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Physician involvement in supply and materials management.

The combination of declining health care revenues and increasing business costs has placed increasing pressure on hospitals to try and maintain a positive bottom line.

With minimal opportunity to increase reimbursement payments, hospitals have turned to expense reduction as the main vehicle for financial viability.

Cost reduction efforts can be lumped into three major categories

1. Labor

2. Supplies

3. Clinical efficiency

Efficiencies in labor are affected by staffing ratios, staff mix and productivity. Efficiencies in supply management come from better pricing, inventory and formulary control and standardization. Efficiencies in clinical management come from implementation of care management programs that support best practice guidelines that enhance the delivery of appropriate, timely and cost-effective care.


While each of these categories has been able to demonstrate significant success, there is still a large opportunity to gain additional cost savings from a more integrated approach to supply management activities. (1-3)

Supply expenses account for 25 to 35 percent of hospital spending. Recent research suggested that hospitals have an opportunity to save an additional 8 percent to 14 percent in supply savings through more effective supply standardization and utilization programs. (4)

Two key factors to the success of these programs are the structure, function and actions of the supply management committee and the degree of physician involvement in supply management activities.

In an effort to address the relationship of these factors on the perception of supply management success, VHA West Coast developed a survey tool to assess member experiences in these areas. Here's a look at the survey and the results.

Materials and methods

VHA West Coast is one of 18 VHA regional divisions of VHA Inc., a network of community owned health care systems and their physicians with over 2,200 member organizations nationwide.

A 16-question survey on physician involvement in materials management was developed by VHA West Coast and completed in September 2002. A total of 67 individual responses were received from VHA West Coast hospital members.

Survey questions were scored by multiple choice, yes/no responses or on a 1-10 Lickert scale, with a score of 10 indicating the strongest response to the question. Several questions had open-ended responses.

The survey addressed issues about physician knowledge and awareness of the supply management program, physician involvement in the supply management process, supply management committee structure and clinical representation, physician resistance and non-compliance and measurements of success.

Physician Knowledge and Awareness of the Importance of Supply Management on Hospital Finances (Fig. I)

The average score for this question was 6.5 indicating a relatively low overall perception of physician awareness. Note the marked variation in responses between Materials Managers and Physicians on their perceptions of physician awareness.

Physician Involvement in the Supply Management Process (Fig. II)

The average score for this question was 4.5 signifying a very low perception of physician involvement. As with the previous question, there was a wide variation in perceptions between materials managers and physicians at the same organization.



Types of Committees Involved With Supply Management Activities/Degree of Physician Participation

Table I lists the different committees ranked by order of frequency. The most commonly cited committees were surgery/OR, product steering, product review, value added teams (VATs), technology assessment and cath lab.

Several hospitals reported using special task force committees that focused on one specific project at a time. There is no uniform committee platform used by VHA West Coast hospitals to focus on supply management issues and physician participation in these various committees varied significantly between the different hospitals.

Many of the materials managers expressed an interest in getting more physician representation and involvement as they felt that this was a key factor in promoting success of their programs.

Clinical Representation in Supply Management Programs

Sixty-eight percent of the respondents reported that either a nurse (60%) or physician (23%) were part of the materials/supply management team.

In regard to physicians, several organizations had physicians at least partially responsible for supply management activities either through a service line or care line delivery structure or as an assumed responsibility in their role as VPMA. Physician responsibility and accountability was reported as a key factor in program success.

Physician Resistance

The average score for this question was 6.5 signifying a moderate degree of physician resistance. The four main specialties where problems were most likely to occur were in orthopedics, cardiology, anesthesia and radiology.

Barriers to Compliance:

* The most frequent barriers to compliance cited were physician preference, vendor relationships, physician time, interest and willingness to attend meetings, gaps in communication, information, knowledge and understanding and motivating incentives.

* Several responders commented on the significance of relationship barriers. On one side of the relationship issue was the status of physician-administration relationships revolving around issues related to past history, skepticism, trust and respect.

* On the other side were concerns raised about physician-physician relationships where internal discord between some of the specialty groups made it virtually impossible to get them to agree on anything. One respondent commented that the current materials management structure by itself should be considered as obsolete.

Dealing With Physicians Who are Non-Compliant

The most frequent response was that the physician usually gets his or her own way. Information sharing, education, one-on-one meetings with either the chief administrator or physician executive and/or peer pressure all had varying degrees of success.

Several hospitals reported success in providing vendor supported workshops to help the physicians feel more comfortable with the preferred items.

Success Factors

Increasing physician awareness, education and making the business case for effective supply management were cited as crucial first steps in the physician involvement process.

Making the business case value proposition needs to address issues related to rationale, cost versus quality, potential impact on clinical outcomes and patient safety and otherwise support core physician values.

Other key success factors include physician representation on supply management committees, having a strong physician leader and assigning physicians direct responsibility for supply management activities.

