Study points to physicians as catalysts for savings

A national health care alliance suggests hospitals can save money by enlisting doctors in supply cost-cutting measures.

By Mike Norbut, amednews staff. Feb. 10, 2003.

Physicians can help their local hospitals save millions of dollars each year by keeping a keen eye on supply costs and cutting back on the number of suppliers they deal with, according to a recent study by health care cooperative, VHA Inc.

While hospitals have been wary of the idea of standardizing supplies, especially in the operating room, for fear of physician backlash, Irving, Texas-based VHA and physicians said facilities can minimize the negative impact by enlisting doctors' participation in the cost-cutting effort.

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"If doctors are involved, then I think the process can work and be a benefit to society," said Peter C. Amadio, MD, an orthopedic surgeon and professor of orthopedic surgery at the Mayo Clinic in Rochester, Minn. "It's very important that the physician be closely involved, because ultimately, these things being purchased are for the benefit of the patients."

Supplies, which comprise hospitals' second largest line-item expense after labor, were identified by the study as a category in which costs could be dramatically reduced simply by applying the basic principles of purchasing. This notion was especially true in the operating room and among orthopedic surgeons and cardiologists, two of the busiest and more expensive specialties.

Just as warehouse clubs are able to offer lower prices by buying in bulk, a hospital limiting the number of manufacturers it deals with can negotiate lower costs by purchasing greater volumes of equipment, the study said.

The idea is contrary to the traditional supply method, in which hospitals generally order according to what the admitting physician requested. Meanwhile, the hospital is reimbursed at a set rate for a certain procedure, which means it struggles more each year to break even on common procedures, officials said.

One hospital cut supply costs by $3 million over 2 years.

The study suggests that hospitals need to be more involved in negotiations with manufacturers, because physicians are constantly bombarded with marketing attempts and do not usually make cost the main priority for choosing a device. Strong relationships with company representatives, especially if those people are helpful in the operating room, also can influence a doctor's opinion of the equipment, the study says.

Indeed, convincing doctors that change isn't necessarily bad is the most difficult part of the cost-cutting equation, said Bill Monnig, MD, a Cincinnati urologist and chair of the AMA Organized Medical Staff Section.

"Every doctor gets familiar with a product he likes," said Dr. Monnig, whose urology group operates its own surgery center. "In order to gain the economies of scale, you have to get a number of doctors to change their behavior."

Successful hospitals did not sacrifice quality when they standardized their equipment, but cutting suppliers down even slightly made a financial difference, said Sandy Schmitt, vice president of VHA consulting services and one of the lead researchers for the study.

"I don't think anybody wanted to interfere with clinical quality in the past," Schmitt said. "But things can be of equal quality and be just a little different."

In an effort to reduce costs but not alienate physicians, some facilities have started to use purchase review committees made up of both administrators and doctors.

"One of the problems we face is manufacturers and pharmaceutical representatives approaching physicians directly," said Nagendra Nadaraja, MD, a general surgeon and head of surgery for Unity Health System in Rochester, N.Y. "We will not take away any instrument if the doctor is going to feel uncomfortable with something else."

Unity, whose flagship facility is Park Ridge Hospital in Rochester, was named by the VHA study as a success story because it cut its supply costs by $3 million in 1999 and 2000.

Dr. Nadaraja said it had been an ongoing process to convince all of Unity's physicians they could live with slightly different devices in some cases, but the response in general has been positive.

The study suggests that hospitals should build a compelling case for supply standardization by presenting data to physicians rather than simply sending a memo laying down the law. Even then, there's bound to be disillusionment, but not to the extent that some hospitals may have expected in the past, the study said.

"We don't want to paint this in a Pollyannaish view, because it can be an extremely emotional issue," Schmitt said. "But physicians have an interest in keeping their local hospitals healthy and strong."

Physicians in the past may have found themselves stuck in the middle between manufacturers trying to make a sale and hospitals looking to save money. By taking part in cost-control discussions, however, they can have the essential moderate voice, Dr. Amadio said.

"This isn't for the equipment makers' and the drug companies' bottom line, and it's not for the hospitals' bottom line," said Dr. Amadio, who is a board member for the American Academy of Orthopaedic Surgeons. "It's about the patients."