Economic pressures to control the rising cost of medical devices has intensified efforts by providers to make better informed purchasing decisions and elicited demand for better "proof" of product superiority from manufacturers.
The goal is to detect signals of innovations that can drive better clinical outcomes amongst the noise of a large number of device suppliers making incremental, costly product improvements. In a cost-challenged environment, hospitals are increasingly managing device choices in a setting where physicians bear little, if any, of the financial responsibility for their use.
While FDA approval is obviously necessary, hospital operators and supply chain professionals can make the internal technology assessment process so onerous that it thwarts innovation altogether. If the barriers to introducing new products become too great, improvement could come to a standstill.
The dilemma is how to curb technology creep and overutilization while remaining sufficiently nimble to adopt breakthrough innovation. An important step is for hospitals to invest in physician leadership with the supply chain, where they can directly impact strategy around product introductions as well as utilization of physician preference items (PPI). Determining what kind of data suppliers must provide at different stages of product development, and defining what the key performance indicators ought to be for different types of medical devices, is a role for which physician executives with deep knowledge of both clinical and supply chain practice could be ideally suited.
Value analysis at both the facility and group purchasing organization (GPO) level needs to foster a closer working relationship between the users and suppliers of medical technology, rather than widening the chasm with dogmatic data requests. Physician leaders could help identify truly promising technologies and collaboratively create roadmaps about the clinical proof points they need and the data that matters to hospital operators.
Physicians could likewise be directing suppliers to better gear their technology to authentic clinical needs beyond incremental improvement to current techniques. Both hospitals and clinicians are seeking products that avert readmissions or the acquisition of hospital-acquired infections and pressure ulcers. While suppliers today are primarily "innovating" in ways that are profitable or help them gain market share, they are increasingly recognizing that they have entered an era of "demand-based purchasing" in which they need to meet the needs of both clinical and economic customers. Clinicians must take the time to clearly articulate their needs to both suppliers and their supply chain manager counterparts.
A clinically integrated value analysis process makes sense under value-based reimbursement models, including the Comprehensive Care for Joint Replacement (CJR) bundled payment program recently launched by the Centers for Medicare & Medicaid Services. To maintain orthopedic service line margins, 800 affected hospitals must improve patient outcomes while lowering care costs. The intent is to reduce the high variability in approach to the procedures. Physician leadership is critical to understanding which types of variation are unwanted and which are useful.
Supply costs account for between 17 and 30 percent of overall expenses at facilities today—and, left unchecked, will climb further. Procurement strategies to lower supply costs, especially for high-preference clinical supplies, will thus be critical for hospitals operating under CJR and similar types of alternative payment models.
In a survey conducted during the 2015 IDN Summit (Phoenix), hospital supply chain leaders ranked gaining alignment with physicians and managing the cost of PPI as their top two challenges. One ongoing hurdle is simply raising physician appreciation of the value of product standardization and value analysis initiatives. Physicians, until very recently, weren't taking an active interest in value analysis—let alone devoting a significant portion of their time to supply chain activities. Physicians also shun efforts they perceive as being designed to limit clinical choice. Although hospital employment of physicians has been associated with better supply chain performance, the fact remains that administrators still have to demonstrate the value of their initiatives and set up the right committee structure to drive standardization of care and products as well as manage the necessary utilization changes.
A fledgling national group called Physicians for Supply Chain Excellence, comprised of over 30 physicians—the majority of whom are surgeons—is chronicling strategic practices for engaging the supply chain and working to clearly define this new supply chain management role of physicians, including the necessary competencies and best practices for clinically integrated value analysis committees. And while there is increased recognition of the role that physicians can play, it is not clear that this role will quickly penetrate the majority of systems in the U.S.
Hospitals, seeking favored terms, generally self-contract for hip and knee implants, spine hardware and other PPIs directly with suppliers. Their success is facilitated and economies of scale achieved when clinical value analysis is conducted at the GPO and IDN/system level and independent, unbiased evidence reviews and clinical data product review analyses are shared with members.
Improving the U.S. health sector supply chain is not just about managing PPI. A closer working relationship between hospitals, suppliers and physicians will also be required to modernize antiquated supply chain processes, which could save the average integrated delivery network with a $500 million supply budget between $12.5 and $30 million. Consider the sophistication of Wal-Mart, whose supply chain is highly automated. Suppliers know when one of their products gets purchased, as well as how much of it is still sitting on store shelves, so they can rapidly adjust production to changing inventory needs.
In healthcare, procurement and inventory management still happen largely through dated legacy systems with little direct connectivity to manufacturers. Product descriptions and prices are often inaccurate because product master logs are irregularly updated by a multitude of suppliers. The implementation of unique device identification (UDI) provides an unprecedented opportunity for hospitals to improve their supply chain performance.
Modernizing supply chains requires an upfront capital investment that may be unaffordable to many smaller institutions with competing priorities. But the bigger roadblock is the three-way relationship that has emerged between hospitals, physicians and suppliers, with a high level of distrust on all sides. Hospitals don't necessarily want to share patient- and physician-specific utilization data with suppliers, fearing they'll use it for targeted upselling rather than what's best for a particular patient. Nor do they trust suppliers enough to share clinical and operational data showing how well products perform so they can be reengineered to produce better outcomes.
Maximizing value for patients requires a set of interdependent steps that only physicians and provider organizations can collaboratively put in place. If they're on the same clinical value analysis team, they'll also be working off the same body of evidence—and, if there's a lack of it, deciding together if that means not buying the product, coming up with some kind of conditional approval or developing a risk-sharing agreement.
In the larger arena, the use of outcomes registries across multiple health systems, facilitated by the implementation of UDI, could provide insights from a clinical and economic standpoint. But to honor their commitments to procurement practices at the hospital level, physicians also need to be involved at all stages of the supply chain—from product sourcing and contracting to utilization management and outcomes tracking.
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