Standardizing physician-purchase preferences: from myth to reality.

IN THIS ARTICLE ...

Consider ways to cut hospital costs by carefully evaluating the use of expensive products and technologies and discover how to encourage physician participation in this often controversial process.

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Most hospitals are seeking savings opportunities at levels that only recently were considered unachievable. One opportunity for substantial cost savings considered by some hospitals, but certainly not embraced by a majority, is the ability to control the cost of expensive products that are highly preferred by physicians.

Although attempts to decrease supply costs by standardizing products and reducing the number of suppliers are viewed by some as politically precarious, hospitals should not avoid dealing with this obvious area for tangible savings.

Stakeholder support

The key to successful product standardization is ensuring that the process includes all stakeholders. A team should be assembled that is responsible for identifying and approving all major product purchases.

One scenario is to have a team comprised of senior management responsible for operations, the chief of staff, the former chief of staff, surgical representatives, finance, managed care contracting, surgery administration and other pertinent specialties, such as cardiology, orthopedics, etc., head of the pharmacy and therapeutics committee, physician chairs of all specialty committees, as well as materials management.

This group should have the scope and authority to authorize and, if necessary, support any initiative regarding product procurement and standardization.

Some organizations have found that it is helpful to also have each discipline have its own committee. A physician who practices within that specialty chairs every committee that is focused on high-dollar physician preference products.

All new products are then brought to this committee on a monthly basis for review, consideration and approval.

Data Review

The type of data and other information reviewed by the committee will likely vary but, at a minimum, it is advisable to look at:

* Product cost comparison to existing technology

* New or existing business, such as does the new technology result in a shift from an inpatient to an outpatient setting?

* FDA approval and defined criteria for use (if not approved, what stage is it in?)

* Anticipated volume based on historical and projected case load

* Existing capacity to handle this volume

* Internal clinical criteria for acceptable use

* Reported clinical benefit, including improved outcomes, quality of life and other similar criteria

* Potential benefits and concerns, both fiscal and administrative, of the new technology, such as decreased length-of-stay, labor savings or increases, and impact on ancillary services

* Alternative technologies available

* Potential reimbursement from governmental and private payers for the new technology

* Clinical evidence reported in respected medical journals

* Managed care carve-outs

* Procedure codes that will be utilized

* Capital expenditures, if any, for the new technology

* Potential need for financing of the start-up costs of the new technology

* Historical performance of hospital using a similar procedure on which an initial cost estimate could be based

Most physicians demand data on a level of quality and complexity that many hospitals have not previously been expected to produce. Most payers, when considering the potential of coverage and reimbursement of new technology, place a high level of credence in evidence-based medicine (EBM). This type of evidence sought by payers in terms of clinical value is generally consistent with the type of information that physicians seek when evaluating new technology.

Financial impact

Typically, the most costly supplies--and those with the most cost-savings potential--are high physician preference items such as cardiac and orthopedic implants. In recent years, prices for these types of products increased, while hospital and physician payment for procedures using these supplies decreased.

Generally, it is the hospital that incurs the high cost of these products and, as a result, physicians continue to be fiercely loyal to a particular brand or product, irrespective of the price increases. It is not uncommon for hospitals to find that initial attempts to standardize supplies may be met with resistance by physicians who may be less than enamored with the idea of switching suppliers.

On the other hand, hospital executives who fail to grapple with this challenge are also being derelict in the financial stewardship of their organizations.

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The challenge for hospitals is that they increasingly will find themselves in the role of identifying and assessing which new products and technologies should be considered and ultimately adopted within their institutions.

Other stakeholders, such as physicians, patients and payers--while either directly or indirectly impacted by the hospitals' decisions regarding new products/technology--are typically unwilling or unable to enforce choices about which expensive new products/technologies warrant investment.

Physicians, unequivocally, are desirous of obtaining the best new technology for their patients. Frequently, physicians have a limited understanding or interest in the financial implications of their purchase patterns. Similarly, patients seek the best health care available to them, and are often unaware of their own coverage, or for that matter, the reimbursement implications.

While commercial payers are increasingly reticent to deny coverage for break-through technologies, both because of liability and even competitive reasons, they are still intent on attempting to shift risk for technology utilization onto providers.

Government payers make a concerted effort to impact utilization from a broad perspective, but their ability for control is both arduous and complex. Historically, they are not the trendsetters of leading-edge technology.

Promoting competition

As a result of the competing objectives of these stakeholders, hospitals must be progressive in thinking about new products/technologies, but also fiscally prudent in effectively managing limited resources for an increasingly unlimited array of new products.

