Healthcare Business News
Jaimy Lee Modern Healthcare reporter

Reporter's Notebook - No end in sight to putting squeeze on supply costs

By Jaimy Lee
Posted: October 25, 2012 - 1:00 pm ET

An environment where hospitals are under pressure to purchase medical and surgical supplies that promise the best clinical outcomes at the lowest price is here to stay, according to comments made by group purchasing executives at an industry conference this week.

Group purchasing organizations, health systems and suppliers gathered this week in Orlando, Fla., to attend the Healthcare Supply Chain Association's annual expo.

Discussion at the three-day conference focused on several key topics, including the increased need for partnerships between providers, GPOs and suppliers that can aid hospitals with supply cost-cutting and readmission goals, as well as the importance of utilizing the pending unique device identification system.

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Hospitals, which are faced with declining reimbursements, are looking more and more for ways to reduce supply costs, which often make up their second largest expense after labor. Some organizations, including Ascension Health, Highmark and Dignity Health, have even moved to form their own GPOs over the last year.

Novation President and CEO Jody Hatcher noted during one session that the “traditional model” of purchasing is not sustainable. Price, utilization and effectiveness are three factors that are playing an increasing role in the way GPOs purchase supplies for their members.

“We have to lower costs,” said Lee Perlman, president of GNYHA Ventures, during the same session.

On Tuesday, supply chain executives from three very different integrated delivery networks discussed how their organizations are reducing supply costs.

The effort to reduce the costs of physician preference items is under way at Providence Health & Services, which combined its western Washington operations with Seattle-based Swedish Health Services earlier this year. Dave Hunter, vice president of supply chain management at Providence Health & Services, said the system each year spends $1.4 billion on supply expenses and $760 million on purchased services.

In an effort to control costs, Providence Health & Services is now using one drug-eluting stent.

Much of the attention to reducing costs has been attributed to declining reimbursements required by the healthcare reform law. However, GPO executives agreed that the outcome of the presidential election in November and any ensuing changes to the Patient Protection and Affordable Care Act will have little impact on provider initiatives to change their purchasing practices.

The Food and Drug Administration in July issued its long-awaited proposed rule for the UDI system, which would require manufacturers to mark the packaging and medical devices themselves with unique identifiers in a phased seven-year roll-out. The comment period for the UDI system ends Nov. 7.

The GPOs that are members of HSCA support the introduction of the UDI system, in part because of the role the system can play in improving patient safety during recalls, Amerinet President and CEO Todd Ebert said. The association also said that it supports a UDI system that aligns with GS1 standards—about half of manufacturers were using standards developed by either GS1 or the Health Industry Business Communications Council in 2009.

Although providers are not required to participate in the UDI system, the FDA and other groups are urging hospitals, especially large systems, to become involved.

Brent Johnson, chief purchasing officer and vice president of supply chain and imaging services at Intermountain Healthcare, said the Salt Lake City-based system will reduce purchasing volume if a supplier is not on its way to using GS1 standards on product packaging by 2013.

HSCA, which submitted its comment letter in mid-September (PDF), has recommended a three-year timeline, which wouldn't “lessen the burden imposed on labelers by the rule, but may in fact increase the burden, while also unduly delaying patient safety benefits,” the association wrote.

Jaimy Lee reports on medical technology, medical suppliers, group purchasing organizations and healthcare news in Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

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