Supply chain optimization is a business imperative for hospitals and health systems as they look to reduce costs and enhance the value of the services they provide. Organizations must look beyond the low-hanging fruit and tackle high-cost supplies that provide no added value to patients. Achieving supply chain optimization requires close collaboration among the supply chain, clinical leaders and suppliers. Health Forum convened a panel of health care executives and industry experts April 27 in Las Vegas to discuss ways organizations can gain support for supply chain initiatives, including how organizations can achieve greater physician support and participation. Health Forum would like to thank all of the participants for their open and candid discussion, as well as VHA for sponsoring this event.

MODERATOR (Bob Kehoe, Health Forum): How do you define a clinically integrated supply chain? What does it look like?

JIM WASSERMAN (Lakeland HealthCare): To me, it's the work done through our cost value team that includes physicians, operating room staff and management, purchasing and our product specialists. We meet together as a team and when someone wants to bring something in the door, we do a typical value analysis. The process is pretty efficient. We try to make it difficult enough so that if someone wants to bring in a new product, he or she has to work for it by completing a four-page trial form. It's been a good, collaborative effort so far. It's evolved as well. The people on the team didn't really understand everyone's roles and responsibilities beforehand. They have a greater appreciation for everyone's roles now and they work well together.

Over the years, we've achieved greater understanding across the organization about what the committee is doing. Everyone knows it is focused on quality and cost. And no one is surprised by the actions of the committee.

JENNIFER SYDNOR, R.N. (Mary Washington HealthCare): We have two clinicians, including me, who work in the supply chain. My colleague and I run the value analysis committee for the organization. The committee has multidisciplinary representation, including operating room staff and physicians, as Jim described. We take new product proposals to the respective clinical division for review and input before they go before the value analysis committee.

TOM BEALL (Halifax Health): Our primary screening mechanism is our technology assessment panel, chaired by an orthopedic surgeon. The panel includes our chief revenue officer, chief medical officer, chief quality officer and chief of trauma. We have representation from every subspecialty on the committee. We first look at the different products based on clinical outcomes, because quality is of upmost concern to physicians. Next, we look at cost; what's the cost per case impact and what's the annual cost impact on the organization? We try to make a balanced decision based on evidence-based medicine. We look at all of the clinical data available that demonstrate the clinical efficacy of the product, whether it reduces length of stay, blood loss or infection rates. Reducing infection rates is a huge initiative of ours.

We invite the surgeon or the physician requesting the product to make the case for that product before the committee. We also invite sales representatives to the meeting so they can provide additional information about the product. We ask challenging questions: What impact will the product have, not only from a cost standpoint but from a reimbursement standpoint? Will this product improve patient care and will it increase reimbursement? If value cannot be demonstrated, there's a high probability that it will be denied.

MODERATOR How is the process received by physicians?

BEALL: Well, the process provides a good education to our surgeons. They have to fill out considerable paperwork to get there. And they have to present to the committee in person. We've had some physicians who've had to put off meeting with us for months because of their busy schedules. But it's important for us that we meet and have this conversation face-to-face. It's not an intimidating process, but it's not a simple one either. We have various subsections, including orthopedics. We attend orthopedic meetings and share cost per case information. We benchmark our surgeons with each other and give them a detailed list of every product they use, from the type of implant to the cost of gloves. How many pairs of gloves are used in a case? What's the cost of the drapes and gowns and everything on their preference list? We then talk with them and make our recommendations, supported by data. We want to ensure our clinicians that we are as interested in patient outcomes as they are.

If it's a nursing product, we have a clinical products committee that is chaired by infection control. This committee is very involved in our selection of products. It comprises nursing managers, laboratory personnel and respiratory therapists, among others. Their goal is the same: to make product decisions based on clinical outcomes and value. What we have to do as supply chain professionals is to convince not just physicians, but the nursing staff and all clinical departments, that our focus is on achieving the best possible outcome for the patient. We're not opposed to using a more expensive product if the product has proven to provide greater value to the patient.

MODERATOR I'd like to hear more detail about how your organizations evaluate new physician preference items? How do you go about weighing cost versus quality and engaging physicians in that process?

SYDNOR: We have a practice in place pretty much like what Tom described. We look at the evidence and quality measures and we look at cost per case. We also look at reimbursement, especially if it's a new procedure. Most of the time, the reimbursement does not change.

