photo courtesy of Innerspace/ Datel

Materials management directors searching for an easy win to generate bottom line savings and top line revenue for their facilities after mastering the nursing floors and storerooms, and making serious inroads into the operating room, should probably steer clear of the high-end cardiology areas.

But if they’re striving for a big win that calls for diplomatic and persuasive skill sets, perseverance, hard work and even some heartache and stress, then the cardiac catheterization laboratory and interventional radiology departments are the areas to approach.

These two departments alone account for some of the most expensive physician preference items in a facility, similar to orthopedics; but unlike orthopedics, the cardiac cath lab and interventional radiology areas have experienced more rapid and frequent technological changes that can push a balance sheet out of whack rather quickly.

At some facilities these two departments may crave materials management expertise without knowing how to obtain it. Meanwhile, other facilities may not realize they need it, or even how to get it, unless it’s mandated by the CFO to stanch the flow of red ink. At the same time, many materials management departments have yet to reach out and offer their expense management assistance to these high-dollar and high-tech areas, let alone introduce themselves.

But that’s beginning to change, albeit slowly and somewhat deliberately.

photo courtesy of Innerspace/ Datel

Roots of the problem
It’s easy to see how cost management pressures related to products finally started simmering in the cardiac cath lab and interventional radiology. Until the government and private payers tapped the brakes on procedural reimbursement, these two lucrative areas enjoyed their status as revenue (and profit) generators. With reimbursement being outpaced by runaway new technology costs and seemingly carefree consumption those revenue-generating areas had to come to grips with morphing into cost centers whose bloating budgets and teeming expense streams raised hackles in the C-suite. Savvy clinicians in those areas, like Robert Chavez, connected the dots and realized the effects on patient care.

"Like it or not, healthcare is a business," said Chavez, operations supervisor of interventional radiology (IR) and computed tomography for Sutter General and Sutter Memorial Hospitals, Sacramento, CA. "When we lose track of the business side of healthcare then we find ourselves in a situation where we can’t provide the kind of quality patient care we want to provide."

Nearly three years ago this dilemma reached its boiling point at Sutter, galling Chavez in three ways. He grew frustrated with his department’s manual inventory management process because it was unable to maintain an adequate supply of regularly used items on hand, unable to reduce and control unused and expiring items, which consumed the budget and wasted valuable storage space and unable to prevent them from consistently exceeding the budget. In short, he faced ordering, tracking, storing, usage and ultimately financial hurdles.

"Besides these problems, we knew we had to be better business managers," he said. "With shrinking healthcare dollars, we have to be better caretakers of our resources as well as being focused on patient care."

Chavez pointed to the healthcare industry’s lagging behind other industries in implementing computerized inventory management systems. "We were keeping track of more than a million dollars worth of inventory with essentially a clipboard, paper, and pencil – which is not uncommon in hospitals. What other industries would do that? It’s rather foolish," he said. "I couldn’t explain our expenditures or give reports on utilization."

He’s not alone. Particularly in the cardiac cath lab and interventional radiology areas, supply chain management is treated little better than an afterthought, generally overlooked or pushed to a shift’s end and marginally overseen by a patient-focused nurse or technologist exhausted after a long day’s work. "Typically, guys like myself on the clinical side pay attention to it but not to the extent that we should," Chavez told Healthcare Purchasing News. "Even though I have financial responsibility for my department it’s all in the guise of patient care, which historically comes first. But we can’t overlook the business side."

Chavez manages two IR departments between the two hospitals. Sutter Memorial has one procedure room dedicated to IR with an annual supply budget of about $225,000. Sutter General has two IR rooms with a supply budget of $1.1 million. The two hospitals account for some 4,000 to 5,200 procedures, including biopsies, drainages and various ultrasound-guided procedures and vascular interventions. As a result, Chavez tracks more than 1,500 non-stock supply items, valued at about $1.4 million.

Such non-stock supplies typically go directly to, and are expensed to, the requesting clinical departments, bypassing materials management, which traditionally covers bulk items for nursing, surgical services and administrative areas. These supplies also tend to be physician preference items so materials management typically tries to avoid the tension and testy exchanges with doctors.

With a questionable, if not unreliable, low-priority supply tracking process the inevitable happens. Doctors run out of products. Empty hooks create irate clinicians who clamor for last-minute calls to expensive overnight couriers that are ready to rush over a high-priced-in-a-pinch product from a favorite vendor. It’s a cascade of fiscal and operational inefficiency that leaves a pool of red ink in its wake.