It is in the best interest of hospitals and their physicians to promote competition among manufacturers.

Hospitals must make a determination about their willingness and ability to leverage their negotiating posture with commercial payers regarding new technology. At the same time, executives should contemplate strategies to reduce spending on expensive products and increase opportunities for standardization by putting controls in place for the purchase of such products.

Although a hospital's participation in a GPO (group purchasing organization) may stipulate specific provisions and restrictions to the use of certain supplies, in large measure it will still be up to the hospital to develop and enforce a standardization policy.

Clearly, it is challenging for hospitals that are not fortunate enough to have substantial market power to also have considerable leverage in their negotiations, but they should not be deterred from attempting to negotiate for high-cost products. Hospitals that tend to be more aggressive in their contract negotiations have tended to pursue a strategy for obtaining carve-out provisions, i.e., provisions that cover the largest percentage of new technologies are given the highest priority.

Hospitals that are committed to a goal of achieving a higher level of product standardization must take a stance that no new high-cost products/technologies will be introduced or adopted in the facility without the approval of the technology assessment/standardization committee.

Disputes among specialties over new technologies and standardization will inevitably arise and an appeals process should also be established. This process would enable physicians to bring denied products back before the committee for additional review, assuming that there is solid empirical evidence to support their contention. If the product is still denied, some hospitals with such a process may still allow the physician bringing the case before the committee to appeal directly to the CEO.

Education and communication

The key to securing cost savings through product standardization is to appropriately educate physicians about the vital role they play in this process, communicate the cost implications for the organization and then appropriately motivate the physicians to ensure compliance.

Although the challenge appears daunting, it can be accomplished through:

* Sharing data regarding cost and quality of alternatives

* Demonstrating quality benefits, including reduction in variation and chance of errors

* Establishing policies about supplier activities within the organization

* Exploring product development and joint research opportunities with suppliers

* Providing both financial and non-financial incentives to physicians to enlist their support

Data that are compiled by the hospital should be used to assist in quantifying opportunities for savings and quality enhancement. It is essential that the data are accurate in order to ensure physician support for cost reduction and standardization opportunities.

Empowered physicians

Strong physician leaders should be part of the technology assessment product standardization committee and specialty subcommittees. These individuals need to feel empowered to deal with non-compliant physicians, or those who may attempt to undermine the initiative.

In addition to serving on the technology assessment/product standardization committees, these physician leaders will have to be instrumental in facilitating direct communication with other members of the medical staff. It is best if these physician "champions" are also recognized as opinion leaders and influential members of the medical staff.

Increasingly hospitals will begin to recognize that providing both financial and non-financial incentives to encourage physician participation in the product selection and standardization process is paramount. Most physicians, when asked to participate in this process, recognize that there may be political ramifications from their input and recommendations to the committee and will understandably seek tangible evidence that their commitment to the process is acknowledged and perhaps even rewarded by hospital management.

Some hospitals have been known to share some of the savings realized from their participation for departmental use in exchange for physicians' help. There are regulatory parameters, however, and hospitals must adhere to those provisions. The majority of hospitals shy away from gain sharing incentives and instead prefer to direct savings to specific service lines.

An additional incentive for physicians is that, through their assistance, they are helping keep the hospital financially solvent. In some instances, hospitals have offered increased staffing, support for quality initiatives and measures designed to improve quality of care, and even CME credits.

Take control

Advances in medical technology will continue to yield unprecedented progress in the treatment of disease. From a societal standpoint, all stakeholders--providers, patients, payers and suppliers--benefit from this phenomenon. Ironically, however, providers have historically not reaped an equal share of the economic benefit from medical advances.

Certainly it is recognized that the manufacturers and scientists who possess the intellectual capital and who originated the concepts leading to the technology have enjoyed the maximum portion of the economic gain. From a pragmatic perspective, however, one must also recognize that the cost of new devices, drugs and other technologies is increasingly eroding hospitals' ability to produce a positive margin, particularly since the reimbursement in many instances is not commensurate with the procurement and administrative costs associated with these products.

Progressive hospitals need to begin regaining some dimension of control over the rising costs of these products. The impact of health care consumerism, the monumental impact of direct-to-consumer advertising, aging of the population and increased competitive pressures faced by providers require that hospitals develop a strategy to rein in these costs.

Allan Fine is a principal with Navigant Consulting in Chicago. He can be reached at 312-583-6915 or [e-mail]

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