Financial success strategies include cap pricing where price limitations rather than inventory control was the driving factor in reducing supply costs and/or providing indirect physician financial benefits based on a percentage of compliance savings distributed back to the clinical department.


The results of the study show a wide variation in physician awareness and involvement in supply management activities. The results also show a wide variety in committee structure and function with inconsistent physician representation on supply management committees.

Virtually all the respondents agreed that physician support is crucial to supply management success, yet less than 25 percent reported having a physician as a dedicated member of the supply management team. Respondents also reported concerns about physician resistance and other barriers to cooperation. Given these observations, how and where do you involve physicians in the process?

Cost reductions can be gained across several different stages of the supply management process. The first stage is purchasing and procurement. Which items you buy and the price you pay will have a significant impact on overhead costs.

Many hospitals have been very effective in this area through the use of group purchasing organizations (GPOs), more aggressive pricing negotiations and new product/technology assessment programs. (4)

Involving physicians at this stage will not only allow for clinical input, it will also promote the sense of physician participation and involvement in the assessment process which will go a long way in gaining physician acceptance and support when it comes to compliance with preferred use guidelines. The second stage in the supply management process is standardization. Inventory control, product conversions and compliance with recommended standards and procedures can have a significant impact on operational costs.


This is the area where the greatest opportunity for additional supply cost savings still exists. Novation, VHA's supply management division, estimates that hospitals can achieve an additional 8 to 14 percent supply cost savings through its standardization and utilization processes. For a mid-size hospital averaging $36 million in annual supply costs, this equates to a savings of $2.7 million to $5 million a year. (5)

Why are hospitals having so much difficulty in maximizing savings in this area? There are several reasons for this.

One is the inconsistency in committee structure and function with no one model surfacing as a universally accepted best practice template of how to conduct business.

A second reason is the general lack of physician involvement. Supply management activities are not typically part of the medical staff structure and function and the medical staff does not usually assume responsibility for this process.

The third stage in the process is utilization. The utilization phase has to do with the real-time actions at the point of care. After the procurement stage sets product availability and the standardization stage sets use recommendations, which products get used and how they get used is where the rubber meets the road.

As with standardization, huge opportunities still exist to improve point-of-care utilization. It is at this point where the lack of physician involvement puts supply management at a competitive disadvantage.

The lack of a formal medical staff structure to support the supply management function dramatically limits physician engagement and responsibility for the process. If you compare supply management to utilization management and pharmacy cost management functions, you'll note that both utilization (case) management and pharmacy cost management have direct links to physician involvement.

Both functions have designated committees as part of the medical staff structure, are chaired by a medical staff member and report directly to the medical executive committee. They also have a wealth of supporting data to engage physicians and support their cause.

Physicians are very familiar with the process and rationale and are usually compliant with their demands. Given the fact that one of the comments in the survey referred to the materials management structure being "obsolete," maybe it's time to reassess the supply management process and develop a new structure that more directly links medical staff involvement to the supply management activities.

A strong case for greater physician involvement in the supply management process is bolstered by several recent reports in the medical literature. A comprehensive report published by the Health Care Advisory Board discussed the positives and negatives of involving physicians in the various stages of the product standardization process.

The consensus opinion was that the success of where, how and when to involve physicians depended upon on a number of factors including the:

* Underlying organizational culture and commitment

* Presence or absence of a GPO

* Degree of physician leadership

* Structure and function of the supply management committee

* Physician relationships with administration and the materials management staff

* Success of focused educational programs (6)

Another comprehensive survey of hospital executives and supply chain managers was conducted by the Healthcare Financial Management Association. This study reinforced the importance and success of involving physicians in standardized supplies when its members ranked it as the number one opportunity to reduce supply chain costs.

Along with many of the principles and applications discussed previously, the report also stressed the point that executives need to actively press for greater financial responsibility from physicians and clinical departments in regard to supply utilization. (7)

One case report highlighted the success at Sentara Health in Norfolk, Va. Significant financial savings in their supply management efforts were attributed to a combination of physician involvement activities.

On the front end was the chief medical officer who had direct line responsibility for overseeing supply chain operations as part of his job responsibility. At the back end was the support gained from the staff physicians who had a voice in how the savings would be spent and/or distributed back to the department. (8) Other reports have shown similar types of results. (9-11)


Improving supply management outcomes is a complex problem. At one end of the spectrum are the multiple stakeholders (vendors, administrators, material managers and physicians) each with their own set of priorities and incentives.

Vendor relationships with physicians have been shown to present a major influence over physician prescribing and supply preference utilization and this is a major barrier that needs to be addressed. At the other end of the spectrum is physician willingness and incentives to adhere to someone else's recommended standards for patient care.

In order to be successful, both of these issues need to addressed. Physician involvement is key. Hospital administrators need to be sensitive to the fact that clinicians need to be able to provide clinical input and feel that they are an integral part of the process.

After all, it's the physicians who have first-hand experience with the devices, and their experiences need to be incorporated into the decision-making process. Physicians need to feel like they are part of the team. Team values need to be reinforced through a sense of achieving mutual goals in a culture based on trust and respect.

