Clinical Integration Track

Implem

enting and Maintaining Standards on

Physician Preference Items (PPI)

Presenters:M

eg Voorhis, The Advisory Board Com

pany

Elizabeth Goodm

an-Bacon, The Advisory Board C

ompany

FAC

ULTY D

ISCLO

SUR

E

The faculty reported the following financial relationships or

relationships to products or devices they or their spouse/life partner have w

ith comm

ercial interests related to the content of this C

E activity:

•M

eg Voorhis, The Advisory Board Com

pany-none to report

•Elizabeth G

oodman-Bacon, The Advisory Board

Com

pany-none to report

Road M

ap•

Who w

e are•

Increasing pressure on cost / changing role ofsupply chain

•Best practices for strategic control of PPI spend

–C

ategory managem

ent

–Stakeholder engagem

ent•

PPI managem

ent •

Value analysis

–Supplier engagem

ent

Spend Performance Solutions

Targeting the Most Potent D

rivers of Hospital C

ost

Core C

apabilities Across C

linical-Supplies

and Purchased-S

ervicesS

pend

Proprietary Technologies and Data Assets

SPSoffers

oneofthe

nation’sm

ostcomprehensive

pricingdatabases

forclinical

preferenceitem

s,including

actualprices

paidfor

hundredsof

differentsuppliesby

400+hospitals.

Ouroffering

alsoincludes

proprietarytechnology

forautom

atedscenario

biddingby

suppliers,enabling

maxim

umcreativity

indevelopm

entofcontractterms--a

capabilityw

ecall

“mass

customized

negotiation.”

Unrivaled C

ategory Expertise

Our

engagements

areheaded

byconsultants

with

yearsof

focusedexperience

inspecific

clinical-supplyspecialties

(cardiacrhythm

managem

ent,orthopedics,

spine,traum

a,etc.)

andpurchased-services

industrysegm

ents(transcription,print,hotelservices,etc.).

Our

expertsare

trueexperts—

runningdeep

where

otherconsultantsgo

broad.

Execution Focus

Acriticalfirststep

inour

engagements

isthe

identificationofa

hospital’srichest

sourcesof

potentialsavings.

Butw

edon’t

endthere.

Akey

differentiatorof

SPS’sw

orkis

ourcom

mitm

entto

execution,from

full-service

contractw

ritingto

hands-onphysician

engagement

tocontract-

compliance

trackingand

reporting.

Our Purview

Our Results

$2.6B+

annual spend sourced

12%+

average savings achieved

$260M+

annual savings delivered to hospitals and health system

s

Total H

ospital S

pend

LaborN

on-Labor

Clinical

Supplies

Purchased S

ervices

Increasing Pressure on Cost

CFO

s’ Estimated B

reakdown of

Total Hospital C

ost Containment O

pportunity

N=45

40%

10%5%

25% 20%C

linical standardization

Labor costs

Supply costs

Capital expenses

Administrative

overhead

By S

ource of Savings

Most Still Struggle to C

ost Reduction G

oals

of facilities have a cost reduction target

88%fully realize goals,

another 69%are partially successful, and

14%fail outright

17%

Cost reduction ranked #1

among strategic priorities

evaluated by CEO

s in 2015 H

ealth Care Advisory Board

poll.

Cost C

ontinues to be Top Priority

•D

ownw

ard pressure on reimbursem

ent•

Increased capital demands

•R

ise of Consum

erism and Price

Transparency•

Increasing competition betw

een hospitals requiring m

arket leading cost per procedure

Supply Chain R

ipe for Transform

ation

1) Hospital-Supplier Alignment Survey, Health Care Industry Com

mittee; The Advisory Board Com

pany, November 2013

2) United States Government Accountability O

ffice, Lack of Price Transparency May Ham

per Hospitals’ Ability to be Prudent Purchasers of Medical Devices, GAO

12-126, January 20123 and 4) Advisory Board research and analysis, incl. Form

10-Ks from m

ajor suppliers retrieved at http://ww

w.sec.gov/edgar.shtm

lin 2013.

