In the August Clinical Business Strategies column, the topic of off-contract purchasing of physician preference items (PPI) was briefly addressed in relation to the salesperson’s role in the operating room. This month we’ll take a closer look at some of the reasons "renegade" or back-door purchasing occurs and ways to address it. By identifying some of the main causes, you can initiate an action plan to reign in purchasing practices that are very costly to your hospital.

Materials managers spend a great deal of time working directly with suppliers and manufacturers and with their group purchasing organization to ensure the best price for the items purchased for their facility. However, other forces may be working equally as hard to nullify these efforts.

One source of error could be multiple departments within one hospital purchasing the same medical device at a different cost under different agreements. For example, the cath lab, the interventional radiology department and the O.R. could be purchasing a closure device under separate agreements (maybe even verbal agreements) with the same vendor. This may be caused by the various department managers desiring to negotiate their own deals, believing they are getting the best price available.

On a larger scale, different hospitals within one health system may have different negotiated prices for the same PPI. This is not uncommon, and it occurs when purchasing is highly localized rather than centrally coordinated. In this case, vendors rely on the lack of data and information flow between facilities to implement a "divide and conquer" strategy that keeps prices high at as many sites as possible.

Another pitfall is when medical device salespersons provide off-contract items directly to your physician in the O.R. during a procedure and invoice the hospital at (usually) list price.

For example, you negotiate contracts for the array of total joint implants currently used by your orthopedic surgeons. During the contract term, the vendor rep carries in a hip or knee implant that is not priced in the contract – often an item that is new on the market. The rep goes straight to the O.R. with the implant. Because there is no prospective agreement on price between the hospital and the vendor, the vendor can invoice the hospital at the price of the vendor’s choice, usually the inflated list price. We have seen hospitals incur significant unbudgeted costs before the practice of off-contract selling is discovered and halted.

You must address these issues with processes to ensure contract compliance at every stage — starting with the contract itself.

1. Structure contracts more broadly to accommodate "new" technology introductions in a given product category to limit the vendor reps latitude to provide off-contract product. Your hospital and physicians – not the vendors – are the sole arbiters of whether a new product is "evolutionary" and falls into a category for which you have already negotiated pricing, or whether it’s truly a "revolutionary" advance in patient care and clinical outcomes that merits a premium price. How you write your agreements will go a long way toward helping the hospital do this.

2. Institute a formal value analysis or technology review process, and limit it to vetting of only truly new devices and products. The process should be prospective, disciplined with analysis of clinical and financial ROI, and multidisciplinary. If you do a good job with No. 1 above, you direct this process to items that really merit formal analysis.

3. Create purchasing policies for the sales activities that you know exist in departments where vendor salespersons have access to your physicians and clinical staff. Put the onus on the vendor to confirm that an item is on-contract. Educate key players in your organization about purchasing polices, how to find the contracted price, the possibility of upselling by vendors, and the financial impact of off-contract purchasing. Consolidate fragmented department purchasing of the same category of products (e.g., vascular closure devices). Share the financial impact of off-contract spending when it occurs. These key players include physicians, procedure area managers and purchasing staff and even your hospital’s chief medical officer.

4. Implement technology that enables standardized pricing across multiple departments and facilities, monitors contract price versus invoice price discrepancies in real time and aggregates purchasing data into actionable reports.

5. In an integrated delivery network (IDN), work with your colleagues at sister facilities to share information. Identify opportunities for consolidated purchasing that will improve pricing for all facilities, even those with the IDN’s lowest pricing. HPN