Surgical Services may be one of the leading revenue generators for a healthcare organization, but it’s also widely acknowledged as one of the leading cost centers. This motivates providers to identify and rein in expenses as quickly and thoroughly as possible.
Generally, healthcare organizations tackle this on a product or project basis; the more astute concentrate their efforts on specific specialties or service lines involving the consumption and use of the highest-cost products and clinical expertise.
For Florence, SC-based McLeod Health, a seven-hospital system serving patients in an 18-county region spanning North and South Carolina, their first target was orthopedics.
“Often orthopedic profits fuel other service lines,” noted Dr. Patrick Denton, Orthopedic Surgeon, Director of Sports Medicine, and Orthopedic service line leader.
And target it they did with pinpoint accuracy and accountability. In fact, their dedicated efforts and impressive achievements in this complex but comprehensive project earned them Honorable Mention for the inaugural Surgical Performance Excellence in Supply Chain Award by Healthcare Purchasing News.
While McLeod Health’s total joint service line was critical to the health and well-being of its patients, it was a strain on the health system as a result of the U.S. Centers for Medicare & Medicaid Services (CMS) reimbursement cuts. Leadership recognized the need to find new ways to reduce spend in this area without negatively impacting care.
“All of these outside influences were putting cost pressure on us,” recalled Boyd “BJ” McCluskey, Director, Resource Optimization, McLeod Health. “We needed a measurement and a way to track [data] between Supply Chain, Quality, Finance and clinical.”
To sustain the viability of the service line, McLeod’s orthopedic and supply chain teams joined forces to examine how they could reduce costs, maintain patient care quality, and improve financial outcomes for the organization. To do so, they needed visibility into every aspect of total joint procedures that could impact costs, quality and outcomes by surgeon and by case, including supply usage/costs, amount billed to/ reimbursed by payer, patient outcomes and case revenue/profit.
Outlining the Process
McLeod’s orthopedic and supply chain teams joined forces to examine how they could reduce costs, maintain patient care quality, and improve financial outcomes for the organization. They needed visibility into every aspect of total joint procedures that could impact CQO by surgeon and by case:
- The supplies used in the case and their cost (as well as supplies that were picked for the case but returned to inventory or wasted)
- Total case cost (fixed and variable costs)
- Amount billed to the payer
- Reimbursement received
- Patient outcomes, including infections and readmissions
- Case revenue/profit (reimbursement less costs)
- Variation of the direct and indirect cost per facility
The goal was to create a dashboard containing this data, making it as close to real-time as possible, then using the dashboard to measure the impact and outcomes of decisions.
A key challenge this team faced was that the data resided in separate systems, including healthcare supply chain technology and clinical and financial platforms, that lacked integration:
- Enterprise resource planning (ERP) system for item master and purchase order (PO) data
- Inventory point of use (POU) system for supply consumption data (e.g., supplies used by each surgeon in procedures)
- Cost accounting system for financial data (e.g., what supplies were billed, how much the health system was reimbursed by payers)
- Quality system for patient outcomes data, including infections, readmissions
“One of the surprising things was what a challenge it was to get all the appropriate data that we needed,” Denton noted. “Unfortunately, some data is in one computer system for supply chain, some data is in another system for our CFO and revenue management, another one for what we actually used in the procedure. We needed a way to filter this data and make it as clean as possible.”
They strove to set up a simple platform, according to McCluskey.
“We needed to see one complete picture accessible to all,” he said. “And we wanted to scale it for other service lines if we were successful.”
To create an integration solution, the team worked with SupplyCopia to develop a user-friendly and intuitive dashboard to support its total joint CQO pilot. This Software-as-a-Solution (SaaS) product could easily combine disparate datasets and apply artificial intelligence (AI) and machine learning (ML) to generate actionable insights on cost, quality and outcomes.
To present a comprehensive picture of CQO for McLeod’s total joint procedures, the SupplyCopia team performed a series of data integrations. First, the team integrated supply purchasing costs from the item master with the BOM to establish a cost structure for each physician by procedure. Next, they integrated the cost data with reimbursement data from the finance system and utilization data from the POU system. Lastly, they integrated patient demographics data with the cost and reimbursement data.
In addition, the procedural data was analyzed and as a result, a bill of materials (BOM) was created for McLeod’s total joint procedures, with supplies used by each surgeon in each case. This gave the health system a baseline for supply standardization efforts.
“Some really phenomenal insights came from that,” said Dr. Michael Rose, Chief Innovation Officer, McLeod Health. “The variation in materials going into a case was unbelievable. We were able to define about 10,000 combinations of products used among nine or 10 surgeons in total joint procedures.”
The revelations were eye-opening.
“Docs were seeing this for the first time,” Denton noted. “We used this data to work with suppliers on pricing with surgeons at the negotiating table. This opened up conversations with vendors.”