Scope of the problem
Who could have imagined just a few years ago that cutting edge bare-metal stents, costing between $800 and $1,000 apiece on average, eventually would be supplanted by drug-eluting stents, costing around $2,000 to $2,500 apiece, as a standard of care in many instances, particularly to prevent restenosis? Or that clinicians would inject cryogenic fluid through a vascular balloon catheter in a new form of angioplasty? Or that inventory levels for atherectomy devices, at about $2,500 a pop, would soar to 15 a month from two a month at one hospital, due to demand spikes where doctors may use two per procedure?

Think of this as a "double whammy," according to Mike Carpenter, spaceTrax product manager, InnerSpace/Datel Corp., Grand Rapids, MI. "What has once been a profit center has quickly turned into a cost center." Even if the cardiac cath lab and interventional radiology successfully control their existing purchasing habits, inventory levels and consumption patterns, their efforts should continue. "We’ve noticed that customers are able to lower their on-hand inventory but still see their overall supply costs growing," he said. "That’s because the new technology they’re bringing in is more expensive. And that’s why you need to focus on operations and processes and not just products and inventory alone. You have to address both.

"We tell our customers that the best way to eliminate excess inventory is never to buy it in the first place," Carpenter continued. "Much of the problem can be traced to comfort buying so that they don’t run out. The culture of oversupply is very common. They don’t want to run out so they make sure they have at least one of everything. We want to put these departments on a diet – not to make them too thin but so they have just enough."

George Nordstrom, materials services specialist at Sutter General and Sutter Memorial, understands. "What makes our inventory so costly is that we have to carry such a wide variety of sizes, particularly of neurointerventional supplies, which are expensive individually," he said. "Unfortunately, we cannot seem to get those supplies on consignment. That means we have to monitor product expiration dates more diligently. Some devices cost about $1,000 apiece and we probably have about 500 of them on the shelf. We don’t want to have to go to the vendor and say we have 10 expired on the shelf so what can you do for me? We simply have to keep a variety of sizes on the shelf and sometimes duplicates of those sizes, depending on usage. It’s something you can’t get around."

Further complicating matters is an increasing number of product recalls within the last 12 to 18 months, particularly involving defibrillators and drug-eluting stents. Clinicians and administrators attribute it to the Food and Drug Administration prematurely clearing products for marketing as the federal agency succumbed to pressure by critics who mischaracterized a lengthy evaluation process as bureaucratic inertia instead of thoroughness to ensure quality and reliability.

Because two manufacturers dominate the drug-eluting stent market if one were to issue a voluntary or mandatory product recall logic dictates that a hospital would stop using the product and switch to the other vendor. Of course, that doesn’t factor in contract provisions, physician preference, surgical case load, patient necessity and simple market dynamics. For example, in hindsight the Cleveland Clinic Health System heaved a sigh of relief that Boston Scientific Corp. issued several major drug-eluting stent recalls this year, as opposed to the previous year. Why? "Cordis [Corp.] was having some supply problems last year," said Alan Wilde Jr., director of purchasing and vendor relations in Cleveland Clinic’s materials management department. "If Boston Scientific had issued those recalls last year we would have been sunk. We would have had to switch to bare metal stents or not do those surgeries. Doing nothing wasn’t an option for us." Cleveland Clinic’s current drug-eluting stent composition is 60 percent to 40 percent Cordis to Boston Scientific.

Mullen’s philosophy on recalls is quite simple in that it reflects one of the basic foundations in medicine – first, do no harm. "Any item that has been recalled needs to be removed from inventory. Items that have already been implanted require the agreement of the physician and patient to achieve the best solution," he said. "The vendor needs to step forward as well and offer to cover all costs associated with explanting a recalled device, especially as in recent incidents where they have been aware of the issue for a long period of time."

Even in crisis management mode, working with the vendor’s sales reps for information and inservicing is fundamental.

Mistakes to avoid
Clearly, a gulf exists between cardiology and materials management. "One of the things we’ve seen historically is that these two departments are not working together," said Kary LeBlanc, director of materials management, Terrebonne General Medical Center, Houma, LA. "The cath lab includes a lot of high-cost clinical preference and high tech products that clinicians want while materials management focuses on pennies and dollars. These are conflicting philosophies initially. That’s why they’ve avoided each other."

Carpenter, who has spent three years in healthcare after a career in the business and technology industry, agreed. "I see a failure to engage and openly communicate with one another. There’s a lot the two can do together to solve problems," he said. "Oftentimes I’ve seen them come at it with their own demands and without listening to each other’s words."

Chalk it up to stereotypical assumptions. "[The clinicians] assume that materials [management] is only interested in reducing costs and taking things away from them," Wilde said. "The focus needs to be on the process itself and reducing the amount of time to order and receive items and make them available for use."

