By Geri Aston
Data by Suzanna Hoppszallern



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Managing physician preference item (PPI) costs remains a challenge, but hospitals are finding a more receptive audience in their clinicians these days when it comes to standardizing products—a move that can help cost-cutting efforts. In addition, more than three out of four hospitals now employ value analysis committees, yet less than half of the facilities that have these teams include physicians on the panel. Experts on managing PPI expenses say leaving physicians out of this process can ultimately make managing these costs far more difficult.

The economic downturn has put even more pressure on hospital supply chain managers to control costs, but it also is presenting an opportunity. Materials management experts say that hospitals' financial struggles are making doctors more willing than ever to participate in efforts to reduce operating room costs—even when it comes to physician preference items (PPI).

Many materials managers are turning to standardization of PPI to save money in the OR, according to a June 2009 survey of more than 4,500 hospitals by Materials Management in Health Care and the Association for Healthcare Resources & Materials Management (AHRMM). Nearly 75 percent of the 570 respondents who completed surveys either have a strategy for standardizing PPI in place or are working on one. About 64 percent of hospitals are using value analysis teams to ensure that products are appropriate and achieve good clinical outcomes.

Physician participation in these efforts is essential, materials management experts say. "You can try physician preference without them, and you may have some success," says David Forquer, clinical strategist for the Clinical Advantage program at Amerinet, Warrendale, Pa., one of the survey's sponsors. "But you'll be more successful if they're part of the effort."

Historically, getting physicians involved in standardization and value analysis has been difficult. "These are usually surgeons or cardiologists—very busy guys," Forquer says. "Their priority is not usually lowering costs of hospitals. They know it has to be done, but it's not an issue in the forefront of their minds."

Overcoming barriers

Distrust also has been a barrier, says Patricia Tyson, R.N., vice president for the performance services division at VHA Inc., Irving, Texas, another sponsor of the survey. Physicians have been suspicious about whether the financial strains driving hospitals' cost reduction efforts are real.

"I'm seeing a difference with the recent economics in the cooperation that we're getting from the medical staff," Tyson says. "Their reimbursement is down, and they see hospitals are truly looking at hard economic times. More physicians are helping the hospital look at ways to reduce costs and participating in committees."

As more hospitals move toward a staffed-physician model, they'll find it easier to get doctors involved in value analysis and cost-reduction efforts, predicts Mike Merwarth, president of MediClick, Raleigh, N.C., a survey sponsor. Surgeons are staff members at nearly 40 percent of hospitals involved in the survey, compared with 65 percent whose physicians are independent practitioners; many respondents noted that their facilities have mixed models for physician relationships.

"Regardless of your business relationship with the doctors, the focus should be on building enduring alliances between physicians and the supply chain staff," Merwarth says. In the survey, 8.5 percent of respondents rated the level of trust between the supply chain staff and physicians as high, 33.1 percent as somewhat high, 46.2 percent as average, 9.1 percent as somewhat low and 3 percent as low.

Enlisting physician support

Many hospital supply chain departments are working on building that trust by getting doctors involved in standardization and the value analysis process. About 45 percent of survey respondents reported that physicians are involved in the committee handling standardization.

Officials at Washington Hospital Center in Washington, D.C., learned how important physician buy-in is to value analysis. The hospital started its effort in 2006. The plan was to create one value analysis committee, but department chairs and the physician staff objected, says Zal Damkevala, MHA, value analysis manager and Americans with Disabilities Act officer at the hospital. They argued that the process involved too much red tape and would slow adoption of new products.

After several months, the process was retooled, Damkevala says. When the value analysis project was relaunched in 2007, it consisted of five committees. Each represents individual service lines: nursing, OR, interventional radiology, and the catheterization and electrophysiology laboratories. An overarching steering committee meets quarterly to smooth out any problems that pop up in the committees.

