Purchasing under PPS - 1999 Buyers Guide - interview with Government & Regulatory Affairs Dir. Bill Blanchfill and McKesson HBOC Red Line Extended Care National Accounts Coordinator Supervisor Sue Jaeger - prospective payment systems - Interview

Nursing Homes, July, 1999 by Richard L. Peck

Interviews with Bill Blanchfill, Director, Government & Regulatory Affairs, and Sue Jaeger, National Accounts Coordinater Supervisor, McKesson HBOC Red Line Extended Care

As is well known by any post-acute care provider with a pulse, the key to surviving Medicare's profit-crushing Prospective Payment System (PPS) is cutting costs. But once you have laid off (or have had caused to lay off) several therapists, where do you go from there? Purchasing is the obvious next line of offense. One might reasonably expect firms that specialize in long-term care purchasing to come up with ways for facilities to work their way through the price-and-product-selection jungle created by PPS while encountering minimal financial damage along the way. What purchasing concepts might such a company adopt under these circumstances? Recently officials with Red Line HealthCare, a wholesale distributor serving the long-term care industry for more than 20 years, described company initiatives they have taken in this direction. Questions were posed by Nursing Homes/Long Term Care Management Editor Richard L. Peck.

Peck: I assume that a number of your customers are working with PPS. What sort of help are they looking to Red Line to provide?

Blanchfill: Actually, most of our long-term care customers are under PPS. As PPS is adversely affecting the nursing home industry, we are working together with our customers to find ways of cutting the costs of medical supply delivery. There was some initial interest in cost-per-patient-day pricing of medical supplies (also known as "risk sharing"). Although this concept could have some merit with the delivery of therapies and pharmaceuticals, it does not have acceptance with medical supply delivery, nor does it offer the customer the ability to appropriately monitor cost savings.

Instead, we offer a guaranteed savings program. This is achieved through the development of product formularies that drive toward lower-cost alternative products. This program, combined with mechanisms for more effective cost and inventory tracking, such as our ORBITS and COMET software, are helping to make medical supply management more efficient and cost-effective for our customers.

Red Line is also involved in a supply management project with the National Subacute Care Association. This project brings together suppliers and nursing homes in a mutual effort to study how best to reduce the cost of medical supplies and other services.

Peck: Would you elaborate on how these concepts would work?

Jaeger: For the product formularies, we work with a chain's corporate purchasing department and key nurses to develop a formulary of "core products" for that chain's facilities. The basic idea is to get the lowest price possible for the products that are necessary to carry on resident care; it could be incontinence products, medication cups, ostomy bags, what have you - there are some 200 to 300 core products in all. Corporate takes the initiative in deciding which products it wants to put on its formulary. It has the option of deciding whether to "lock out" purchase of any nonformulary products altogether, or to allow purchase of these with notification to headquarters administration and reports on these ordering patterns. Headquarters can then initiate any overriding orders.

Peck: What sorts of product choices does a formulary allow?

Jaeger: The formulary can be programmed to go in a number of directions. You can set it up so that the quantity of types of products ordered during a specific time period is restricted. Or, it could be set up to "lock out" certain vendors or certain products. We actually favor the latter approach but, as it turned out, the quantity restrictions have been the most popular with our customers since this program began last November. Customers really seem focused on restricting product orders or categories, as opposed to locking out individual vendors or products.

The formulary also allows for product substitution, if a reasonable lower-cost alternative is available. Substitutions are done only with the approval of the company's purchasing officials and nurses, and the formulary in general can be changed at any time.

Peck: Is this an approach that would be adaptable by individual freestanding facilities as well as chains?

Jaeger: Anyone who wants to control costs by restricting purchases to pre-approved items on a formulary can benefit, whether an individual facility or a group of facilities with a central headquarters.

Peck: How does computerized inventory management work?

Blanchfill: With our ORBITS system, bar code technology enables facilities to capture their patient-specific or routine medical supply costs so that these costs are reported accurately to the proper payer. The nursing facility has a variety of options on how to use the "peel and stick" product bar codes. For example, the bar code stickers can be placed on purchased products and scanned into the ORBITS system when they're used. Also, the stickers can be transferred to patient charts and scanned when the products are used for specific patients. The ORBITS system provides useful reports to facilitate analysis of the captured data.