One big mistake is making the clinical staff responsible for inventory management, according to Dennis Mullen, director of regional logistics in Cleveland Clinic’s materials management department. "That’s why you see overstocking of some items and understocking of others," Mullen noted. "They don’t understand their purchase history. Business tends to be secondary to them."

Furthermore, Mullen cautioned that this issue isn’t limited to the big ticket items, but also includes some of the guide wires and less expensive catheters. "We may know the number of pacemakers and stents needed for a case but we may underestimate the number of guide wires," he added.

"The cath lab has no clue what happens in a materials management process," said Joshuah Faucheux, cath lab inventory coordinator at Terrebonne General. "But if something’s not there for them, then they worry about it. They don’t care about it until the hook’s empty, which makes a doctor fly off the handle. It took us a couple of months to anticipate their needs and trends. I’ve been in this position a little more than two years. I was fortunate enough to have some help here and a willingness to work together. When I first came here I had no idea what a stent was. I had to take my lumps. I learned not to take it to heart but I also learned not to back down. They’ll respect you after that."

People don’t pay enough attention to materials management costs, Chavez contended. "The one key mistake that facilities commonly make is not having a person on staff like George [Nordstrom] whose sole responsibility is handling supplies that filter through this department," he said. "If I had to do my job and George’s, too, on a regular basis, I’d go crazy." A materials management buyer for years, Nordstrom now dons scrubs daily, dealing with products from ordering through receiving, shelving and tracking.

Unfortunately, materials management frequently fits the perceived stereotype by going in with guns blazing to solve all the department’s problems quickly. But materials management has to check the arrogance and egos at the door in favor of diplomacy, persuasion and slow progress.

"Approaching the cath lab too aggressively puts up a brick wall," LeBlanc said. "They think you’re just trying to make a [product] conversion or you’re just seeing dollars and cents and lose sight of clinical efficacy, physician preference and so forth. It’s going to take time. Building trust doesn’t come overnight. It took us a couple of years to build a relationship with the cath lab director. By nature, I’m relatively aggressive but I had to pull back and take time. It’s not an issue of switching products within six months. Timing is everything. Don’t push it too hard. Otherwise you’ll give them the feeling you’re showboating."

Faucheux agreed. "There’s no way you’re going to walk in and switch product even if you know this new product is better," he said. "They’re just going to snub their noses at you. Little things like a wire may not seem important to you but it may feel different in the hands of someone not used to it. You have to take those considerations into account."

Added LeBlanc: "There’s a comfort level that physicians have with products. You can’t take them for granted. A defib is not a defib. You really need to get their input."

LeBlanc doubts that materials management will ever be able to fully control physician preference. "You can contain it or manage it or influence it but I wouldn’t call it control. If you try to control it you’ll fail from the get-go," he said. "You need to develop trust and a format that lets them feel they are providing valuable clinical input. A product committee helps because it’s a process that enables people to work together. You can’t dictate physician preference.

Wilde and Mullen also cautioned against trying to do too much too quickly or all at once. "It can be frustrating because we know what the endpoint needs to be," Mullen said.

"Everybody wants to go to the instant solution," Wilde continued. "We just have to show where we were and where we are. We need to start with a particular product category and make that work. We don’t want to flip the switch and hope it all works. They have to have their stuff."

Materials management also has to extinguish the "just in case" inventory mindset. "The problem with just in case is that items expire, technology changes and you are left with thousands of dollars in wasted inventory," Wilde said. His facility uses a software program to track and manage expiring and expired products.

Materials management also possesses a natural tendency to question why a particular item is needed that can backfire, according to LeBlanc. "Unless you draw them into a meeting you don’t realize the clinical benefit," he said. "Some items do have valid clinical benefits. That’s where the big disconnect is, and knee-jerk reactions won’t work. For example, we questioned the addition of a patch applied to an incision after we spotted more than $100,000 in expenses one year. The doctors told us that the patch controlled bleeding, which helped techs save time and was better for the patient."

Clinicians and administrators are mixed as to who should approach whom. Because materials management has the logistics expertise it should approach the cardiology areas, some say; others counter that such an overture might foment a turf battle, particularly if the areas are consistently profitable.

"We were in a unique situation because they approached us for help in inventory management," LeBlanc admitted. "But I really feel that materials management has the obligation to extend an olive branch first. The cardiac cath lab shouldn’t have to throw up a red flag before materials management comes in. They’re focusing on patient care. Contracting, purchasing and inventory takes second place to clinical issues and patient care. Materials management has a big obligation to offer help whether the cath lab needs or requests it and should at least offer itself as a resource to perform cost analyses."