Uniting around teamwork
One of the most unique aspects of McLeod’s CQO initiative was that it was physician-led. Many organizations have been working to establish clinically integrated supply chains where clinical and supply chain teams work together to improve cost, quality and outcomes. But physicians can be resistant to change, particularly when they question the credibility of the data presented by supply chain.
The McLeod team realized that if they were to enact real change in the health system’s total joint program, the orthopedic team must lead the effort and decide what data was necessary to evaluate supplies and their impact on CQO. Supply chain would support the initiative by obtaining and validating the requested data, as would stakeholders from the finance, value analysis and quality teams. In essence, it was not only a healthcare supply chain transformation project but also a clinical and financial transformation project.
“This work was presented to our physicians with cost, quality and outcomes data together in one place,” said Carmen Winfield, Vice President, Supply Chain, McLeod Health. “It required close collaboration between various departments. Supply chain would provide the cost of supplies, finance the reimbursement side and quality the patient outcomes. So that was our goal -- to put it all together so physicians could see the big picture and make evidence-based, data-driven decisions.”
Showcasing cost savings
Physician preference typically plays a role in hip and knee implant product selection. While one surgeon believes one manufacturer’s implant delivers the best patient outcomes, another surgeon believes another manufacturer’s product is superior. Because implant components represent a significant portion of the overall procedure cost, the McLeod team was particularly interested in knowing how these items impacted CQO. The integration and analysis of this data would facilitate the linkage of specific products, or product combinations, to procedural costs and quality of care delivery. From there the orthopedic team could standardize on those supplies that delivered the greatest value: Best outcomes at the lowest cost.
“Once we established this baseline, we wanted to utilize the data to test hypotheses or changes,” Denton said. “If we switch to vendor X and use their products because they’ve come back to the table and given us a better price, does that affect any of our outcomes or results? Or if we implement a new technology (e.g., computer navigations, robotics) how does that affect our cost structure and our outcomes?”
With new insights from the integrated data set, the McLeod team uncovered significant opportunities for product and process standardization, waste reduction and contract optimization. Most importantly, they were able to base their decisions on what delivers the greatest value to their patients. Ultimately this work enables McLeod to have the financial viability to continue to perform life-changing total joint procedures, which are critical to the health and livelihood of its patient populations, according to Dr. Rose. Further, they anticipate planned healthcare supply chain optimization initiatives in the total joint service line based on the results of this work will drive significant savings to the health system.
The team has identified which supply combinations yielded the highest quality outcomes at the lowest possible cost. Armed with this information, they worked to establish a standardized bill of materials for each total joint procedure, meaning those items essential to a case. They were able to standardize procedure packs (e.g., total knee case) with supplies that would cover 85-90% of all cases, recognizing there would still be times when a surgeon required a unique item based on patient needs.
“We’ve standardized a lot of processes based on these insights,” Denton said. “We’ve questioned whether we should use a specific medication or intervention in certain procedures. Then we looked into the data to find the evidence to say, ‘We think it should be this and everybody should do this.’ And we have about a 95% compliance rate with those processes.”
They also used the dashboard for enhanced healthcare supply chain management, such as monitoring compliance with supply standardization for joint procedures.
Next, the team looked at implants. With implants having the largest price tags among supplies used in total joint cases, the McLeod team was particularly interested to know if implant choice (manufacturer/ brand) impacted clinical outcomes.
“As we look across all of this patient demographic data and we look at patients one year out, the joint itself does not matter,” said Dale Locklair, Senior Vice President, Planning and Facilities Management Group, who has since retired. “The data shows that in the hands of a skillful surgeon particular implants do not make a difference in the long run. We drew the conclusion that those supplies that we call ‘physician preference items’ in healthcare, really do not contribute significantly to outcomes in total joint procedures at all.”
While the choice of supplier and implant did not have a significant impact on patient outcomes, it did influence the cost of the procedure, explained Dr. Rose. But acquiring lower cost implants isn’t the only solution to improving financial outcomes for the health system. “In the supply chain area, I think we’ve learned a couple of really important things. One is that the choice of the vendor is an important factor in the cost, no question about it. However, what we learned from this experiment is you can’t take enough expense out of the implant to make this line profitable, and it is unlikely to ever be that way. We also need to impact care outside of the hospital after the procedure, including complications, readmission and length of stay.”
Supply Chain’s Winfield emphasizes the data elements and value. “We have been discussing how we can leverage the data we have today on what the preference cards say versus what is actually used and done in the room. How can we create a more accurate preference card to say: ‘This is what our data says you should use versus what you did use’ and ‘Here are the products you used that you did not plan to use.’ That’s going to be one of our biggest opportunities for savings.”