Effective supply management function must be supported by an effective supply management structure. The structure must adhere to the right objectives, the right personnel with the right responsibilities, the right reporting relationships and a state of empowerment to get the job done.

Strong physician representation and involvement is crucial to success. Realigning some or all of the supply management activities as part of the medical staff structure and function should be strongly considered as a viable option.

Physician engagement comes from belief in the process. At the general medical staff level, physician involvement comes from increasing awareness, making a strong data-driven case for the need of securing supply management efficiencies, applying peer pressure, addressing the barriers that lead to physician resistance, opening up appropriate opportunities for input and participation and if necessary, providing appropriate financial incentives for participation. (12-15)

At the leadership level, assigning physicians a job responsibility for supply management outcomes can facilitate this.

Greater physician involvement combined with a strong supportive organizational commitment and an effective multidisciplinary supply management structure will provide the greatest opportunities for success.
Table I Committees Physician Participation

* Surgery/OR (74%)
* Product Steering/Product Review (42%)
* Value Added Teams (VATs) (45%)
* Technology Assessment (79%)
* Cath Lab (84%)
* Materials Management (43%)
* Special committees/Task forces (90%)
* Patient Safety (100%)
* Other (CRM/Leadership Council/Ad Hoc)

Table II Barriers

* Personal preferences Training, familiarity, comfort, experience,
* Vendor relationships
* Time/Willingness/Attendance
* Communication/Information/Knowledge/Understanding
* Incentives
* Hospital-physician relationships
* MD group dynamics
* MM structure--Obsolete?


Review key findings from a VHA, Inc. survey on physician involvement in supply management programs and learn why it's critical and cost effective for physicians to be involved in supply decisions.


1. Rosenstein, A. "Healthcare Resource Management: Integrating Apples and Oranges" Journal of Healthcare Resource Management. Vol. 15 No. 10 December 1997, p. 10-17.

2. Rosenstein, A. "A Systemwide Approach to Cost Reduction" Health Forum Journal Vol. 43 No. 6 November/December 2000 p. 38-42.

3. Rosenstein, A. "A Multidisciplinary Approach to Resource Management" Fundamentals of Medical Management II The American College of Physician Executives Publication Tampa, Fla., December 2000.

4. Rosenstein, A., Geoghan, K., O'Daniel, M. "Hospital Approach to New Technology Assessment" Health Care Financial Management Accepted: publication pending.

5. Baker, S., Schmitt, S., Schafer, E., Shin, J. "Enhancing Physician Involvement in Supply Cost Reduction Efforts" VHA 2002 Research Series Monograph 2002 VHA Inc. Irving, Texas.

6. "Physician Enfranchisement in the Product Standardization Process" Health Care Advisory Board Washington, D.C. November 1999.

7. "Resource Management: The Healthcare Supply Chain 2002 Survey Results" Healthcare Financial Management Association.

8. Werner, C. "Physician Preference: Overcoming Standardization Obstacles Requires a Nation-building Effort" Healthcare Purchasing News February 2002 p. 12-13.

9. Page, L. "Merging Perspectives: Working With Physicians Can Make Standardization Reality" Materials Management in Health Care May 2002 p. 21-23.

10. Haugh, R. "A Joint Strategy for Orthopedics: Hospitals Team Up With Docs to Keep a Lucrative Service Line" Hospitals & Health Networks Vol. 76 No. 9 September 2002 p. 55-58.

11. Carter, C. "The Demand of Supplies: Linking Physicians, Executives in the Supply Chain" VHA Alliance Magazine November 2002 p. 8-14.

12. Rosenstein, A. "Using Data to Develop A Successful Clinical Resource Program" Joint Commission Journal of Quality Improvement Vol. 23 No. 12 December 1997 p. 653-666.

13. Rosenstein, A., Moore, C. "Using Data to Improve Clinical Effectiveness: Orthopedic Case Study" Journal of Healthcare Resource Management Vol. 14 No. 1 January/February 1996 p. 15-22.

14. VHA West Coast Hospital-Physician Survey, December 2000 Unpublished data.

15. "Medical Staff Organization Analysis" 2002 VHA Research Series Volume 8 December 2002 VHA Inc. Irving Texas.

Non-compliance Strategies

* Cave in

* Data/information sharing

* Education

* One-on-one meetings

* Peer pressure

* Workshops


Success Factors

* Awareness/Education

* Business case/Value

* Physician representation

* Physician leadership

* Physician responsibility

* Price caps

* Vendor support

* Financial incentive


Alan H. Rosenstein, MD, MB is vice president/medical director of VHA West Coast in Pleasanton, Calif. He can be reached by phone at 925-730-3003 or by e-mail to


By Alan H. Rosenstein MD, MBA
COPYRIGHT 2004 American College of Physician Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Hospitals
Author:Rosenstein, Alan H.
Publication:Physician Executive
Date:Jan 1, 2004
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