4) Premier, Inc., SEC Form

S-1, July 2013; PiperJaffray, “A Series of Unfortunate Events”, Company Note on M

edAssets, Inc., Feb 2011. 5) Results across first $1B sourced by Spend Perform

ance Solutions, The Advisory Board Company.

Supplies and Purchased Services a Large and Grow

ing Portion of Total Hospital Cost

3 Year CAGR

5.7%

9.8%

Wages, S

alariesS

upplies,S

ervices

Typical GPO

profit margin:

30-50%

Typical supplier profit m

argin: 35%

Economics W

idely Out of Balance

Observed price

variation for identical supplies purchased by sim

ilar hospitals: 3x

Typical supplier SG&

A expense: 39%

Healthcare is D

ue for Change

Savings project group disbands

End-users upsold

Line item

overpayments

Conditional pricing lost

20%+ value

leakage typical

Category m

anagement team

engaged

Assured value im

provement

Real-time end-user

corrections made

Suppliers and purchasers both held

to comm

itments

Supplies/Services Contract Signed

Supplies/Services Contract Signed

Hospital Industry Standard

Out-of-Industry

Standard

Path Towards Spend M

anagement

Value-Add

Com

petence Over Tim

e

Contracting

Tactical negotiating and contracting process w

ith suppliers

Strategic SourcingBusiness process in place to support cross-functional team

s to select optimal

supply sources and/or solutions to low

est total cost of ow

nership

Category M

anagement

Integrated business processes in place to m

anage the entire value chain for spend

Price Fo

cus

Tota

l Va

lue Fo

cus

Spend Managem

ent Maturity C

urve

11Adopt a custom

er -focused approach –supply chain can add greater value to the

organization by focusing on the business’s overall goals instead of focusing narrowly on

lowest cost of goods and services

22Invest in talented staff and skill developm

ent –supply chain is no longer a purely

transactional role, but instead requires strategic vision and planning

33Advance Supplier Partnerships –

suppliers can and should serve as strategic partners in low

ering total cost

Opportunity

Identification

Value Execution

Value Realization and M

anagement

Category M

anagement

•C

ategorization and data integrity

•Price and utilization benchm

arking•

Outcom

es/total cost benchm

arking•

Opportunity prioritization and

wave planning

•PM

O and plan m

anagement

•Vendor engagem

ent and negotiation•

Stakeholder engagement and change m

anagement

•Tier and com

mitm

ent optimization

•C

ustom data and analytics support

•Value tracking and intervention

•U

tilization tracking and intervention

•R

isk mitigation

•C

ontract / relationship m

anagement

•Value analysis m

anagement

Category

Managem

ent Lifecycle

Value Realization

and Managem

entO

pportunity Identification

Value E

xecution

What is category m

anagement?

Category m

anagement aligns an organization around segm

ents of spend to effectively manage total value

of goods, services and outcomes. Value is m

easured beyond initial transactions and instead throughout the entire spend lifecycle of goods and services.

