Raising the Standard: Using Supply Chain to Drive Quality

| February 1, 2020

by Anthony T. Petrick, MD, FACS, FASMBS, and Dominick Gadaleta, MD, FACS, FASMBS
Dr. Petrick is Quality Director, Geisinger Surgical Institute; Director of Bariatric and Foregut Surgery, Geisinger Health System, Danville, Pennsylvania. Dr. Gadaleta is Chair of the Department of Surgery at Southside Hospital and Director of Metabolic and Bariatric Surgery at North Shore University Hospital, Northwell Health in Manhasset, New York; and Associate Professor of Surgery at Zucker School of Medicine at Hofstra/Northwell in Hempstead, New York.

Funding: No funding was provided for this article.

Disclosures: The authors reports no conflicts of interest relevant to the content of this article.

Bariatric Times. 2020;17(2):14


“Put a good person in a bad system and the bad system wins, no contest.”

—W. Edwards Demings

Last year, healthcare costs in the United States (US) were a staggering $3.65 trillion, or nearly $11,000 for every person in the country.1 Efforts to curb the growth in US healthcare spending have been met with limited success, in no small part because of a lack of clinician engagement to curb spending. Factors limiting clinician engagement include pressure to increase productivity, time spent inputting electronic medical records (EMR), rapid development of new technology, and a significant disconnect between healthcare providers and administrators. Most clinicians remain highly motivated to provide quality care but do not associate efforts to curb costs with quality care.

Value=Quality/Cost

Ironically, it is the very cost of US healthcare that provides the greatest opportunity to create greater value. Supply chain management costs consistently rank as some of the largest expenses for healthcare and hospital systems and are top priorities for improvement. In a 2016 survey conducted by Black Book, 69 percent of healthcare information technology (IT) leaders said the healthcare supply chain is “the most valuable asset for actionable data mining,” even more so than electronic health records (EHR) or population health information.2 Supply costs are magnified in the era of the Affordable Care Act and bundled payments, and surgeons are perhaps best positioned to leverage their expertise and influence to optimize value-based purchasing.

Supply chain generally refers to the resources needed to deliver goods or services to a consumer, or, in healthcare, the regulation of the flow of medical goods and services from a manufacturer to the patient. Supply chain management in healthcare is typically a complex and fragmented process.

“Healthcare is not based on supply and demand. It can’t be ‘stocked’ like it’s a traditional product,” said Mike Rip, Director of the Master of Science in Healthcare Management at Michigan State University. “So, a hospital’s supply chain is very different from a business or company’s supply chain.” 2

Why is this? One factor is the participation of regulatory agencies, including the US Food and Drug Administration (FDA) and payers (both Medicare and private health insurance companies). Regulatory agencies and payers determine if a medical resource is fit for consumer use and whether providers will be reimbursed for using it on specific patients. Adding to the complexity are stakeholder interests. Different entities in the supply chain flow might be focused on their own goals. Providers often choose a specific product because they were trained with it, while hospitals might focus on costs. These interests can be magnified in larger healthcare organizations. The challenge is to align costs and quality outcomes to create value-based acquisition process.3

One solution for larger hospital systems is for them to become their own warehousers and distributors, bypassing vendors to cut costs. The University of Pittsburgh Medical Center invested in a 150,000-square-foot warehouse and management system, moving the volume and costs of 10 vendors to in-house self-distribution. Similarly, healthcare providers and systems often come together under the umbrella of group purchasing organizations (GPOs), which leverage the collective purchasing power of the group to help lower costs.

“Historically, surgery and business have not gone hand in hand,” said Brendan MacKay, MD, an orthopedic surgeon at the University Medical Center (UMC) Health System in Lubbock, Texas. UMC found that a value analysis program for purchasing initiated in 2012 failed to provide the anticipated savings because clinicians were not involved.1 Surgeons often considered only one vendor and were unaware of cost and alternatives products.