DAVE MARKOSKI (VHA Inc.): It's interesting today, because organizations are living in two different environments. Every organization that we visit is at a different place in the transition from volume to value. Clinical supply integration means different things whether you're in a volume- or value-based acute care setting. Organizations that are further along with value-based care are looking at integration. They're looking at alignment and quality of care outcomes. So, depending on where organizations are in that journey, it's going to look a little bit different. But regardless of where they are in the journey, hospitals and health systems must look at what they are doing for patients to ensure the best outcomes and also to cut costs. That requires physician alignment and alignment with organizations across the continuum of care.

MODERATOR That's a good point, Dave. So, here's a question for the hospitals. How far along is your organization in the journey from volume to value? What are the best opportunities to improve clinical integration in the supply chain?

BEALL: Physician preference items are the highest-profit supplies. We have pretty much beaten commodity products to death. The real opportunity for savings lies in the physician preference arena. But it's also one of the most challenging areas to address. We looked at spinal implants, for example. A single screw used to cost us $1,600. We got them down to $1,200 and thought we were getting a good deal. Now we are getting them for about $600. Some of these companies are making 81 percent gross profit margins. And their gross profit margins are going up, not down. They do this by playing the surgical staff against the hospital. The challenge for us is that there isn't transparency of pricing, so we don't know whether we are getting a fair price.

MARKOSKI: That's true. Without transparency, hospitals cannot make good decisions going forward. But most suppliers are unwilling to share that kind of data.

SYDNOR: Transparency is critical, as is physician support. Success depends on physician involvement; physicians must be engaged from the start. Our physicians are buying more into the process. They want to know how much we're paying for the implants, and how it's benchmarked with their peers.

MODERATOR Your physicians seem pretty progressive, Jennifer. How did that evolve?

SYDNOR: They're heading that way. Health reform has been a significant driver. When we go to the various division meetings and present data on product standardization, our clinicians often are confused because they hear different figures from the sales reps. We show them how much we are spending. They've come to trust our data and that is helping us to gain buy-in.

BEALL: That's a good point. If we were to walk into a meeting without data these days, we'd be dead in the water. On a different note, we're looking closely at utilization, particularly with expensive physician preference items. We looked at surgical mesh, for example. Biological mesh can run up to four times as much as synthetic mesh. We had a group of surgeons track hernia patients and access the outcomes of patients who were treated with biological mesh vs. synthetic mesh. After six months, there was no discernible difference in outcomes. There was no way to demonstrate that the more expensive item produced better outcomes. Unless somebody can prove that the more expensive product is better, we will move to less expensive products. That opens up the opportunity for significant savings.

MODERATOR Jim, as you look at all these issues in your own organization, where do you see the best opportunities, and how are you getting the engagement level you expect from physicians? How is that evolving?

WASSERMAN: We're getting a good engagement level among our physicians. We recently have acquired some physician practices and that will elevate their involvement even further. Our employed physicians are more willing to check on prices and work with us.

BEALL: A real eye-opener for us was when we purchased a physician-owned, same-day surgery center. Since the physicians had a financial interest in it, they had tremendous reporting capabilities and had their formulary locked down. Nothing came into the facility without the administrator's OK. She would go head-to-head with any surgeon, and the other surgeons would support her. They had skin in the game. That's a problem with running an acute care hospital system: There's no skin in the game for the physicians.

Physicians want a good place to practice safe, high-quality medicine. But they don't know what things cost. At the surgery center, they all knew what everything cost. We found out they were paying $1,200 for a partial knee, while we were paying $5,000 for the same partial knee at the hospital. We need to get physicians at the bargaining table 100 percent of the time. That's where it has to go.

MODERATOR That touches on my next question. A couple of you have alluded to physician involvement and support, whether they are employed physicians or independent contractors. How are you getting physicians to the table and engaged directly in this effort? And does employment or nonemployment with the hospital have a direct bearing on their level of involvement?

