By Alan Cherry
Best practices, and key trends to understand, when working with IDNs
The past few years have seen considerable changes to how the healthcare industry operates. The industry shift away from the fee-for-service mindset has altered everything. That much was evident at this spring’s IDN Insights West conference at Amazon’s headquarters in Seattle, Wash.
“The fundamental thing going on right now is consolidation in our industry,” said David Hargraves, Senior Vice President of Supply Chain at Premier Inc. “It’s massive – it’s never been higher, it’s never been bigger, and it’s never been broader.
“Whether you’re a buyer, or a supplier or a GPO, all of the major players right now are chasing scale … It’s a bit of an arms race between the supplier mergers and the GPO consolidation that’s already happened. You can’t stop this consolidation, because it’s caused by macro-economic forces.”
“Suppliers, distributors, and GPOs are chasing scale to remain relevant and competitive from a negotiation standpoint,” said Hargraves, “But when the providers do it, they’re doing it to survive. It’s really, really fundamentally important.”
As provider consolidation continues, the role and responsibilities of provider supply chain leaders is changing and growing. While a few years ago, a given supply chain leader may only have had responsibility for the supplies in the warehouse, they are now in charge of all non-labor expense. This has had one major side effect, as Hargraves pointed out. “The person that was hired when [the IDN] had $30 million in supply spend (or even $300 million) is not the person who controls $2 billion in all non-labor expense. The caliber of the supply chain person is changing.”
The near future
As the industry moves through the uncertainty of healthcare reform law and the Trump administration, Linda Hebish, administrative director of supply chain, Virginia Mason Health System, pointed out the importance of maintaining a “constancy of purpose.” She said that the entire healthcare industry needs to be constantly asking, “What are we doing to move ourselves forward and how are we doing that?” To that end, Hebish strongly advocated for continuing to use and improve bundled payment and alternative payment models. “I keep seeing articles that ask, ‘Are bundled payments good?’ and ‘Are bundled payments here to stay?’ Well, I don’t know if they are here for good, but they’ve been good for Virginia Mason and they’ve been good for our patients,” said Hebish.
Both Hebish and Jason Moulding, vice president of supply chain for MultiCare Health System, noted the significance of the access to care that came with the Affordable Care Act.
As far as Tacoma, Washington-based MultiCare is concerned, Moulding expects to see reduced Medicare funding and coverage if Obamacare is repealed. “We will see reduced Medicare coverage within the states and potentially per-capita federal funding to those Medicare constituents.” Since MultiCare receives some of the lower Medicare rates, he anticipates his system will not see an increase in those rates for some time – if they ever see them at all. Under the Affordable Care Act, MultiCare saw its bad debt and uncompensated care get cut down by half. However, if the law is repealed, “I think we will see an increase in our charity and bad debt,” said Moulding.
Even though the details of the future remain unclear, Sean Poellnitz, former director, contracting & resource utilization supply chain management for CHRISTUS Health, pointed out that the more some things change, the more they stay the same. “It doesn’t matter who’s in charge, we have to do the key points in healthcare – driving quality up and costs down,” he said.
Focusing on the fundamentals of efficient organizational operations is always going to be front and center. As Hebish said, “[At Virginia Mason,] we believe that if we focus on waste, the costs will follow.”
Tom Harvieux, vice president of supply chain management, Sanford Health, shared the sentiment. “We have to get our cost structure under control. [As an industry,] we have tremendous waste… and lots of inefficiency.” Sanford Health’s philosophy is to “get rid of the variation,” Harvieux said. “Standardized care is everything. Once you build standard care, everything else will take care of itself.”
A word for suppliers
Whatever changes the future holds, it is a safe bet that in some form or another, the industry will continue the transition to value-based care. The provider supply chain leaders at the conference made it clear that developing solid, transparent relationships with their suppliers will be a key to success.
Poellnitz said that the suppliers who are most likely to “get traction” are those who prioritize issues that are urgent for their provider customers. “You’ve got to listen and be ready to drive new ideas and models that your customer needs now,” said Poellnitz, speaking to suppliers at the conference. “That’s how you’re going to build a relationship of trust and a relationship to where you get real things done.”
How to best accomplish that? “Know where your customer is going to go. How do they want to look this year? Next year? Long term?” said Poellnitz. “You must know that, so that you can be seen as a partner who’s adding value.”
For Virginia Mason, that means staying focused on quality, affordability, and outcomes for patients. “The supply chain’s role is to make sure that we’re working with our physicians and engaging them to standardize,” Hebish said. “We need to work with our suppliers to make sure we have the best quality that we can at the lowest cost.”
“We want to pull in not just the lowest-cost product, but tie that with reimbursement, tie that with outcomes, tie that with satisfaction – and have the highest value product,” said Moulding.
Harvieux underscored the necessity of reducing variation in care. He encouraged supplier and distributor sales teams to be focused on quality and work “shoulder to shoulder” with providers and find ways to work toward a shared goal, such as reducing the rate of infections. It is essential that suppliers help make it easy for supply chain to do the right thing for their customers – providers, clinicians, and other stakeholders.
“Help us with the end-to-end ownership of the supply chain,” Moulding told suppliers. “We want everything to be transparent.”
He noted that part of this collaboration will require both parties to be incentivized toward that same goal. “If you’re trying to sell us more stuff and we’re trying to buy less stuff – that’s not going to get us to driving better care. That’s a short-sighted model,” said Harvieux.
Data makes a difference
To be transparent, suppliers must bring accurate, relevant data to the table. “The only way to exchange inventory and exchange costs is through sharing of information,” said Harvieux.
Suppliers must also keep in mind that supply chain executives are going to do their homework. They will use data to question their suppliers’ claims. ”We have all kinds of tools to look at our costs and trends in the market,” said Poellnitz.
Meanwhile, Hargraves offered this advice to suppliers: “Stop selling. Be the go-to guy. [A provider] can have all that data in front of them, but there’s still loyalty to that guy who solved the problem, that guy who fixes things.”
Alan Cherry is associate editor, Journal of Healthcare Contracting
The idea of standardization of products can be benchmarked at how Pharmacy Departments have run for decades. There is an approved list of Drugs, called a Formulary approved by the Medical Staff and in many instances, one drug in a class is on formulary. These are products that have systemic affects in patients and are included in any Evidence Based Guidelines. Deviation can hurt a patient.
I have spoken with a few IDNs that have incorporated the same concept with devices/supplies by placing them into treatment guidelines, to reinforce what products have been approved for use. With drugs, you know what you are getting paid by each payer, based on site of care and contracts with payers. However with Bundled Payments, which are essentially outpatient DRGs, you are constantly looking to decrease your cost for the procedure. Some IDNs actually have retreats and attack 10 DRGs/Bundleds at a time or their outlier DRGs. I agree with the comment that Bundled Payments could be good for a IDN is you manage them well and know your reimbursement to cost/case. Because the mission of every hospital and IDN, is to improve patient care, Value Based Care/Reimbursement, etc. is a n ongoing given and some of us have been involved with this model for over 15 years with private payers. Private payers don’t share all their programs with IDNs, ACOs, like CMS does with national programs.