cost receive a 20% gain-sharing payment from cost savings achieved in their procedures.
4. Vendor Strategy
Sorkin says IU Health's approach to vendor engagement is uniquely capitalistic. "What we wanted to do was to open the market to all vendors, then let them freely compete."
IU Health's vendor-engagement strategy for hip and knee implants has been nationwide. "We had all of the vendors come together, and we talked with them all at the same time in a large room," Sorkin says.
"We had 11 vendors in the room from across the country. If we had picked a winner, we would have had one happy company and 10 very unhappy companies. This way, all of the vendors were engaged."
The OPEN program has been a win-win-win, with physicians, vendors and the health system all generating benefits, he says.
"The surgeons' engagement has increased significantly, and the vendors are happy to have the opportunity to sell their products, so their engagement has increased. We met our metrics, so the health system is happy. We took a situation where all three parties were in some way disappointed; and now that we are more than a year into our program, all three appear to be doing well."
Having multiple vendors and implants available to surgeons gives physicians flexibility to pick the best implants for individual patients, Sorkin says. "This allows our physicians to not be forced to either use a product from a company they are not familiar with or to limit the products that are available to them based on patient needs."
There is variability in patients that requires flexibility in implant selection, he says.
"A hip replacement in a very active 55-year-old is very different from a hip replacement in a very inactive 75-year-old. All patients are different, so it seemed to make sense to us at IU Health that we should create and foster an environment where the surgeons can do what they are trained to do, which is demand-match products and technology to the various patients."
Price transparency has led to cost-cutting among both vendors and surgeons, Sorkin says. "No vendor wants to be red. … No surgeon wants to be known as the high-cost provider."
5. Value
The OPEN program is allowing IU Health to capitalize on a growing market without sacrificing quality, Sorkin says.
"The OPEN program is critical for us because the Medicare population is exploding. So, we need to learn how to have the highest-value care, with value being quality over cost. One of the ways we are trying to achieve that is we are looking to decrease the denominator while having no effect on the numerator."
In terms of vendor strategy, the free-market approach has been a crucial element for generating value in the OPEN program, he says.
"We told all of the vendors that we wanted all of them to participate, that this was not about winning or losing, and that we were not setting a price. We did not tell them that they had to hit a price in order to participate. We just asked for their best price, and we showed them how the red-yellow-green [pricing system] would look."
Open competition fosters good partnerships, Sorkin says.
"Everybody else wants to pick a winner—that is the take-home message. Whenever you pick one or two winners, you are going to create ill-will no matter how you do that."
The other six hospitals do not perform hip and knee procedures
Christopher Cheney is the CMO editor at HealthLeaders.