Standardizing physician-purchase preferences: from myth to reality

Physician Executive, July-August, 2004 by Allan Fine

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.