Hospitals—having spent the better part of the past decade working with their surgeons to narrow the variety of cardiovascular, orthopedic and other implants used in their operating rooms—are now looking for new ways to cut expenses related to these high-cost items.
The imperative to bring down the cost of physician preference items, or PPIs, has become particularly acute for orthopedic implants, as hospitals in 67 markets are now receiving bundled payments from Medicare for hip-and-knee replacement procedures. Under bundled payments, the hospital receives a flat fee for the operation. If the cost of the implant is particularly high, there's less left over for everything else used during the procedure.
So supply-chain executives are taking a fine-toothed comb to every aspect of the purchase of PPIs. Distribution, inventory management, sterilization—anything that happens to a device on its trip from manufacturer to patient undergoes scrutiny at hospitals desperate to hold down expenses.
The new initiatives come after years of arduous work with surgeons to limit the variety of devices used in operations. Standardization—enabled by software and data analytics that allow hospital officials to show surgeons that patient outcomes stay the same or improve—allows purchasing officials to buy in quantity and get a lower price.
So where to go next? Distribution is one area where hospitals are looking to cut costs. Device manufacturers are keenly invested in improving products and ensuring quality and safety, but they don't spend much time and resources on logistics.
“They're great at manufacturing novel technology to treat a disease, but their expertise is not in logistics,” said John Horne, chief supply officer at Peoria, Ill.-based OSF HealthCare.
Because devices and their associated instruments often come to a hospital overnight by courier or even in the trunk of a sales representative's car, shipping and handling fees associated with distribution can be exorbitant. And because that cost is ultimately passed on to the provider, reducing those expenses is not a priority for manufacturers.
So hospitals are working with manufacturers and distribution companies to find more cost-effective ways to distribute and store PPI inventory.
OSF is in talks with Medline, a Mundelein, Ill.-based medical-surgical distributor, about managing its PPI inventory and moving product between manufacturers and hospitals. Horne expects that working with Medline—which has more than 40 distribution centers throughout the country and a large fleet of vehicles—could shave 5% to 10% off the total cost of many products.
“Moving the burden of inventory management and inventory control from the manufacturer to the distributor is going to create some relief,” Horne said, noting that distributors like Medline simply have more expertise and better infrastructure for moving product than manufacturers.