Price optimization is a common goal for those involved in the healthcare supply chain. In order to maintain an acceptable level of spend and realize savings on medical devices and supplies, it helps to know how much items cost and whether there are less expensive, equally effective items on the market that can be used by clinicians on the front lines.
Price optimization is only one piece of the puzzle, though. It's a critical piece, since the fluidity of price points on certain items can be dramatic. But there are other factors supply chain leaders should keep in mind.
Aside from price, efficiency and use are important considerations. According to Bryan Grossman, vice president and general manager of Aptitude, logistics, inventory management, and managing both necessary and unnecessary utilization all comprise what he calls "total performance optimization" -- and it can maximize the savings realized by the hospital supply chain.
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"There's a tremendous amount of work that goes into maintaining contracts and getting the pricing to where both sides are comfortable," he said, "but often the supplier flies away once that happens. These other pieces are critical."
MAKING THE LEAP
In order to transition from simple price optimization to total performance optimization, Grossman said it's paramount to establish a clinically integrated supply chain. That means having an ongoing interdisciplinary partnership between clinicians and supply chain leaders.
Such an arrangement can inject a new level of knowledge into the process. Many organizations already leverage supply chain data, but when you engage stakeholders, clinical data can come into play as well.
"When we talk to clinicians, they have very little insight into what their peers are paying for a device, and what the procedural cost is," said Grossman. "The first step is to simply expose the data they have access to … and get them engaged in that process. Oftentimes the misconception is that physicians are not as engaged in the process, but if you expose the information to physicians, they're often eager to get involved in the supply chain process.
"What we'd like to do is have pretty formal governance and infrastructure set up," he said. "You have a pretty rigorous cadence where you're meeting with them and sharing supply chain data and overall data on organizational initiatives. If you put physicians in a room and look at their procedural costs, you can look at what they're spending. If you have six or seven physicians doing the same procedure, and you can look at their spend on that procedure, you can optimize costs."
Spinal procedures can offer an example of this in action. If a health system has several physicians who are using a surgical screw for the same procedures, but the screws are from different companies, the organization can certainly examine the price of the screws, but should also be looking at the price of utilization. One physician, using screws from a certain company, may be going through more of them, and it pays -- literally -- to know why. Shoring up procedural costs can result in significant savings down the road.
Grossman stressed the importance of clinical governance and spend visibility.
"It's extremely critical to have a high-functioning, interdisciplinary governance structure," he said. "It can have true impacts on total costs of care. When you look at supply data and clinical data, that's critical. If you have data that shows encounters and utilization and combine that with data showing expenses, for example, it can mobilize constituents to have an impact on the total cost of care."
How much an organization can expect to save utilizing these approaches depends on a number of variables, of course, not least among them the size of the organization and the specific services it offers. But even saving on the small things can have a considerable impact over a long period of time. Imaging costs, for instance, can comprise about 30% of total procedural costs. Once the strategy is extended to include it, it shifts the focus more broadly to the total cost of care.
One trend to look out for is risk, said Grossman.
"A key trend would be risk-based contracting between suppliers and providers," he said. "Providers are assuming more risk, so it's really enabling a desire to share some of that risk with their supplier partners. Suppliers get a chance to showcase their abilities from an outcomes perspective. It's changing the way they're contracting with suppliers. They want to move that conversation more to the clinical efficacy of their products.
"The only issue is that this is rather new. From a legal perspective, trying to find agreement with that risk-based language, there can be some hurdles. But a lot of that can be attributed to the fact that it's new."