Spend Segmentation

Degree of Local Preference

Spend

Determ

inin

g Sp

end

Strateg

y

Category Plot

12

34

1Low

Preference / High Spend •

Examples: DM

E, office supplies

•Sourcing Cycle: 2-5 yrs

•Contracting Strategy: GPO

, aggregated pricing•

Level of Supplier Engagement: Low

•Level of Stakeholder Engagem

ent: Low

23

High Preference / High Spend•

Examples: PPI

•Sourcing Cycle: 1 -3 yrs

•Contracting Strategy: Local agreem

ents•

Level of Supplier Engagement: High

•Level of Stakeholder Engagem

ent: High

4High Preference / Low

Spend •

Examples: Ablation

•Sourcing Cycle: 2-5 yrs

•Contracting Strategy: GPO

, aggregated pricing•

Level of Supplier Engagement: M

edium

•Level of Stakeholder Engagem

ent: Low

Moving aw

ay from traditional negotiation

workflow

based solely on benchmarking or

contract timing…

Low Preference / Low

Spend •

Examples: Law

n care, security

•Sourcing Cycle: 2-5 yrs

•Contracting Strategy: GPO

, aggregated pricing•

Level of Supplier Engagement: Low

•Level of Stakeholder Engagem

ent: Low

Evolution of Supply Chain Team

s

Transactional Supply Chain

Value Based Supply C

hain

Tactical Buyers of G

oods & Services

•Reactive: R

esponding to individual requests for purchases of goods/acquisition of services

•Limited adherence to PO

process

•Lack of tools/methods to analyze

enterprise-wide spend data

•Limited scope of spend affected directly by

supply chain department

•Lack of involvement in com

plex requirements

Managers of Spend &

Dem

and

•Develop m

ulti-year spend managem

ent forecast

•Assist in setting financial direction of the health system

•Coordinate cross-functional sourcing

activities

•Work w

ith physicians on key clinical and utilization initiatives

Focus Not Just on Price, B

ut on Total C

ost Variables

Lead Variation R

eduction Cam

paign

•Analyze cost and quality data

•Identify care variation opportunities

•Parallel source w

ith suppliers based on standardization

Com

prehensive approach increases quality perform

ance and decrease costs

Win, W

in, Win

Hospitals

Reduced C

osts,Im

proved Margins

Physicians

Empow

ered by data transparency

Suppliers

Confident in reliable

proposals and deals

Build Physician Trust,

Optim

ize Supply Costs

•U

nderstand clinical preferences •

Drive first physician-led sourcing

bid•

Build infrastructure and capacity for change

Migrating from

Preference-Driven

to Value-Driven D

ecision

•Educating physicians on costs and alternatives

•Partnering w

ith physicians to understand clinical requirem

ents

•Leveraging relationships to be a transparent and dependable partner for suppliers

Aligning on Preference N

egotiating with

Physicians

•‘Selling’ decisions to physicians

•U

nreliable partner for suppliers

•H

eroic but un-scalable episodic sourcing

•Leveraging enhanced docs and supplier relationships

•Physicians aren’t just at the table –

they lead the conversations

•C

onversations focused on total value

Leading on Value

In Case You N

eeded Convincing…

Clear Evidence of Physicians’ Pivotal R

ole in Cost Savings

Source: Berkley T, “Aligning Financial Incentives: Future State,” Premier C

onsulting Solutions 22, 2008; BozicK, “C

osts and Cost

Managem

ent Strategies for Hips and Knee R

eplacement Im

plants,” presented at: AAOS Annual M

eeting, Feb 16, 2011, San Diego, C

A;

Morgan Stanley, “H

osp. Supplies and Medical Technology: O

ur Physician Survey: Insight Into the Changing O

rthopedic Implant M

arket”; Lerner C

, et al, The Consequences of Secret Prices: The Politics of Physician Preference Item

s,” Health A

ffairs, 2008, 27:1560-1565; H

ealth Care Advisory Board interview

s and analysis.

% of M

SSP ACO

s that Earned Shared Savings

2012 Cohort

29%

20%

Physician-LedHospital-Led

(0.03)

(0.37)

(0.05)

(0.44)

Volum

e vs. Price

Level of Physician

Engagem

ent vs. Price

Hip Im

plantsKnee Im

plants

Impact of Physician Engagem

ent on C

linical Supply PriceC

orrelation Coefficient

Addressing Physician O

utliers

Capture M

issed Opportunities

•Accurate and com

prehensive clinical docum

entation across the care continuum

Ensure Adherence to Evidence-B

ased Practice•

Com

pliance with predictable care

paths and clinical guidelines•

Efficient and effective care processes consistent w

ith clinical evidence

Make R

esource Utilization

Predictable•

Use of pharm

aceuticals, PPIs, clinical supplies aligned w

ith EBP•

Rationalized use of labs, PT,

rehab, and ancillary services

16%Proportion of physicians w

ho typically drive 80%

of cost savings opportunity from

care variation

Physicians and care team

hold the keys to successfully reducing care variation.

But Engaging Physicians on C

ost and U

tilization is Hard

Driving to C

hange While

Respecting Patient O

utcomes

21%79%

% of O

rthopedic Surgeons Able to Estimate

Implant C

ost Accurately

Unable

Able

!Physicians often shocked to learn the price of supplies they use

2.31

1.641.64

1.39

Ortho D

r. AO

rtho Dr. B

LOS w

ith Aquamantys

LOS w

ithout Aquamantys

Total Joint Replacem

entLength of S

tay

Leading with Education

Understanding the Source of Physician Preference

•U

nder what circum

stances are particular products clinically justified?•

What inform

ation/trials will you need to consider changes in utilization?