The five teams, which meet monthly, include one or two doctors, Damkevala says. "In some cases, we actually invited a lot of those physicians who had the most reservations about the process to come in and participate. Once they sat in on the process and got a good sense of it, they became more involved and actually became champions of the process."

The committees have completed 90 initiatives and have 30 or 40 in the pipeline, Damkevala says. They have achieved more than $8.5 million in savings in less than two years.

Another way to create physician support for reining in PPI costs is to give a portion of the resulting savings to doctors, Forquer says. "The doctors, if they're smart, use this as an opportunity."

At Washington Hospital Center, Damkevala is pushing for such a system. "It's something I would like to see happen where we can take a percentage of [the savings] back to the department and do something that has real impact in terms of improving employee satisfaction in that area." He envisions allowing physicians to spend it on items—equipment, computers or workspace renovation—that would improve workflow and processes.

Standardizing products

According to the survey, standardization is the tactic being used most by hospitals to reduce the cost of PPI. About 51 percent are standardizing these products.

For the past six to eight months, VHA has been developing a strategy that involves hospitals and health systems coming together to create supply chain networks, Tyson says. These supply chain networks develop "aggregation strategies" that look at the whole supply chain and purchasing cycle, she says. The strategies delve into what products the hospitals are purchasing, how they're purchasing them, the financial picture for certain vendors, and whether the hospitals have commonalities in supplies that would help with standardization.

Clinical data also is examined, Tyson says. "That's why value analysis is so important, to have that avenue to look at the clinical aspects of the products as they're being used and hopefully get some agreement on what can be used and what can't." VHA aims to have the majority of its members involved in an aggregation strategy either on a regional or national level within the next 12 to 18 months, she says.

While standardization is popular, hospitals are using several other approaches to lower spending on PPI, the survey found. For example, 46 percent are limiting the number of manufacturers from which physicians can choose, and 45 percent are imposing price ceilings for particular item categories.

For instance, HCA's TriStar Division developed a capitated agreement for spinal implants in April 2008. "We set the market rate we were willing to pay and worked through it from that perspective," says Jay Kirkpatrick, president of AHRMM and CEO of HCA's Nashville Supply Chain Services. Several small suppliers jumped on board in the project's first few months, and a big supplier signed on that summer, he says. Now more than 80 percent of the division's spinal implant spend is covered under the agreement, and the organization is working to get the outliers into the fold.

Communication is key

Physicians were supportive of the project, Kirkpatrick says. "If you effectively communicate with physicians, get them on board, solicit their feedback, help them understand and give them the data, then if the company is just completely irrational in their pricing model, surgeons will see that and they'll act accordingly."

Showing physicians how vendors' prices at their hospital compare with the prices elsewhere in the marketplace is a powerful tool, Forquer says. "If they're too high, then they get upset and they go back to their reps even though the reps are their friends."

But cost alone can't drive the conversation, several materials management experts say. "I try not to use the word 'standardization' when I'm talking to physicians because they shut down and think that you're trying to take away choice," Tyson says. "In value analysis, we're not trying to take away choice." Instead, value analysis is looking at the outcomes associated with devices, making sure the hospital is paying for the products that deliver the best outcomes and that match the patients the hospital is seeing, and giving physicians "a say-so," she says.

The ideal is combining spending data with utilization and clinical data when making product decisions, Tyson says. Using this data, hospitals can create clinical criteria for use, a new term for patient- demand matching. The survey found that only 20.7 percent of respondents use patient-demand matching as a tool for reducing the cost of PPI, but Tyson believes that figure is low. "Demand-matching gets back to where hospitals say, 'We're buying total hips, and we're only buying low-level implants.'"

Using clinical criteria, physicians look at individual patients' clinical pictures and pick the best product for them, Tyson says. For hip devices, for example, docs look at the patient's age, weight and functional status. Clinical criteria for use means not putting a premium hip in someone who is bed-ridden, but making sure that an active patient gets the premium hip even though it's more costly, she explains.

