GPOs evolving in a complex landscape

Proper management of supply chain can reap rewards

Healthcare provider systems are enduring more financial challenges than ever with lower Medicare reimbursement on the horizon, accountable care organization and pay-for-performance initiatives. In essence, provider revenues are shrinking while costs are growing, so it makes sense that they are relying on group purchasing organizations more than ever.

“As providers look at their supply chain and the need to fundamentally change their cost structure, they will have to shave about 20 percent off their costs,” said David Klumpe, senior vice president of supply chain and procurement services for Atlanta-based MedAssets. “When you look at how an organization spends it funds, the changes that need to occur are profound, requiring fundamental changes in the way care is delivered and in the way clinicians practice.”

But therein lies the long-existing rub: convincing clinicians to forsake their preferred products for the greater good of cost savings. At the very least, the winnowing down of brands in the med/surg environment has been a contentious one over the years.

“Product standardization is a wonderful concept, but physician preferences make the process difficult,” said Ed Ladely, director of finance for Chadds Ford, PA-based IMA Consulting. “You can make all the recommendations you want, but without buy-in, it’s pointless.”

While getting that buy-in has traditionally been arduous, GPOs and their health system members have been collaborating to include clinicians in the product decision-making process, supply chain specialists say.

“Bundled payments, value-based purchasing and partnerships with physicians can help smooth the process,” Ladely said. “Find ways to share the benefits with physicians to show them you can save a lot of money with products from the same manufacturer.”

Charlotte, NC-based Premier healthcare alliance has opened up its product evaluation process to include all the key links of the supply chain within the hospital, says COO Mike Alkire.

“As the supply chain becomes more clinical, there are many people who have a keen interest in what is occurring,” he said. “We are working with materials managers, chief medical officers and chief nursing officers – they are all sharing their perspectives.”

Data rules

Sophisticated data collection has become a critical tool in determining product utilization patterns and appropriate price points, Alkire said, emphasizing that Premier has 48 million outpatient records and 9 million inpatient records as primary data sources.

“We are looking at utilization patterns and areas where we think there are unnecessary variations in the use of products, which could include imaging to pharmaceuticals and comparisons by hospital, physician and department,” he said. “There are other distinctions as well. We believe savings can be five or six times that of current price points. The goal is to make sure you drive the best outcomes and right amount of products.”

Pete Allen, senior vice president of sourcing operations for Irving, TX-based Novation, calls data “the holy grail of what we’re all pursuing.” The ultimate goal, he says is “to tie clinical outcomes and clinical data to the supply chain data that we have a terrific data base on. We can analyze costs by service lines or down to the physician level.”

While contract pricing and cost eradication remain high priorities at Novation, the organization is diversifying into different segments, Allen said.

“If we were to just break down our employee base, I’d say 40 percent of our staff is not involved in contracting, but in data analytics,” he said.

Analyzing quality

Carolinas HealthCare System has been using the Premier QualityAdvisor system for 18 months and it has become an effective mechanism for identifying cost reduction areas, says Jim Olsen, vice president of materials resource management at Carolinas HealthCare System. Drawing from a benchmark database of more than 700 facilities, QualityAdvisory is designed to help health systems make better decisions in care delivery for reductions in hospital-acquired conditions, mortality, readmissions and costs.

“The system looks at total patient stay for each physician, so we or that physician can look at any particular case for a period and that identifies whether the cost is at, above or below the cost and whether there are complications and readmissions,” he said. “This allows us to give feedback to the physician. It is also a good mechanism for working with physicians to reduce our costs.”

Drilling down

MedAssets has fixated on collaborating with its provider members, operating a governance board comprised of representatives from 30 member health systems.

“One of the key features in how the board functions is the ability of peers to collaborate and address their common challenges,” Klumpe said. “It is an example of how they work with their clinicians to address costs and incorporate the key variables of quality, safety, services and costs. All have to be managed at the same time.”

Dennis Robb, senior vice president of business operations and chief supply chain officer for University of Cincinnati Health, has been a member of the board for 10 years and is very familiar with how the board drills down into the specifics of product evaluation.

“We ask if we can separate sales from science,” Robb said. “There is a whole lot of money being spent on direct-to-physician marketing by manufacturers. We receive recommendations on clinical practice review, along with business and market share analysis from MedAssets, so we’re using two very distinct disciplined data sources to determine what we should do on contracting. If there is no added scientific value to a product, it will not be considered.”