Strategic sourcing: Getting the best doctors and the best deals

A small but growing number of U.S. hospitals are using a version of quid pro quo to achieve two crucial goals: lock in the "rainmaker" physicians — the ones who are at the top of their specializations — and secure the best deal from suppliers. The most creative have found that this model produces stellar results when applied as a strategic tool, according to speakers at a recent conference presented by the Health Sector Supply Chain Research Consortium at the W. P. Carey School of Business.

A small but growing number of U.S. hospitals are using a version of quid pro quo to achieve two crucial goals: lock in the "rainmaker" physicians — the ones who are at the top of their specializations — and secure the best deal from suppliers. The most creative have found that this model produces stellar results when applied as a strategic tool rather than at the operational level.

An example is the doctor/supply chain equation at 16 west Florida hospitals owned by HCA, the Hospital Corporation of America. Each hospital has a busy orthopedic and spine department, according to Jason Bryant, product line specialist. Officially, Bryant's job is "to facilitate the value-added relationships with physicians." This means he focuses on the best doctors he can find, drawing them into closer — hopefully exclusive — partnerships with HCA.

He then creates the kind of environment these stars need and value to optimize their practice: the newest equipment, an extra scheduling nurse or a remodeled operating room. In return, the doctor commits to driving a larger portion of his admissions to the hospital, to charge a specified fee for his or her services, and to comply with supply-ordering guidelines.

Bryant's accommodation must work within the parameters of his hospital's overall supply chain strategy, which calls for ordering contracted items at set prices from a vetted vendor. "I had a talented young surgeon who split his time between three hospitals. He gave us a wish list. I said, 'We need an attractive margin.' So I offered him a business plan based on the margin we need," Bryant explained.

"It meant performing eight or nine joint or spine surgeries a day instead of six. He asked for an extra operating room, as well as extra people on the floor to care for the additional patients. We agreed. He found our plan helped him be more efficient, which made patients happier. He's since moved 90 percent of his business to our hospital." The savviest vendors quickly adapt to this system, said Linda Carter, vice president of spine and orthopedics.

Not only is she looking for the best-priced, highest-quality products, she, like Bryant, has needs — specific delivery times, for instance. In return, the vendor gets an agreed-upon volume of business. The hospital may also offer to avoid doing business with the vendor's main competitor as an added incentive.

Through it all, one thing remains clear. "We never lose site of our customer, the physician," Carter told dozens of hospital supply chain administrators gathered for a research dissemination conference presented by the Health Sector Supply Chain Research Consortium at the W. P. Carey School of Business.

More strategic, less emphasis on logistics

"Here we see a whole new model of supply chain management in hospitals at the strategic sourcing level, whereas most hospital supply chain is much more operational, at a logistical level," said Eugene Schneller, professor and director of the consortium. Administrators at HCA's west Florida division began experimenting with this model after "realizing our supply line was out of control," Carter said.

They wanted to curb costs on the supply chain side, but also decided to partner with doctors as a way to increase their patient load. That meant talking to physicians, nurses and other employees to find out what is most important to each player. For instance, let's say doctors are complaining that the operating suites are backed up because there are too few beds available post-OR.

When asked what the problem is, nurses say they can't turn rooms quickly enough because they must waste time running from floor to floor, looking for supplies or equipment that should have been easily available. Inventory is a mess, overstocked with one type of joint but minus the screws and rods that go with it. And there's a glitch in the new supply chain software so that orders are coming in incomplete and a day late.

Experimenting with the quid pro quo strategy, Carter's team came up with a creative solution — providing service and sales staff dedicated solely to the orthopedics department in a hotel-like environment. Enter Bryant and other staffers, including supply chain employees, whose focus is on facilitating orthopedic surgery. "We realized the quality we needed meant not only dedicating folks to the service line but wrapping physicians around the service line," she explained.

To make it work, HCA developed a strategic plan for the orthopedics and spine service, and recruited a "physician champion" — a prominent doctor who backed the new plan and was willing to lobby his peers. They worked at making supply ordering and inventory more efficient, and standardized workflows when possible.

Other elements of success, Carter said, include crafting an action plan with built-in accountability, encouraging frequent communication among team members and an ongoing recruitment program. Bryant started his orthopedic recruitment by targeting 50 doctors, but is always adding new names to his wish list.

Counter-detailing, and cross-walking

Like HCA, New York Presbyterian Hospital leaders know the key to growing business volume successfully lies in partnering with physicians while controlling supply costs. NYP spends approximately $900 million on supplies and services throughout its five-center, 2,335-bed organization. Recently hospital administrators resolved to look at the price of supplies, along with utilization and waste, to see where costs could be cut.

If they could save 1 percent of the $900 million, said Emily Pursell, strategic sourcing strategist for the hospital, "it would fund more than 100 jobs. That means more phlebotomists, more nursing assistants, more schedulers for our physicians." But partnering with doctors is a complicated task. Pursell's team ran into roadblocks common to many hospitals. "If you focus too much on utilization, physicians feel locked in.

It's easy to take standardization too far, or provide the wrong information to physicians," she continued. Frequently, doctors resent the supply department's efforts to control costs by limiting which brands and models of artificial joints can be ordered, a practice referred to as "physician-preference item management," or PPIM. Pursell found several remedies that take the sting out of PPIM.

The first she calls "counter-detailing," which involves researching vendors online, accessing their public information in corporate home pages, Securities and Exchange Commission filings, industry studies and media reports. The goal is to find hard numbers on the vendors' costs. "We block vendors' price increases by arming ourselves with their own numbers. We share the information with the doctors. If the vendor's cost is going down, our cost should go down, too," she said.

Another remedy is "cross-walking," in which the true cost of each product from multiple vendors is compared. The goal is to find the total cost, then compare. For instance, the total cost of a hip replacement includes items besides the actual artificial joint, such as screws, rods, glue, etc. Physicians like seeing the cross-walks, because it's easy to see the total cost for same surgery, vendor by vendor.

"They also want to know operative time, equipment availability and details on new products, so we provide all of that," she noted. Keeping cross-walks updated means someone has to keep in close contact with each physician, and understand his or her practice. In some cases, Pursell said, a physician has no objection to purchasing a lower-priced supply.

Example: some doctors are OK putting a regularly priced cardiac valve in an 80-year-old patient, but want the latest/most high-tech valve for a 40-year-old patient who likely has a longer life span.She might ask physicians questions such as, "What should we look for when buying knee-replacement screws? What defines high quality screws, as opposed to medium-quality?"

Doctors also keep supply chain personnel updated on which of the new products are earning a good word-of-mouth reputation. At the same time, the on-the-ball supply chain staffer can e-mail a surgeon a medical journal report on a new line of titanium implants. Pursell also sends vendors a chart plotted with vendor rebates and hospital discounts.

Each vendor fills in the chart with their particular offer — if New York Presbyterian buys this volume at this price, they get X discount or Y rebate. There are various scenarios, such as the vendor is a single vendor receiving an 80 percent share of its knee joint ordering, compared to a two-vendor arrangement at another level.

Bottom Line:

• The average hospital's supply costs grew almost 40 percent between 2003 and 2005, according to the Association for Healthcare Resource & Materials Management.
• Saving the $900 million New York Presbyterian spends annually on supplies would fund approximately 100 jobs there.