What High-Value Implants Teach Us About Margin Management

By Catherine Bakalar, Vice President of Operations & Delivery for High-Value Implant Advisory Services at Premier.

A study published in Health Affairs a few years ago found that four out of five times, orthopedic attending physicians could not price hip and knee implant costs correctly. When the users of the device are unaware of how their choices affect the bottom line, providers have a problem.

Of course, validating and sharing the right data with physicians goes a long way in resolving this issue. But, this quandary is indicative of a larger opportunity area: creating a culture in which individuals consider and assess how their discrete decisions may affect the cost of care and, ultimately, reimbursement.

Within high-value implants, Premier Inc. is seeing savvy supply chain leaders go beyond competitive data analytics to drive standardization and utilization by capitalizing on culture. By doing so, they’re achieving multimillion-dollar savings, and forming positive working relationships between their clinicians along the way. If focusing on culture and communication to manage margins seems basic, think again. A provider’s efforts to tackle high-value implant costs are a microcosm of the strategies and levers that they should deploy to succeed in value-based care.

How? An initiative to optimize high-value implant costs requires strong physician communication, engagement and buy-in. It entails a core organizational competency to internalize financial health. It hinges on telling the story through strong data analytics. And, it asks leaders to make the connection between the cost of a single item to how an episode of care will be reimbursed.

The Strategy Behind Standardization and Utilization

As with all financial improvement initiatives, the first step is to explore the impetus. Premier's High-Value Implant Advisory Services team sees three common reasons providers seek to standardize:

• To control cost. Scaling back the number of suppliers or the amount of equivalent products might expose an opportunity for higher savings.
• To manage fewer suppliers. Pruning suppliers reduces administrative burden, time and cost, as well as the number of outside partners interacting with confidential patient information.
• To make a market share commitment to their top one, two or three suppliers as a competitive advantage. This allows an organization to coalesce around purposeful and powerful supplier relationships, engendering collaboration on mutually beneficial projects that can lead to better customer service, pricing, outcomes and contract terms.

Standardization is often a catch-all term that encompasses supplier reduction initiatives, implant utilization discussions, pathway-of-care templating or appropriate-use criteria. Providers inherently understand the metrics, economic forces and systematic processes that call for standardization, including price disparity in the marketplace, tiering of suppliers and supplier reduction. But, Premier’s team sees time and again that providers tend to get stuck on how to go beyond the data.

This is where it’s imperative to zero in on the definition of standardization and the connection to how a product is utilized. Optimizing standardization and utilization yields the highest level of success in pricing initiatives and tips the balance in negotiations.

These efforts only occur with the right data. Cross-reference benchmarks reveal implants that are functionally equivalent, and providers should leverage business intelligence that shows what similar-sized systems pay across functionally equivalent implants. Business intelligence that drills down into service line, physician and diagnosis level helps leaders understand opportunity areas across cost, quality and outcomes.

When providers standardize suppliers or supplies, they can reduce cost variation and drive utilization beyond an individual device. Utilization suddenly broadens to incorporate standards of care and may involve contracted services like neuromonitoring – all variables contributing to the larger conversation of total cost of care.

The Critical Success Factor

Aligning internal core competencies toward the communication of improvement efforts is key. Providers must be able to explain what a change is, why it’s occurring, who it will affect and how it will help deliver on the organization’s mission and commitment to patients.

Premier members do this best by:

• Approaching the story with the “why” front and center (i.e., gaining efficiencies, improving outcomes, pursuing performance improvement, participating in an alternative payment model).
• Letting data do the talking, to demonstrate variance and opportunity areas, which is key to aligning physicians toward a transformation initiative.
• Selecting the right person to tell the story -- someone who has the passion to get the message across and the repute with the target audience.
• Considering the format and frequency of communication so a new process does not become a one-and-done.

The movement to risk-based payment is compelling providers to modulate the delivery of care and, in effect, disrupting operating models. On the ground, this means providers must capitalize on models that support this movement, in part by leveraging standardization and utilization to optimize care delivery and margin management.

Premier knows this. Our High-Value Implant Advisory Services team has worked with multiple providers to benchmark savings, standardize items and earn credibility from physicians. Learn more here.

Story originally featured in HealthLeaders.