When the UMC added an orthopedic surgeon to their value analysis program, they saved $1.2 million in one year. This experience led to reorganizing into a physician-led committee in 2018. A peer-review process was initiated for products costing more the $2,500 annually. The hospital saved more than $2 million on operating room (OR) purchases in 2018 and $2.5 million in 2019.1 A similar program was reported for a joint program at the University of Texas (UT), Austin.4 The group reported total cost savings of 8.7 percent and implant savings of five percent after the introduction of a value scorecard for joint arthroplasty. The scorecard reported surgeon data for both costs and quality outcomes. In addition to cost savings, the UT Austin group saw improvement in length of stay, home discharge, and readmission rates.4

Key drivers of cost in general and bariatric surgery include staplers, energy devices, hernia mesh, and more recently, robotics. It is not the sales of robotic platforms, but the sales of instruments and accessories, that now make up more than 75 percent of Intuitive Surgical’s (Sunnyvale, California) revenue.5 The complexities of healthcare supply chain have led vendors (e.g., Lumere [Chicago, Illinois], Premier [Charlotte, North Carolina]) to offer powerful value analysis software. Purchasers can utilize these tools to compare products by price, clinical impact, and peer-reviewed studies. This software also enables purchasers to manage the entire approval process. These management tools also ensure a “right-sized” inventory since the availability of medical products is essential in the delivery of quality healthcare.

Geisinger Health System has utilized a collaborative “physician-led” approach to acquisition. Leadership has communicated to physician leaders the mission to minimize the number of vendors. The surgical supply chain committee is led by a physician, partnered with supply chain and financial specialists. Separate committees have been formed for cardiovascular, musculoskeletal, neurosciences and general surgical acquisitions. The use of supply chain management software has significantly improved efficiency and decreased the number of requests that reach these committees. Requests must first have approval of division or department clinical leaders who identify redundancy and asses value prior to moving requests through the committee approval process. Physicians making requests that do no clearly add value must present data to the committee demonstrating the quality benefits and justifying added cost. When this data is indeterminate, products are approved on a trial basis. The committee requires discounted or no-cost trials whenever possible. One of the most common benefits of new products cited by providers to justify increased cost is a shorter OR time. This claim must be demonstrated in trials before a product is given final approval.

Another recent innovation at Geisinger has been shared risk contracts with vendors. Geisinger piloted a shared risk model with a mesh vendor in 2018. Historical costs and utilization are used to determine pricing and cost per case is then fixed. Surgeons are free to choose appropriately sized mesh, while hospital inventory and costs are more predictable. These contracts are regularly reviewed to ensure value to both the hospital and vendor.

Conclusion

Forward-thinking organizations must prioritize the strategic role the supply chain plays in healthcare delivery. With the rise of integrating the supply chain into an executive leadership function, the importance of physician leadership cannot be underestimated. Surgeons must recognize and embrace their role in shaping this key facet in the complex system of healthcare delivery.

References

  1. Stern V. Surgeon involvement in value analysis improves outcomes, saves millions. General Surgery News. 2020;47(1).
  2. Changes and challenges in the healthcare supply chain. https://www.michiganstateuniversityonline.com/resources/healthcare-management/changes-and-challenges-in-the-healthcare-supply-chain/. Accessed January 15, 2020.
  3. LaPointe J. Exploring the role of supply chain management in healthcare. https://revcycleintelligence.com/news/exploring-the-role-of-supply-chain-management-in-healthcare. Accessed January 15, 2020.
  4. Winegar AL, Jackson LW, Sambare TD, et al. A surgeon scorecard is associated with improved value in elective primary hip and knee arthroplasty. J Bone Joint Surg Am. 2019;101(2):152–159.
  5. Collins S. What does Intuitive Surgical’s business model look like? https://marketrealist.com/2016/05/intuitive-surgicals-business-model-look-like/. Accessed January 15, 2020.

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Category: Current Issue, Raising the Standard

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