HPNonilne.com: Operating Room, December, 2004

As orthopedics costs continue to spiral, materials managers across the country are looking for ways to put a cap on this unnerving trend. Orthopedic implant costs, in particular for hips and knees, are rising at a rate of 10% per year, notes Scott Crandall, senior product manager, Novation Orthopedics.

And reimbursement rates for implants continue to lag behind real costs, says Karen Barrow, RN, vice president, Amerinet Clinical Advantage.

Just as new implant products are continually being developed, medical device manufacturers are marketing directly to consumers who are in turn asking doctors for the latest, most expensive technology. And at the top of the cycle, surgeons are picking and choosing the latest and greatest implants, without regard to cost.

"Many times surgeons will try new products without realizing that it costs $500 more than what they had previously been using," said Crandall. "They aren’t weighing the higher costs against clinical outcomes."

Hedy Tomlin, director, supply chain management, Sarasota Memorial Health Care System, (FL), explains the cost drivers for orthopedics at her facility. "One of our surgeons mixes and matches vendors almost exclusively, rather than using one vendor’s systems. They also use ‘premium’ products in most of the patient population instead of looking at demand matching." Complicating the issue further, she notes that vendors often state that they pay surgeons to give lectures, teach other surgeons and advise in device invention.

"Our members ask us, ‘why does the price keep going up 10% per year?’ That’s because our membership has very little ability to dictate physician product use," reinforces Novation’s Crandall.

And that does not translate well to price savings for hospitals, he notes. "Suppliers see that dynamic and any time they’re asked to lower prices, they question whether the surgeons and administration support the effort. And because nine times out of ten the surgeon has told the suppliers that they won’t switch products, the supplier goes back to the hospital and says, ‘we’re not going to give you any price breaks," Crandall adds.

The constant influx of new products only compounds the problem of managing a hospital’s orthopedic expense. According to Crandall, Novation has over 8,000 line items in its Zimmer hip/knee agreement alone. "Unless they are experts and understand the products very well, it’s very difficult for hospital materials managers to manage the product line when new products are constantly being released," he concedes.

One reason for the constant stream of new product releases is the quest for new implant technologies that are designed to last longer, and reduce the need for revision surgeries. "That’s always been the big question: How long do implants last and what happens once they wear out?," said Crandall. "A lot of the new products that have come out have tried to address that concern. And obviously they cost quite a bit more than the standard products."

Plus, with nearly all surgeons using different configurations of implants, "no matter what a materials manager or O.R. supervisor does to try and manage what they’re currently using, it’s constantly going to change," notes Crandall. "That makes it difficult when they’re trying to do local or per-procedure capitated type of agreements."

To aid hospitals in curbing orthopedics costs, Novation makes it a goal to make sure that all of the new technology products are covered in its supplier agreements.

Still, many hospitals will attempt to negotiate contracts on their own. "The hospital community right now still sees doing local negotiation as a way to manage their orthopedic spend," said Crandall.

The problem with that, said Crandall, is that "there’s not a lot of pricing rationale on the market" in particular with local distributor networks. "You have some hospitals that have a 55% discount, and then you have hospitals that are the same size that are only receiving a 20% discount, even within the same IDN."

Novation offers a customized approach which may include a mix of local and national contract agreement parameters. They also negotiate line item increase limits to anywhere between 3 and 5% per year.

Sales Visit Protocol
All sales representatives must make at least one initial contact with the appropriate buyer in Purchasing prior to their initial visit to University Community Health. When visiting any facility in the System, Sales Representatives must register with the Materials Management Department at that facility before visiting, even if an appointment has been obtained with a department or approval has been granted by the Materials Management Department. It is the policy of University Community Health that all vendors shall be referred to departmental personnel through the Materials Management office.

Samples & Trial Equipment
All product samples and trial equipment must have the approval of the Materials Management Department prior to their delivery to any area at any of the hospitals or facilities. Furthermore, all samples and trial equipment must have followed System or individual facility protocol as previously described. University Community Health will not assume responsibility for any samples, supplies or equipment, left on the premises without prior approval or proper documentation. All such supplies and equipment will be considered a donation and no further obligation will be assumed by the System or any of its facilities or departments.

Source: From Vendor Guide, University Community Health.

Solicit surgeon support
In addition to assessing a hospital’s orthopedic spend and negotiating contracts, Crandall recommends the number one way for hospitals to curb their orthopedic costs is through improved communication with their surgeons. "There’s this big void in the relationship between the hospital and the surgeon," said Crandall. "A lot of the cost reduction efforts and standardization are never going to go anywhere until that relationship’s built. And both of them are going to get hurt by it if they don’t."

