New research that will be released by VHA later this month finds that hospitals can save millions of dollars in supply expenses by engaging doctors in the cost-reduction efforts.
Sound simple? It's not. The one-year study obtained exclusively by Modern Healthcare outlines the successes of several VHA member hospitals but finds no one underlying trick for turning things around.
"Unfortunately there is no magic formula," said Sandra Schmitt, vice president of consulting services for VHA's Upper Midwest region and a co-author of the study.
Senior hospital executives tend to fear and loathe the idea of trying to coax physicians to get on the same page as the finance office and purchase supplies as a team. Limiting choices in supplies doctors deem important tends to push panic buttons.
But the VHA study shows it can be done, as proven by hospital systems such as the Mayo Foundation, Rochester, Minn., which saved itself $2 million annually by capping pricing for orthopedic implants. Unity Health System, Rochester, N.Y., which operates 401-bed Park Ridge Hospital, cut its supply costs by $3 million by working with doctors in 1999 and 2000 to standardize medical devices. Unity was facing the prospect of bankruptcy at the time the cost reduction initiative was launched, but by 2001, it generated a $2 million profit, according to the study.
The VHA study found some commonality in the processes of successful hospitals. For example, most successful organizations had "champions at the senior executive level" pushing for the changes, Schmitt said. In addition, in order for cost savings to be sustained, the change itself has to be a cultural one-"not a diet that the organization is going on," she said.
Hospitals also needed a compelling reason for undertaking the initiatives, "a burning platform or a vision," Schmitt said. For Unity, it was the threat of bankruptcy. For Mayo, it was a vision of where the current trend was taking the organization and the impact it would have on the future.
Other studies have shown that next to labor, supplies account for the largest chunk of any hospital's operating budget: 30%, Schmitt said. Of that 30%, surgery supplies represent 22% of the expense and pharmacy gobbles up as much as 18%. Clearly, controlling physician-preference items would mean a big step in controlling overall supply costs, she said.
But hospitals are reluctant to tackle the issue out of worry that doctors will stop admitting patients to the hospitals, said Stuart Baker, executive vice president of clinical affairs at VHA and one of the study's co-authors. That's a myth, he said. Physicians are more than willing to help reduce supply costs if hospitals can demonstrate the benefit for both the doctor and the hospital, he said.
Perhaps the most important selling point for doctors is that standardization will reduce variations in practice, which ultimately can improve the quality of care, Baker said.