Cost pres­sures fu­el­ing change

Modern Healthcare - - SPECIAL REPORT - —Jaimy Lee

Hos­pi­tals re­main un­der pres­sure to re­duce sup­ply costs, which will lead to lower mar­gins for de­vice man­u­fac­tur­ers and an in­creased need for providers to not only re­duce costs but also es­tab­lish new forms of rev­enue within the sup­ply chain.

Hos­pi­tals across the U.S. have un­der­taken ini­tia­tives to re­duce the costs of both med­i­cal and sur­gi­cal sup­plies and pricey physi­cian pref­er­ence items over the past sev­eral years. Sup­ply costs usu­ally make up a hospi­tal’s sec­ond-largest ex­pense af­ter la­bor.

In re­cent years, sup­ply-chain ex­ec­u­tives have pushed for more prod­uct stan­dard­iza­tion and, in some cases, less re­liance on their tra­di­tional group pur­chas­ing part­ners.

As­cen­sion Health, High­mark and Dig­nity Health are three or­ga­ni­za­tions that have moved for­ward with ini­tia­tives to launch their own GPOs. Dig­nity is also in­volved in a new ven­ture with Unit­edHealth­care to ad­dress the costs of physi­cian pref­er­ence items.

How­ever, in­ter­nal cost-cut­ting pro­grams at hos­pi­tals re­main a top pri­or­ity.

Steve Kehrberg, se­nior vice pres­i­dent of sup­ply chain for Catholic Health Ini­tia­tives, says a sys­temwide ini­tia­tive to ad­dress costs and im­prove op­er­a­tions has led to cost re­duc­tions across a num­ber of sup­ply sec­tors, in­clud­ing food ser­vice and phar­macy.

Like other large health sys­tems that have iden­ti­fied for-profit busi­ness ven­tures that will al­low them to sell their sup­ply-chain ex­per­tise and de­velop a new rev­enue stream, the En­gle­wood, Colo.-based sys­tem plans to start mar­ket­ing its clin­i­cal-en­gi­neer­ing sup­port ser­vices to other or­ga­ni­za­tions.

Kehrberg projects $82.4 mil­lion in sup­ply­chain sav­ings for the three years be­gin­ning in 2013. The tar­get takes into ac­count both re­duced costs and in­creased rev­enue.

“We think this is the key to our success go­ing for­ward un­der health­care re­form,” he says.

Pres­sure on sup­ply costs will con­tinue to ex­tend to med­i­cal-de­vice com­pa­nies, es­pe­cially those that man­u­fac­ture the com­mod­ity med­i­cal prod­ucts and sup­plies that are un­der the most fi­nan­cial scru­tiny, says Me­gan Neuburger, a se­nior di­rec­tor with Fitch Rat­ings.

Added to that pres­sure is the med­i­calde­vice ex­cise tax un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act; the 2.3% tax on the sales of cer­tain de­vices is ex­pected to go into ef­fect in Jan­uary. Providers also face in­creased payer scru­tiny on pro­ce­dures. The one bright spot for man­u­fac­tur­ers is new tech­nol­ogy, which has been less af­fected by new pric­ing dy­nam­ics.

“Providers are still will­ing to pay for new prod­ucts,” Neuburger says.

As cost pres­sures con­tinue, sup­ply­chain ex­ec­u­tives at hos­pi­tals are likely to push back on the tra­di­tional pur­chas­ing sys­tem and seek alternative prod­ucts that can re­duce costs, im­prove clin­i­cal op­er­a­tions and, in some cases, bring in new rev­enue.

Pres­sure on med­i­cal de­vice com­pa­nies is ex­pected to con­tinue, es­pe­cially those that man­u­fac­ture com­mod­ity prod­ucts.

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