BEALL: Co-management agreements seem to be a good way to get physician buy-in. The majority of the medical staff wants to help the hospital be successful. But again, you have to provide them with the data, and that's where our profession has failed in the past. We have not provided physicians with enough data to make decisions on what products they should use. They don't want to be the bad guys. If we provide accurate data and good benchmarks, we can get that buy-in. We're at a breaking point here in terms of survivability of the nonprofit segment of health care delivery. The supply chain is a focal point, because it's the second largest expense in a health care organization.

My finance department gave me a sheet with 2015, 2016 and 2017 at the top and $10 million was down at the bottom right side of that spreadsheet. It was blank except for that. That's what we need to take out of the supply chain. It's difficult and we need strong support from our C-suite to accomplish that kind of savings.

MARKOSKI: Many opportunities exist in cardiology and orthopedics — both high-cost, high-volume areas. It's crucial that senior-level leadership support be in place for those opportunities to be fully realized. It has to start there. Hospitals have a wealth of clinical, operational and supply data they didn't have before. Those data are critically important in conversations with physicians. All physicians want to do the right thing. They want low-cost care with high-quality outcomes. If you show them there isn't a direct correlation between high costs and outcomes, they're willing to take a look at doing something different.

MODERATOR Jennifer, how is your senior leadership engaged in this process?

SYDNOR: Our senior leadership team is very engaged. We involve physicians in our contract negotiations with vendors. Physicians can have great influence with vendors in terms of pricing. Some of our physicians are willing to have conversations with vendors about the need for greater savings. If they're not able to lower their price, then we're willing to move our business to a different vendor. That's enabled us to drive some savings opportunities.

WASSERMAN: Our CMO is supportive of our initiatives. He's taken the stance that if we can achieve good quality and drive down costs, he'll deal with the docs. He's willing to have those conversations.

BEALL: Our CMO is the same way. He's a cardiologist by trade. But since he took the position seven or eight years ago, he's totally fearless. We actually did a presentation at a VHA leadership conference on supply chain and physician cooperation. He's a valuable resource.

MODERATOR We've touched a bit on this already, but I want to get a deeper understanding of best practices. What are the key steps to ensuring physician engagement?

BEALL: The most important thing is to listen to them. What are their needs? What are their concerns? We aren't trying to dictate what they use. We want to hear their preferences and their requirements. It's very difficult to do with the Stark restrictions on financial arrangements. There have been a few gainsharing arrangements that have been approved, but you do it at your own risk.

WASSERMAN: Incentives are a big thing, as you say. But we must exercise caution. We won't reach the level of needed savings without some type of physician incentive.

MARKOSKI: VHA is the only organization approved by the Office of the Inspector General for gainsharing to administer that type of program. There are some stringent guidelines that have to be followed.

BEALL: That's right. We look for ways to incentivize our physicians within the Stark parameters. For example, we talk to them about their equipment needs. If they are able to generate $1 million in savings in spine, we can bring in the 3-D imaging system they've been wanting. We try to figure out what they need and then we explain our goals and our finances so they know what we are trying to do. Let's face it: Our reimbursements are going to get slashed and disproportionate share is going to go away under the assumption that everybody will have insurance. We're looking at millions in cuts. In Florida, our governor elected not to expand Medicaid, so we're taking a hit there. It's coming from every direction.

Our board has the authority to levee taxes on the residents of the taxing district that Halifax serves. Our goal is to become independent and not require that tax subsidy. About four years ago, we levied $52 million and this year, we're going to realize about $20 million from that revenue source. It helps to offset the cost of indigent care. Now, it only offsets a small portion of the free care we provide as the indigent catch center and safety net hospital for our market area. We're looking to increase our revenues by providing additional services. We're expanding same-day care and going into long-term rehab. We just opened a 40-bed, long-term rehab hospital within our hospital. To sum it up, we're looking to increase our revenues and reduce our cost, and the supply chain is key to that strategy.

MODERATOR Jennifer, in your organization, how often do you need to have these conversations with physicians to explain the financial realities and other sorts of things?

SYDNOR: Physicians want to see evidence related to the products they're using. If we're asking them to convert to a less-expensive product, they want to know the evidence behind it. And they don't just want data for the initial product use provided by the manufacturer. They are looking for long-term data to see how patients fare over time. That's key in our organization — being able to provide them with that information.

MODERATOR Is that type of information readily available? Where do you turn for that information?