•O

utside of product requirements, w

hat services or value adds are required from

the suppliers?

LOS D

ata Supports Reduction of

Aquamantys

Use for H

ip/Knee R

eplacements

Shift from C

ost to Value Analysis

Q:

When w

e use a supply, does it improve outcom

es? Is the im

provement significant enough to justify the

cost?

Which of m

y surgeons have superior outcomes and

low supply costs? C

an they serve as an example to

my other surgeons?

Q:

Answering Tw

o Key Q

uestions

Easy to Dism

iss… Engaging Surgeons in a Com

plete Conversation

Harm

onic ScalpelH

DH

05 HO

OK

5mm

DISSEC

TING

299

154$579

$1,030

42 MIN

UTES

48 MIN

UTES

1.12

1.150.33%

0.35%

1.3 DAYS

1.2 DAYS

6.02%

5.85%

CASE VO

LUM

E

TRU

E SUPPLY C

OST

CASE D

UR

ATION

PATIENT SEVER

ITY

30 DAY R

EADM

ISSION

S

LENG

TH O

F STAY

CO

MPLIC

ATION

RATE

Impossible to Ignore…

NO

HAR

MO

NIC

SCALPEL

HAR

MO

NIC

SCALPEL

+$2,359

SUPPLY PR

ICE

$1,926PR

ICE PAID

BY SIMILAR

IN

STITUTIO

NS

$2,093PR

ICE PAID

FOR

EQ

UIVALEN

T SUPPLIES

$20,433PR

OC

EDU

RE

REIM

BUR

SEMEN

T

Foundation for a Larger PartnershipToday’s Effort Furthering Tom

orrow’s R

eality

•Shared decision-m

aking expertise•

Measurem

ent/reporting infrastructure•

Clinical “product developm

ent”•

Joint negotiation skills•

Leadership development

•Joint cost-m

anagement expertise

Capabilities developed for

collaborative sourcing

Today

Tomorrow

Collaborative Sourcing

•Population H

ealth•

Risk C

ontracting•

Retail Innovation

Com

mitm

ent, First and Foremost

Suppliers Looking for Reliable H

ospital Partners

We’re reserving best value for the local custom

ization w

here compliance actually occurs. W

e face a choice betw

een delivering value to those who are big and those

who do w

hat they say they’ll do. We have gone to the

latter, and we feel great clarity around this.

VP of N

ational Accounts

Medical D

evice Supplier

Tactics for Working w

ith Supplier Partners

123

456

Walk a M

ile in Each Other’s Shoes

Push for Product Launch Information

Ask for Evidence in Best-in-Class

Data Packets

Support Optim

al Product Utilization

Track Product Performance D

ata Together

Implem

ent Channel for Tw

o-Way

Feedback

Streamlining D

elivery and Shipping Post-Procurem

entN

orthwestern M

emorial H

ospital with Lindon D

evices1

Coordinated P

roduct Delivery

Coordinated Approach

•Late orders and shipm

ents have decreased

•Shipping costs have decreased ~10%

•C

entral point of contact im

proved comm

unication w

ith supply chain

Misaligned Approach

•R

outine overages due to last m

inute physician orders

•D

ifficult to manage

inventory for hospital•

Out of stock products

created opportunities for other vendors to fill the gap

AFTERBEFO

RE

Northw

estern’s purchasing units now

submit orders at roughly the sam

e time

1

Lindon funnels all of their orders to one representative, w

ho coordinates shipping

2

Northw

estern and Lindon designees meet

regularly to review order trends and

identify new opportunities for

improvem

ent

3

1)Pseudonym

Support Optim

al Product Utilization

1)Pseudonym

1)Indiana U

niversity Health, Saxony H

ospital2)

Pseudonym3)

Pseudonym4)

