Every profession has words, terms and acronyms that roll off the tongue and add to the mystique of what you do every day. Defaulting to this shorthand is a matter of convenience in its best case, but it can also be the leading contributor to the very problems you’re trying to resolve. Until we can all get on the same page, how can we, together, make progress?

This process of getting on the same page is what this column will address in the coming year. I firmly believe that is the first best step in making progress against what is one of the monumental stories of 2005 (as it has been for the past 20 years) – the rising cost of healthcare.

We all know that a variety of interrelated factors impact healthcare costs – rising wage costs in an era of healthcare worker shortage, the investment in increasingly expensive technologies, medical malpractice, pharmaceuticals and the various costs of compliance. But fundamental to this discussion are the supply costs – what we pay for the "stuff" of patient care.

Of the 100% of that bucket, we know that about 55 percent to 60 percent of those costs are related to the "commodity" side of medical products. Significant competition, mature categories, even the group purchasing organization (GPO) influence have all worked to squeeze this side of the cost equation until there’s not much savings left to find.

But the other 40 percent to 45 percent – what we refer to as physician preference items or PPI – fall into the category of medical implants and devices. Far more than commodities, these items typically are technologically sophisticated and the clinical implications for their use may be profound. Because of this, a parallel universe of purchasing may evolve, such that the purchasing process for these items bypasses the usual checks and balances that are part and parcel of managing your supply chain costs.

You know the story: A key electrophysiologist insists on this pacemaker, to the exclusion of all others. A patient demands the $11,000 ceramic-on-ceramic hip joint because a celebrity golfer sings its praises. A medical device manufacturer, who has been generous with research and foundation grants, hints that the use of a lower cost competitor might dry up those "philanthropic" dollars.

The typical medical device sales process is opportunity ripe for review. You need a process that creates transparency and results in implementation of significant cost reduction opportunities, while going out of the way to preserve physician choice.

How to get to a process that works
In an effort to address this issue, first you have to know the players in the decision and understand everyone’s real agenda. Part of the problem with the process is the variety of influencers to the decision.

First, of course, is the physician. As the chief patient advocate for good clinical outcomes, his or her voice carries a lot of weight. Then there’s the manufacturer of the device, a knowledgeable resource, to be sure, but one whose agenda is not necessarily aligned with the needs of the facility. Supply chain, including medical device acquisition, is also a consultant-rich environment. Consultants, even including the GPO, will strive to influence every link in the chain. Finally, there’s the materials management influence where the financial analysis typically resides.

Once you’ve identified the players and their behavior drivers, it’s important to have common baseline data so you can decide which specific issues to tackle first.

The best place to start is to develop a baseline analysis that looks at the performance of the key service lines in terms of profitability, and benchmarks that performance with hospitals and systems that have implemented successful cost strategies in concert with their physicians.

Here are some key elements of the baseline:
1. What are you paying for a specific medical device or implant? These answers can be surprisingly difficult to determine. The analysis requires clinical knowledge of the pieces and parts that make up a procedure. Spinal metal implants are an excellent example of this. Further, manufacturer rebates and bulk buys can obfuscate the actual device cost per case.

2. What is the total cost of the procedure? Identifying the cost for the implant or device is tough, but finding out the total cost for the patient admission is more difficult still. Many – if not most – hospitals do not have solid cost accounting. But the phrase, "an imperfect something is better than a perfect nothing" applies here – some reasonable proxy of total cost is needed in order to analyze program profitability.

So a solid, objective analysis is the first step to getting everyone on the same page. Until everyone is working from the same understanding of the program’s position and challenges, you can’t drive the behavioral changes that are at the heart of a successful PPI management program. HPN