Technology evaluation committees that are driven by the surgeons, will go a long way in establishing the framework for such a relationship, said Crandall. By soliciting physician input early on, the hospital can help avoid implants being used without consent from purchasing. "Once it’s put in the patient and the invoice shows up in materials, there’s not a lot materials can do to negotiate a better price for the product," explains Crandall.

Tomlin said her facility implemented an implant formulary in May of this year to help address the health system’s orthopedic expense. The health system employed Aspen consultants to lead them through the formulary process. "We engaged physicians, clinicians, administration (CEO, CFO, CMO, CNO) and Supply Chain Management headed up the implementation," explained Tomlin. "What made it successful was the solidarity of administration and physicians who believed the formulary was the right thing to do. A few physicians moved some of their cases to another facility, as was expected. But, they are slowly coming back," she adds.

She notes that "almost all vendors are honoring the formulary on all product lines." There have been a few exceptions. For example, Sarasota Memorial is not using certain products because the vendor is asking for a mark-up on that particular product that the health system is not willing to pay, According to Tomlin, "If surgeons wish to use this they must do it at another facility."

Crandall suggests that materials managers also enlist surgeons in initiating cost negotiation efforts with the sales reps. "The doctors probably have a better relationship with the representatives than they do their hospital," suggests Crandall. "If you could get the surgeons to say to the sales reps, ‘You need to work within the lower costs, or I may have to switch’, you’d be shocked at the kind of discounts they could get."

In addition, the hospital would be well-advised to establish protocols for sales representatives in order to curb unsolicited sales calls to surgeons and to keep materials in the loop. Crandall described a Vendor Guide used by University Community Health in Tampa, FL, that details the process for getting new products into the hospital. All suppliers must sign the agreement which dictates that any products provided without prior approval from materials are considered "free samples", said Crandall. In effect, the agreement has stopped about 95% of the flow of new products coming in without first going through the proper negotiation channels, Crandall notes.

In a similar initiative at Sarasota Memorial, Tomlin describes the health system’s process for physicians to request new technology. "If they bring a product in while the patient’s on the table and it has not been approved, we will let them use it one time and then it goes through the product approval process."

"We let all vendors know that if they supply products in this manner, we will not pay for it. We require vendors to sign an agreement that they will abide by our formulary. If they do not, we will not pay."

Amerinet Clinical Advantage is a program developed by the GPO to help reduce costs for high-dollar implants, including orthopedics. Also recognizing the surgeon’s role in cost control, the program utilizes a collaborative process to help hospitals achieve cost savings that could reach 26%.

Amerinet outlines 11 key techniques that its healthcare providers have utilized to help achieve savings through Amerinet Clinical Advantage:

Barrow notes that in presenting comprehensive data, facilities should examine their implant logs, purchase orders and invoices as well as compare actual costs for conducting procedures to reimbursement costs for those procedures.

She explains common contracting strategies used by facilities to achieve cost reduction goals, from limiting suppliers, to negotiating percentage discounts off the price list, to tiered pricing with set milestones for lager discounts. In addition, many facilities utilize capitated pricing in which they pay a set price for individual implants, or a similar concept called risk share in which the implant represents a designated percentage of procedure reimbursement, said Barrow.

St. Alexius Medical Center, Bismarck, ND, recently achieved a quarter-of-a-million dollar saving on orthopedic implants through Amerinet Clinical Advantage, with 100 percent physician participation in the program. For the initiative, surgeons were asked to commit 80 percent of their procedures to three vendors with whom Amerinet negotiated list price discounts for two years.

Broadlane launched its all-inclusive orthopedics service early this year that focuses on complete costs for providing orthopedic care. "In other words, all supply and treatment costs from admission to discharge in addition to reviewing quality outcomes and making recommendations for improved processes," said Hazel Seabrook, RN, MBA, CNAA, BC, vice president, clinical consulting, Broadlane.

According to Seabrook, most of the issues Broadlane has been asked to address involve total joint pricing and how hospitals can reduce the cost of the implants.

Part of the Broadlane program is bringing clinical experts to consult with the orthopedics surgeons to help them make product decisions. Seabrook explains that this includes bringing evidence-based materials to the surgeons as well as recruiting staff from the vendor community who have the product knowledge to engage surgeons on the differences and similarities between the products.

Seabrook offers this advice to materials managers or O.R. directors who are looking to keep their orthopedic costs down: "Make sure you keep this product category on your radar screen. If you have contracts for implants, they should be reviewed every six months to make sure that you remain competitive in the marketplace. All ‘new’ technology needs to be managed as these items have a tendency to be excluded from the contracts."

To sum it up, she reiterates a common theme, "Materials managers and O.R. directors need to make sure that they have a continued ongoing dialogue with their surgeons, constantly sharing data and information about the costs and the impact for the hospital." HPN