MARKOSKI: Group purchasing organizations are one source for that information. We also do our own research to see what product studies have been published. We seek out studies that were not published by the vendor. We also seek direct input from physicians and other clinicians. What has been their experience with the product? Would they recommend it to their peers?

WASSERMAN: Getting back to our point about garnering physician support. The process needs to be transparent. It's also critical to involve physicians as early as possible. That will help to generate buy-in. You can't bring them in halfway through and expect their support.

MARKOSKI: We've heard from our members that physicians are being more responsive. Many are finding that physicians were unaware of the financial impact of the products they use. They had no idea about the true outcomes and cost of care. And we're seeing similar incentives to what has been discussed here. Organizations will recognize physicians' efforts to cut costs and enhance quality by purchasing a desired piece of capital equipment or adding an extra operating room nurse to assist with their cases.

It's important to sit down with physicians and walk them through the process. Their cost per case is $21,000, but the hospital only gets reimbursed $18,000. How can we cut the costs? We need their help. Most of the time physicians are more than willing to support the initiative and help the hospital.

BEALL: Another incentive is to help physicians become more productive. We have consultants working to identify causes for delays and how to improve efficiencies. If we can help physicians do more cases in the same amount of time, that's a great incentive. So, we're working with surgeons to maximize their productivity and it's being well-received.

MODERATOR To what degree are physicians directly involved in the supply chain? Are they actively involved aside from participation in certain committees?

WASSERMAN: I think their involvement will grow over the next few years. But right now, they don't want to be too involved with it. Once we get past this initial stage of cutting prices by 30 percent and the focus is on weeding out an additional 2 or 3 percent, they will be involved more. We've seen it in some areas already and it's worked out well.

SYDNOR: We have active engagement from our physicians. We bring them in early in the process, because we need them on our side. Once we identify a big opportunity, we'll sit down and have those initial conversations because it's important for us to know what they are willing to do. Are they actually willing to change market share? Will they convert their product? To be able to show them the potential opportunities, depending on which product they choose, is very important. It's an easier sell if we get them involved from the beginning.

MODERATOR David, are you seeing examples of direct physician involvement?

MARKOSKI: Absolutely. We were talking earlier about the different models and who is now considered part of the supply chain team. It looks much different today than it did several years ago. Clinicians are now a regular part of the supply chain team and some VHA-member organizations employ physicians on the supply chain team. They work for the supply chain leader. It's becoming a critical position because of the cost and reimbursement changes in health care. These physicians work with other physicians within the organization and the community to educate them about the necessity for change.

We've been working with an organization that has tried unsuccessfully to make significant change in supply chain spending. They had some incremental success, but not a lot. They didn't have the data or the analytics to share with their physicians. Once those are in place, it's critical to bring physicians to the table and start the conversation. They will see the value in their participation.

MODERATOR Tom, what culture must exist within an organization to achieve this level of buy-in?

BEALL: We have to have tremendous C-suite support. It starts with the CEO, CFO and CMO to set the tone with the medical staff. Our CMO helps to address physicians' quality concerns. Again, we try to emphasize that we're interested in patient outcomes. As far as physicians go, we have to get the word out to them that we are interested in their concerns, and that we are also interested in surviving. Without their help, we're not going to survive. We try to drive that point home.
We supply them with information about their costs per case. It's about relationship development. Many supply chain executives are intimidated by face-to-face meetings with physicians. They won't go up in the OR. I just scrubbed in on a shoulder surgery to hear what one of our orthopedists had to say about everything. It was very enlightening. The takeaway for him is that we aren't just interested in a buck. It's a way to gain credibility.

MODERATOR Jennifer, you are a registered nurse. How did you get involved in the supply chain? What's your role?

SYDNOR: I've been a registered nurse for about 16 years. I worked in pediatrics and women's surgery. I transitioned to supply chain four years ago as a clinical value analysis coordinator. I currently manage cardiac and surgical services, as well as all of our contracts for those services.

MODERATOR What are some of the challenges you face today in relation to the supply chain?

BEALL: Standardization, or lack thereof, remains a problem. We still do not have standardized bar codes. There's nothing in terms of protocol and nomenclature. I think we're still about five years off. It's just amazing that we don't have the same capabilities as the pharmacy industry. Grocery stores have had standardized bar codes for more than 20 years. Without standardization, we cannot achieve true transparency. That's the problem in the health care supply chain. We can't compare apples to apples. We have to do it on an ad hoc basis.

