100 Top Hospitals: Efficient purchasing linked to higher performance

Strong clinical and operational performance at the nation's high-performing hospitals is associated with their more efficient use of drugs and supplies, according to a new study.

Lower-than-expected use of medical supplies and pharmaceuticals is linked to lower rates of mortality, lower 30-day readmission rates and higher patient-satisfaction scores at hospitals that score well in Truven Health Analytics' 100 Top Hospitals study, according to an exclusive study conducted for Modern Healthcare by the Ann Arbor, Mich.-based data and research firm.

Truven found that hospitals with less waste—and therefore lower-than-expected supply and pharmacy costs per discharge—outperformed others on multiple quality measures used by Medicare.

The study included 2,560 hospitals from Truven's flagship 100 Top Hospitals study for which pharmacy and supply data were available from Medicare. Together, the hospitals reported nearly 5.3 million discharges.

Among all the hospitals studied, most spent slightly less than what they expected to spend on pharmaceuticals and supplies in the 2013 federal fiscal year, with an average observed/expected ratio of 0.998 for pharmaceutical products and 0.992 for supplies (a hospital with a ratio of 1 would have spent exactly what it projected). However, some hospitals in the study spent as much as 6.9 times more than expected on drugs and 9.5 more than projected on supplies.

The hospitals' average pharmacy cost per discharge was $1,062, while the average supply cost per discharge among hospitals was $2,440. While hospitals were spending only a fraction less per case compared with what they expected to spend, the cumulative savings and positive outcomes were significant, according to Truven.

Truven found that at hospitals in the study that spent less than expected on pharmaceutical products, patients experienced fewer readmissions due to acute myocardial infarction, heart failure and pneumonia, and lower overall average rates of 30-day readmissions. Patients at hospitals that spent less than expected on drugs also reported higher satisfaction on Medicare's Hospital Consumer Assessment of Healthcare Providers and Systems, while the facilities reported higher operating margins and lower Medicare spending.

“These findings are very important because we are seeing a higher rate of doing the right thing at the right time to achieve the right result, and that means better diagnostics and more effective use of pharmaceuticals,” said Jean Chenoweth, Truven's senior vice president of performance improvement and the 100 Top Hospitals programs.

Similar but less pronounced results were reported for supply efficiency. David Foster, lead scientist at Truven's Center for Healthcare Analytics, said pharmaceutical use can be more closely tied to health outcomes than can supply efficiency. For each unit increase in the observed/expected ratio for pharmacy utilization (meaning more waste), there was a roughly 14 percentile deficit in 30-day mortality performance, while the same increase in supply utilization was associated with only a 3.5 percentile deficit, for example.

Nonetheless, more efficient use of supplies led to better performance on patient-safety indicator scores and 30-day mortality rates for heart attacks and pneumonia, according to the Truven findings.

Even small changes in supply efficiency can make a difference for hospitals and health systems, since supply-chain spending typically accounts for hospitals' biggest expense after labor costs. Supply-chain and other nonlabor costs at hospitals totaled about $74 billion in 2012, according to the Healthcare Supply Chain Association.

An efficient supply chain is a simple supply chain, Foster said. Stocking too many kinds of supplies or pharmaceuticals to satisfy physician preference leads to unnecessary expenses and waste, and could even lead to wide variations in patient outcomes.

“Being able to do volume purchasing simplifies things,” Foster said, noting that hospitals can save money and reduce waste if they standardize treatments and properly communicate ordering policy.

For Evanston, Ill.-based NorthShore University HealthSystem, that means bringing pharmacists and physicians together to discuss what drugs the hospital should buy, and sticking to those decisions. Every two years, a pharmacist works with physicians from various departments to review the hospital's choices in various drug classes, sometimes meeting sooner if a new medication or new research arises in between reviews, said Lynn Boecler, senior director of pharmacy services at NorthShore. Her system has appeared on the 100 Top Hospitals list a record 16 times and twice on Truven's 50 Top Cardiovascular Hospitals list.

Physicians work with the hospital's pharmacy to develop order sets for specific conditions, which speeds up the prescribing process, limits the variety of drugs the hospital purchases and leads to more predictable patient outcomes. “Since we have had these order sets and guidelines in place, we really don't encounter over-ordering,” Boecler said. “We are in a place where we're proactive.”

NorthShore's process still allows for flexibility in choosing a treatment for conditions that may be more dependent on the patient's or physician's preference, such as for post-operative pain, Boecler said. Because a small number of high-value drugs account for a large portion of supply-chain costs, the system's drug inventory management tends to focus on carefully ordering high-priced items, she said. There's less worry about over-ordering run-of-the-mill painkillers or other common products.

Intermountain Healthcare, a large integrated system based in Salt Lake City—which appeared in the top quintile of Truven's 15 Top Health Systems this year and in 2009—has controlled pharmaceutical costs by educating physicians and patients on limiting the use of antibiotics, which can become ineffective when overprescribed.

Leaders at Ogden, Utah-based McKay-Dee Hospital, one of Intermountain's facilities that made Truven's most recent 100 Top Hospitals roster, have saved about $55,700 so far this year by reducing antibiotic-related costs, with cumulative savings of nearly $1 million since the effort began four to five years ago at the hospital, said Scott Saxton, director of continuous improvement for Intermountain's North Region. CMS officials have said the agency plans to require antibiotic stewardship programs at hospitals that participate in Medicare, with an implementation window in 2017.

Some of McKay-Dee's supply efficiency efforts are simple and low-tech, such as a system consisting of color-coded alerts and clear labeling of where products can be found. Physicians or nurses flip a two-sided, two-colored card from green to red when a product needs replenishing, and internal runners regularly monitor the rooms to see what needs restocking. “We're trying to put supply rooms in order with good identification and good visibility,” Saxton said.

To help streamline its supply-chain management, Intermountain operates a 306,000-square-foot central supply warehouse in Midvale, Utah, that opened in 2012. From the massive warehouse, the system distributes supplies directly to the point-of-use within its 22 hospitals on a regular basis, which reduces the tendency of hospitals to hoard larger quantities that can expire and aren't as easily shared among facilities. This process limits shipping time, reduces waste by allowing the system to share products across its hospitals, and eliminates the need for hospital-based warehousing, Saxton said.

Limiting provider preference is important with supplies and equipment, for which there can be a wide variety of vendors and different preferences among clinicians, especially around high-value instruments. To curb waste in this area, Intermountain will soon roll out doctor preference cards—notes regularly distributed to physicians that notify them of what supplies and equipment are being ordered on their behalf. The system hopes it will give doctors a chance to inform supply-chain managers if they're no longer using a product, or it might give the system a chance to find a less-expensive alternative.

“When we provide transparency to our physicians, they're looking for the best-quality outcome for the lowest-cost solution,” Saxton said. The doctor preference cards will also give the hospital a chance to discuss standardization of supply brands.

At NorthShore, removing nurses from the inventory-ordering process has given caregivers more time to spend with patients and ensured that the system is ordering the right amount of supplies from the right vendors, said Brian Washa, senior vice president of business services. Washa said surgical packs and other pre-determined kits have helped improve the efficiency of supply purchases that can be standardized across the system.

“We're very careful with new items that are added” to the master list, Washa said. By having a single procurement office, “we have control so that we don't have 100 different kinds of gloves.”