A reader of current industry publications can easily recognize the buzzwords, current trends and waves of change rippling through the healthcare arena. What may be harder to distinguish is which trends will directly impact your world as a materials manager.

Some of these macro issues may seem inconsequential to your daily routine. But a closer look points to surprising convergence between hospital materials management and some "big picture" issues in healthcare today. Some of the current buzz includes:

•Sarbanes Oxley Act of 2002

•Public Chargemasters

•Healthcare savings accounts (HSAs) and high deductible insurance plans

Sarbanes Oxley. Congress passed the Sarbanes-Oxley Act of 2002 (SOX) in response to corporate scandals such as Enron and WorldCom. It directs organizations to implement internal controls of key business processes and adopt other corporate compliance measures. Violators face steep fines and lengthy prison terms if found guilty of breaking the law.

The majority of U.S. hospitals are nonprofit and not required to follow SOX. These standards are, however, increasingly seen as "best practice" for business integrity and transparency. According to a survey by the Healthcare Compliance Association, more than 75 percent of large non-profit hospitals report that they intend to comply with part or all of the SOX standards. Remember, many hospital board members work in other sectors and have had to implement SOX. This appears to be driving the adoption of SOX in the nonprofit healthcare world.

Because a hospital’s supply "spend" is usually the second largest area of expenditure, you can expect that procurement processes will quickly be put under the microscope. A primary focus of SOX is internal controls so the purchasing function will need to show that 100 percent of purchases adhere to a consistent and controlled process. This means that, under SOX, your process for purchasing a hip stem or pacemaker will need to be as systematic and well documented as that of buying a cotton swab or a sharps container. Procurement will need to follow transparent and repeatable steps, and you will need to structure vendor access to physicians and define the product selection and acquisition process.

Public Chargemasters. Some states (California, Arizona, Michigan, Florida and Maine, among many others) have mandated that hospitals make their chargemasters publicly available, and many more are considering this type of legislation. Lawmakers believe that open chargemasters will allow consumers to compare prices of procedures and supplies between hospitals, and make an informed choice. On May 24, the federal government sent out a press release announcing Sen. Grassley’s request for specific healthcare providers to provide information in regard to their non-profit tax status. Much of the information requested addressed the hospital’s self-pay patient pricing policies and procedures, including their method for charge mark-up, putting further focus on transparency of pricing and supporting processes.

You may wonder how this can possibly be related to you. In your position, you do not manage the chargemaster and you rarely interact with the CFO, revenue cycle managers and other patient financial services personnel. But the amount charged for an item via the chargemaster, must correlate and be reasonably attributable to the price on your invoice for the item. Even if your state is not one that has legislated an open chargemaster, with the SOX principles mentioned above and in our next area of discussion, you may need to assess whether your hospital is charging for supplies correctly and applying defensible and justifiable mark-ups. (Remember, the gross price for a service is usually the price charged to self-pay patients – another hot public topic for another day.)

To prepare, develop a relationship with the director of revenue cycle. Together, strategize and implement appropriate and justifiable processes to mark up and charge for items. This is important for patient identifiable supplies, especially medical devices where a 10 percent error on an invoice or a patient bill means thousands of dollars lost or an embarrassing compliance issue broadcasted in your local media.

Healthcare savings accounts (HSAs) and high deductible insurance products. According to a recent survey conducted for the American Hospital Association and Federation of American Hospitals, 72 percent of employers say they are likely to offer healthcare savings accounts/high deductible insurance products to their employees next year; this is up from 43 percent in 2005. These healthcare benefit products – which offer cost savings for employers, and lower monthly payments and tax advantages for employees – are predicted to grow rapidly and promise to change the face of healthcare.

How? If employees do in fact opt for these plans in large numbers, the result for hospitals will be an increasing number of de facto self-pay patients – personally responsible to pay their large deductible in the event they are hospitalized. In turn, such patients would be reasonably expected to be more price-sensitive to their hospital charges, because they are financially responsible for more of the bill.

Drawing out this scenario, consumers will begin to shop for their elective healthcare – childbirth, hip or knee replacement, MRIs, heart valve repair – based on price and quality (to the extent quality can be measured – yet another hot topic for another day). If more patients spend their own dime, public scrutiny of the defendable charges and mark-ups mentioned above is more likely.

Procedures involving more costly medical devices will draw increased attention so your processes for purchasing these devices will need to be fully under your control. Under SOX and consumer scrutiny, inconsistent purchasing processes and vendor influence outside the materials management control can cause high-profile problems for the organization.

A lot of changes are in the pipeline for our industry. You can not possibly address every issue raised in the media. But a common thread of transparency seems to join a number of these "hot button" issues. Our industry is moving towards a more mainstream way of conducting business where all players are held accountable.

Some steps that will help you prepare for these trends include:

•Seek out business partners that know about these issues and can assist you with information technology and process solutions.

•Apply this thinking specifically to your physician preference items management work. These items and how they are chosen and purchased are a big part of the problem and the solution.

Preparation for these scenarios may be uncomfortable, but the end results will be a better-run business, prices/charges that make sense and a better hospital response to an informed and empowered healthcare consumer. HPN