I'd love to have a database. There are some third-party companies that offer this service, but it takes them months and the reports are full of errors, so we do it in-house.

We have a great decision-support department, but it is stretched. The department assists us in pulling reimbursement data and volume data based on diagnostic-related groups, because we can't do that through our materials management information system.

MARKOSKI: One of the things we're doing is working with third parties to get data on ambulatory and ancillary services. It's critical as health care continues toward value-based care and population health. Hospitals and health systems are going to have to get that information.

MODERATOR How do you engage suppliers in the clinical integration process?

BEALL: Some of our suppliers really get it. We were approached by one with a price de-escalation contract. The price goes down every year. They understand the pressures we are experiencing. I saw one presentation in which it was revealed that one manufacturer was able to drop its production costs significantly, but the product price didn't change. We can't sustain 81 percent gross profit margins for the manufacturers. We make 2 percent if we're lucky. It's just unconscionable that a lot of these major companies are making obscene profits. Some sales representatives are making more than the physicians.

MODERATOR Jennifer, how is your organization engaging suppliers?

SYDNOR: We try to partner with our suppliers as we look at new products. It's always easier to stay with your current supplier because there's always a cost involved in changing. We get mixed responses when we approach our suppliers about cost. Some are willing to partner and work with us. However, others aren't interested in having that conversation. That's when we turn to other vendors who are able to offer significant savings and who want our business. If you do that, other suppliers will notice and take you seriously.

MARKOSKI: That's where physician support can come in handy. It's important to have these conversations with suppliers. If a physician is part of the conversation, it will have even greater meaning. The supplier will see that physicians are behind the effort and are willing to change and look for alternatives.

MODERATOR Jim, are you seeing that in your organization as well? Are the physicians willing to be involved in these discussions?

WASSERMAN: They aren't necessarily interested in being involved in meetings but, behind the scenes, they're involved in everything. They want to know when we are meeting with the suppliers and what we're trying to do. They want a say in the process. We're seeing great results. We've saved more than $1 million on the cardiovascular side because of the involvement of our physicians. We negotiated with our suppliers on drug-eluting stents and pacemakers, among other things. Prices were sky high and we got them down. We saved 25 percent on the drug-eluting stents. Our chief medical officer just helped us get over that hump by saying, "We've got to do it. I'll deal with the docs. We've got to do it."

BEALL: I agree with what Jennifer said. Unless you demonstrate that you're willing to walk away, they won't take you seriously. They think that if they have some physicians behind them, you won't do it. So you have to make an example of some of these companies and make the switch regardless of how tough the conversion is. You may lose a physician or two. But again, the current model is not sustainable. And, really, many of these products are interchangeable. There are no hard data that one medical screw is better than any other medical screw. They've been on the market for years.

MARKOSKI: It's called physician preference for a reason. When we work with organizations, we have a conversation at the executive level. It's not uncommon to hear that physicians are threatening to leave if they have to change their practice. During my years as a consultant, I've never actually seen it happen. Before going to the supplier, it's important that all relevant parties meet to put a plan together and get physician support. It's likely that the supplier will push back and approach physicians about what you're trying to do. This won't go over very well if you haven't talked with them in advance.

MODERATOR How do your organizations approach the issue of clinical value analysis today?

SYDNOR: We have an interdisciplinary approach to value analysis. Physicians must submit a form requesting a new product and then it is reviewed by my team. We compare our current product versus what they are requesting. We do our research to see what evidence is available. Once our analysis is complete, we have physicians present the clinical information to their colleagues as to why they want this product in-house. We attend these meetings and share pricing information. If necessary, they may have to present to other divisions. From there, it goes to our value analysis committee. Our committee can meet monthly and the physician must come to the committee to present the information. The value analysis committee looks at quality issues, infection control and product recalls prior to making a decision.

MARKOSKI: Value analysis has come a long way. It's getting to the heart of the matter — determining what we're trying to accomplish with a particular product. What is the product supposed to do for the patient? Once the decision is made, if it's in the affirmative, it's time to hand it off to the experts for sourcing and contracting.

MODERATOR What's your strategy going forward? How do you plan to further supply chain optim