Pseudonym

IU H

ealth Saxony1w

ith ThengelOrthopedics

2, Westernesse

Device

3, and ErkenbrandInc. 4

Case in B

rief: Indiana University

Health’s “Friday M

orning Meetings”

•IU

Health is an 18-hospital system

based in Bloomington,

IN; Thengel, W

esternesse, and Erkenbrandare

orthopedic companies w

hich produce joint replacement

devices

•The entire orthopedics team

at IU H

ealth Saxony, led by D

r. R. M

ichael Meneghini, and the representative for

each of its suppliers, meet w

eekly to discuss next week’s

cases and select products•

Working w

ith Thengel, Westernesse, and Erkenbrand, IU

is im

proving appropriate product utilization, throughput, and shipping

Friday Morning M

eeting

Product S

election

Improved U

tilization

•Surgeons, suppliers, nurses, chaplain’s services, and supply chain m

eet weekly to review

the docket of surgeries for the upcom

ing week

•Based on the technical requirem

ents of the case, surgeons select the appropriate brand and product from

a list of options pre-approved by supply chain

•Supplier representatives in attendance then coordinate shipping and w

ork with nurses to

have the appropriate tools and support available for procedure

Track Product Performance D

ata Together

1)Biosense

Webster, Inc.

Advantage Risk Program

for Catheter Ablation

Case in B

rief: BW

I Sharing Risk for C

linical Outcom

es•

Biosense Webster, Inc. (BW

I) is a Johnson & Johnson subsidiary, specializing in cardiac catheter ablation technology and based in D

iamond Bar, C

A

•The new

ly launched Advantage program is an outcom

es-based, risk-sharing program for BW

I’s TH

ERM

OC

OO

L SMAR

TTOU

CH

®C

atheter•

At the core of the program is a BW

I-created case and outcomes tracking system

for hospitals

Product S

election

Provider enters sourcing contract for new

BWI

product

Data Tracking

Financial Risk

BWI receives price

increase if improved

outcomes achieved

BWI and hospital w

ork together to track product

outcomes for ablation

Source: Advisory Board interviews and analysis.

Implem

ent Channel for Tw

o-Way

Feedback

1)Pseudonym

University of C

hicago Vendor Scorecard

Key Perform

ance Categories

1Q

uality–

How

have product recallsand defects affected our ability to conduct business?

2C

ost –H

as the vendor offered com

petitivepricing and ideas

that support cost containment?

3D

elivery–

How

well do w

e get our orders filled the first tim

e, on time,

and in the right quantities?

4Technology

–H

as the vendor kept us updated on the latest technology or research trials?

5Service

–H

owis custom

er service on both corporate and sales rep level?

Source: UC

Medicine; Advisory Board interview

s and analysis.

Implem

ent Channel for Tw

o-Way Feedback, continued

Source: UC

Medicine; Advisory Board interview

s and analysis.

Case in B

rief: University of C

hicago Medicine and C

ook Medical

•560-bed system academ

ic medical center headquartered in C

hicago, IL•C

reated a vendor scorecard that evaluates supplier performance across five key

dimensions—

quality, cost, delivery, technology, and service•In response to scorecard, C

ook Medical positioned itself as a strategic partner by

engaging sourcing team to identify w

ays to improve overall supply chain at U

C

University of C

hicago Medicine and C

ook Medical

UC

Medicine

Cook M

edical

•Implem

ented scorecard approach to evaluate vendor perform

ance •Scorecard used to drive

discussion, identify areas for supplier im

provement

•Engaged with sourcing

team im

mediately to find

“win-w

in” opportunities •W

orked to lower U

C

Medicine’s shipping and

product usage costs

UC

Medicine’s Vendor Scorecard H

as Been a Catalyst for Innovation

KeyTakeaw

aysThe rate of change w

ithin healthcare requires a supply chain organization to keep pace w

ith business demands

12Procurem

ent professionals that take more focused actions to engage

physicians and suppliers, and manage PPI tow

ards total value, can see better outcom

es across the continuum of care

3Deriving value in PPI is not just during contracting…

striving for trust, transparency, and sustainable partnerships that align to institutional priorities is key throughout any contract cycle

•Please direct your brow

ser to ww

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