Data sets the stage

Using cost, utilization and clinical data together enables hospitals to get at "are we matching exactly what the patient needs, and are we getting a good price for the device, and are we using the right amount of it," Tyson says.

The survey found that while PPIs are a major focus, hospitals also are looking to improve productivity and efficiency in the OR. Physician preference cards and custom packs are common tools.

Hospitals can accomplish big savings by taking another look at OR custom packs. Forrest General Hospital in Hattiesburg, Miss., sees $500,000 a year in savings because it issued a request for proposals on its custom packs and then switched vendors, says Doris Vaughn, director of materials management.

Last year, Washington Hospital Center created a team to look at its OR custom packs with an eye toward eliminating items that aren't used and finding less-expensive substitutes for other products, Damkevala says. It took five or six months to evaluate the roughly 40 custom packs used in the OR, but the resulting changes save the hospital about $200,000 a year.

In the case of physician preference cards, VHA's Tyson points to the example of an Arizona hospital that had a particular drug to stop bleeding on every physician preference card. An analysis of usage and clinical data found that although the medication package was always opened, physicians rarely used the drug. Changing the preference cards saved the facility $900,000, she says.

Less utilized by hospitals are technologies that improve OR efficiency, such as bar-coding and automated dispensing machines, the survey found. The main reasons are that these tools are more difficult to implement and more costly than the more familiar custom packs and preference cards, Kirkpatrick says.

While more than half of the respondents are using surgical information management systems in their ORs, fewer than half of this group use the information gathered to create OR dashboards. "[Hospitals] really do need to be using dashboards," Tyson says. "We're putting a lot of data into systems, but we don't see a lot of hospitals using that data."

Many hospitals are collecting quality data on patients, such as those getting coronary stents, electrophysiology and implantable cardioverter defibrillators, Tyson notes. But separate from that is the materials management system that has acquisition cost and supply information. "To put the three pieces together is what's so difficult," she says.

Often the barrier is that no one in the OR has the time to link and then analyze the data, Tyson says. Many hospitals don't have the resources to hire someone to do it, she adds. "I was at a hospital recently with a $17 million spend in orthopedics. I was trying to get them to put in the tools so they could collect the data and analyze it, and they just said, 'We don't have money for a full-time equivalent to do that.'"

When hospitals undertake efforts to manage OR costs, they often see added benefits, the survey found. One is that standardization can improve quality. About 20 percent of hospitals said their initiatives improved outcomes.

"Standardization means we control the number of variables in any given procedure, allowing the procedure to be increasingly perfected over time," MediClick's Merwarth says. "Better outcomes and lower costs‚ that's the mantra, and standardization of process as well as product is the only way to achieve it consistently. It is absolutely critical to align the hospital supply chain with clinical objectives."

Another advantage is increased physician and nurse satisfaction, which was reported by 34 percent of respondents. Many hospitals aren't tracking it, HCA's Kirkpatrick says, but they should be. The hospital network is in the process of rolling out an OR cost-reduction program that includes measurement of doctor and nurse satisfaction, he notes.

"Ideally, our job is to make the people's lives who do the miracles every day in our hospitals easier," Kirkpatrick says. "If you're implementing an OR project and you're not measuring satisfaction of your surgeons and your OR team, you're missing a key indicator of the whole project."

Geri Aston is a Chicago-based freelance health care writer and a frequent contributor to MMHC.

About the survey During June 2009, Materials Management in Health Care and the Association for Healthcare Resource & Materials Management of the American Hospital Association conducted the OR Cost Management and Physician Preference Item (PPI) Survey. We surveyed a sample of 4,521 hospital executives to learn what they are doing to effectively manage operating room budgets and how they are containing costs on PPI. The survey response rate was 12.6 percent or 570 completed surveys.Materials Management in Health Care thanks the sponsors of this survey—Amerinet, MediClick and VHA Inc.—for underwriting this research.

This article first appeared in the October 2009 issue of Materials Management in Health Care.

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