During the first year Faucheux helped the cath lab slash obsolete inventory by 85 percent, express delivery charges by 69 percent and on-hand inventory by 10 percent, generating more than $160,000 in savings. Since then, additional savings have been offset by new and more costly technology coming in but they’ve maintained stability, LeBlanc indicated. "It’s a balancing act," he added.

"The biggest misunderstanding [between the two areas] is that we both actually have the patient and patient outcomes as our primary concern," Mullen added. "Materials management isn’t just about money."

Solutions that work
Helping the cardiology areas first get organized is a key materials management contribution, Wilde noted. That starts with establishing an inventory count and creating a usage history.

"The more history we have the better we get at identifying and setting PAR levels," Nordstrom contended.

"I believe that there is no one best way to manage inventory," Mullen said. "Different areas have different requirements that call for different strategies." They include physical operations improvements, software, consultants, GPOs and vendors and the Internet. In fact, Cleveland Clinic conducts online reverse auctions, which helped them net nearly $4 million in savings, and bulk buys for defibrillators and pacemakers, which has generated about 50 percent in cost reductions. "The big question is what do you do with all this information and how much do you keep? It’s a moving target. But we’re getting better at knowing what we should know."

Early in 2003, Sutter’s Chavez evaluated several supply management tools, seeking simplicity. "I was looking for a simple solution, something that would basically keep track of the supplies we use," he noted. "It had to be easy to implement and user friendly. I knew that if it went too deep or was cumbersome, we wouldn’t have user compliance." Chavez chose InnerSpace/Datel’s spaceTrax, a Web-based inventory management system that helps staff keep track of non-stock inventory by scanning manufacturer barcodes already printed on the packages. SpaceTrax includes a product database of more than 100,000 interventional and diagnostic devices that are linked to the preprinted barcodes. Because spaceTrax is a hosted Internet-based service, Chavez didn’t have to buy or install software or even build and manage a database.

His staff at the two hospitals includes six technologists, 10 registered nurses and a materials management specialist who handles the purchasing and stocking of supplies. All of them use the system. At the start of a procedure, both spaceTrax and the patient billing application are launched on the laptop computer located in each procedure room. During the procedure, opened supply packages are accumulated for scanning into each application. "The closer the inventory system is to the point of use, the more accurate it is going to be," Chavez said. "It took a little while to get staff acclimated to it; we had some discussion about why it was important. You have to be religious about it in order for it to be effective."

Within two months Chavez’ department was saving money. Two years later, Sutter General’s inventory was reduced by $200,000. Sutter Memorial generated more than $500,000 in inventory reduction savings. Because Chavez is able to collect up-to-the-minute, comprehensive usage data, his department can eliminate inventory losses due to product expiration, exchange or return items that are not being used, keep smaller, more accurate quantities on hand, generate reorders automatically, analyze usage patterns and negotiate better purchase contracts.

"By using spaceTrax we’ve been able to stop what I call ‘comfort buying,’" Chavez said. "Everyone does it to avoid running out of something. We’ve burned the fat. We don’t have excess inventory lying around. Our suppliers ship next-day, so we let them keep it on their shelves. SpaceTrax also allows us to be more fluid in making changes. Before we switch over to a new or different type of product, we use up what we have or work out a trade with the vendor."

Chavez no longer has to rely on vendors for usage data, which left him at a perceived disadvantage. "Now we can talk intelligently about what we use and how much," he said. "Suppliers are very interested in ‘market share’ and now I can tell them exactly what their market share is for a given product. We are able to get a better price in exchange for a certain level of ‘exclusivity.’"

Chavez’ department paid a one-time implementation fee to cover the cost of performing the physical inventory, importing internal data in to the database, initializing the application and training the staff, and pays a monthly access fee based on the number of procedure rooms in the department. "You don’t realize you have a problem until you look at it in black and white," says Chavez. "I knew we could be doing a better job of managing our supplies. I just wasn’t able to quantify it until we started using spaceTrax. The proof is in the numbers."

While software and point-of-use systems are important, attitude and physical presence supersede it. "Offering assistance continually by putting a materials manager in there is a tremendous win that has intrinsic value and builds relationships and trust, leading to hard and soft dollar savings," LeBlanc said. "First and foremost, however, listen to their needs. Work as a team but realize that you work for them. We are a support department that brings value to them. They’re the ones dealing with the patients directly. You need to respect that. Many times their arguments are valid. Sometimes a product can be a piece of junk."