ROi services include group contracting, clinical and operational consulting, pharmaceutical repacking, custom procedures and tray manufacturing, print operations, purchasing, and master item file management. The supply chain team, founded by Mercy, includes physicians and clinical researchers.
ROi enables providers to run an "integrated system" to control pricing through negotiations with commercial distributors, manufacturers, and consultants, says McQueary, the Mercy Clinic North Central Communities president. "Our philosophy is still to maintain a lot of choices [for implants], although some systems have taken the approach of limiting choices," he says. "We're not going down that road, but it remains a possibility."
ROi's CEO, Kirtser, says that he is hopeful that the emergence of accountable care organizations can help providers gain better control over purchasing of implant devices, in evaluation and quality. Too often, providers now face device costs that represent nearly 50% for sales and general administration, while only a small percentage, about 6%, accounts for research and development designed to improve devices, he says. "I think over time change will come and there will be comparative effectiveness in the near future," he says, to improve alignment of physicians to evaluate payment models.
In 2010, ROi/Mercy joined Geisinger (Danville, Pa.), Intermountain Healthcare (Salt Lake City), Kaiser Permanente (Oakland, Calif), and Mayo Clinic (Rochester, Minn.) to form the Healthcare Transformation Group; the members share best practices and collaborate on supply chain improvements, including strategies to reduce medical device costs.
Success key No. 3: Capping prices
Loma Linda University Medical Center is one of the hospitals capping prices in negotiations with vendors, a "hard-fought" move, says Botimer, the orthopedics department chair.
The hospital took that approach because it found that vendors would mark up prices on devices, such as prostheses, that would end up costing $1,000–$2,000 more than the hospital was willing to pay.
In one instance, a company charged the hospital $16,000 for a prosthesis that would usually cost $4,000, says Botimer. The company in question had paid royalties to an "outside surgeon" who had demanded the hospital use the vendor, he recalls. In another instance, the medical center purchased small pins at $400 each that were supposed to be reusable, and "suddenly became disposable." The hospital "caught the practice" and immediately halted it.
"We have discovered many techniques that some company representatives use to increase their charges to the hospital to get around the agreed-upon prices," Botimer says. "By taking back control of the process, we eliminate a lot of the gaming of the system that has been going on. We must all strive to be transparent."
Because the cost for orthopedic implants is increasing at a rate higher than other medical devices, it made sense to cap the prices, Botimer says. Hospital officials focus on the process, not the specific product.
"We just want to cut the waste out of the system," he says. By evaluating the devices and not strictly relying on vendor recommendations, the hospital finds it can "reduce the cost for the same product 50% to 60%," he says. The surgeons are then considering various devices instead of those recommended by vendors. The process "has helped the medical team become informed buyers," Botimer says.
Unlike some other health systems, Loma Linda physicians receive no financial incentives to be involved in controlling costs, Botimer says. "The reward comes in maintaining our commitment to patients to provide the highest-quality care with better accessibility," he says.
Beaumont also sets price caps and imposes rules on what devices it will purchase, often setting the stage for intense discussions with vendors.
"We're the No. 2 hospital in the United States for joint replacement volume, and I leverage that position," says Martin, the head of the health system's value-purchasing program. If vendors object, he says the message is clear: "If you want to play in this sandbox, this is what we're willing to pay for a knee joint. If you don't want to play, you are out."
At one point, Beaumont purchased spinal implants from 33 different vendors, and fewer than half—13—agreed to supply Beaumont under new price guidelines. Its value analysis teams reduced the vendor lists after requesting competitive bids.