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GPOs – Valued Partners in Healthcare
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The healthcare group purchasing organization (GPO) members of HSCA work closely with their provider partners across the continuum of care to reduce cost, add value, and improve outcomes for patients. Below you'll find some narratives that help to demonstrate why GPOs are valued partners in healthcare.

 

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Engaging Clinicians Helps TPC to Save $107.6 Million in Underlying Cost Structure—and Still Counting

Posted By HSCA, Thursday, January 14, 2016

As health systems seek cost reduction strategies, one area of focus is supplies. Second to labor in the expense categories, supplies and drugs can represent typically as much as 25 percent of a hospital’s total operating budget.

Traditionally, hospitals and healthcare organizations relied on their group purchasing organization (GPO) to maximize supply purchasing efficiency and reduce supply expense. To drive low pricing, traditional GPOs negotiate contracts with suppliers and distributors that take into account the collective purchasing volume of the GPO members. With the emergence of risk-based reimbursement, declining revenues and additional Medicare rate cuts, an inability to reduce supply expense from current state has far-reaching implications. Only those healthcare organizations that reduce the underlying cost structure of resources used in delivering patient care can achieve the care and cost improvements needed to sustain financial viability.

TPC is a provider-owned partnership comprised of eight independent health systems who decided to respond to this challenge by rethinking their traditional GPO services. The coalition enables member health systems to gain access to economies of scale and clinical redesign expertise that they would not be able to afford as an independent community health system. By banding together, TPC members were able to transform expense management and implement procurement functions to control costs. The goal was to reduce costs not only for commodity supplies and pharmaceuticals, but also purchased services, medical equipment and implantable medical devices/physician preference items (PPI)—which can represent as much as 40 percent of a hospital’s supply budget.

Challenge

In 2009, TPC conducted a request for proposal to find the best economic solution for its supply chain needs. In addition to traditional GPO services, two key capabilities were PPI consulting and technology for analytics to package existing supply chain data into actionable information. The coalition deemed the PPI consulting services as the largest potential savings opportunity.

According to Geoff Brenner, president and chief executive officer, TPC’s choice of MedAssets in January 2010 was based on the company’s proven strengths in each capability category and strong industry references.

“I spoke with the CEO of a large healthcare system, who commented that in the area of physician preference items, while everyone else in the industry holds a candle, MedAssets holds a searchlight,” says Brenner. “It made a difference that other providers were validating the PPI advantage MedAssets held in capabilities, systems and tools.”

Solution

In 2010, TPC members converted their respective existing GPO relationships and realized immediate benefit. The sourcing of custom contracts extended to both individual members and the coalition as a whole. Taking advantage of scale, TPC drove change across the health systems.

Centralized Distribution Management

MedAssets worked in collaboration with each provider to consolidate and standardize distribution spend for med/surg, laboratory and pharmacy under a single, custom contracting umbrella. Fueled by each member’s pre-commitment to convert to the recommended distributor, this comprehensive agreement generated a swift $6.5 million in savings.

“I believe that it’s the best distribution agreement in the country,” says Todd DeRoo, chief resource officer, Trinity Mother Frances Health System. “Converting three major areas simultaneously was a major effort, but the expertise of the MedAssets team helped us develop the terms and conditions, evaluate the responses and complete tough negotiations with the finalist. Every TPC member received an immediate benefit from the conversion process, and our cost-plus pricing decreased substantially.”

MedAssets also provided members with decision support analytics, for complete visibility into all aspects of supply spend. As a result, the coalition generated $35.7 million in savings through distribution and clinical sourcing initiatives by leveraging the knowledge and experience of the MedAssets Operational Analytics teams.

“My quarterly report details ongoing savings that have been audited and agreed upon by our hospital and MedAssets. I always know how current performance compares to our guaranteed savings—and what is in the pipeline,” notes Stephen Bowerman, chief financial officer, Midland Memorial Hospital. “I can track my facility’s progress and also gauge our results against other TPC hospitals. It’s all very transparent and creates a friendly spirit of competition, even though we know that we’re all working together to hit the overall TPC savings target.”

Converting PPI through Clinical Value Analysis

Consulting services focused on the challenging area of PPI. MedAssets clinical resource management experts reviewed coalition member utilization to capture total costs then provided comparative analysis variables including reimbursement, supply cost, utilization and clinical resource data. The on-site MedAssets team then engaged TPC physicians in a distinct analytical review to present insight on PPI cost drivers and savings opportunities. The physician engagement resulted in converting usage and more standardization for a total savings of more than $63.5 million.

According to Brenner, the ability to share data and collaborate with physicians in a scientific manner is essential to successful PPI conversions. It affirms to physicians it’s possible to maintain high quality patient outcomes while being mindful of how medical device selections impact financial results. “Thanks to clinical input and consensus we’re having great success in areas that seemed unmovable in the past, and the results have drawn favorable reviews, both in terms of perception and bottom-line results,” he says.

“The PPI process is a real eye-opener for physicians, and MedAssets analytics have been a strong selling point,” adds DeRoo. “During the negotiating process, our doctors told vendors that volume would be moved elsewhere if fair market prices weren’t met. In a recent initiative for heart valves, when the number-one vendor in that market would not meet the recommended price point, physicians chose instead to use two other vendors that would meet it.”

Concluding DeRoo says, “As supply chain executives and materials managers, we didn’t spend much time with physicians five years ago, but now we do. Data from MedAssets is helping us cross the goal line together.”

“It’s a great process to go through, just culturally, to meet with our physicians, examine data, evaluate clinical acceptance and outcomes and determine how we can get equivalent products at better prices,” says Bowerman. “Having that level of engagement with physicians is valuable to help us learn more about their practices and it has been a great savings opportunity.”

Results

The move to retain local identities and independent ownership structures enabled TPC members to gain access to price points and business intelligence usually reserved for the largest IDNs, including expert resources and benchmark data, generally cost prohibitive to develop and own.

Over the span of its engagement with MedAssets, TPC has experienced value-driven savings of $107.6 million, achieving $54 million in the first 18 months, beating its guarantee from MedAssets nearly three months early. The coalition generated approximately $35.7 million in savings through distribution and clinical sourcing initiatives, including $6.5 million in savings from a new system-wide distribution agreement, which consolidated members’ combined volume in med/surg, laboratory and pharmacy to one distributor. TPC also generated $8.4 million in savings from MedAssets Strategic Sourcing services. The PPI engagement resulted in converting usage and more standardization for a total savings of $63.5 million. Within that figure TPC realized $18.5 million in pharmacy services savings. Due to the success of the TPC’s relationship with MedAssets, a former Premier member (Hendrick Health System) chose to join TPC to benefit in the demonstrated supply chain cost reductions and clinical process improvements.

“After reviewing our options, we realized that joining this coalition also would give us access to MedAssets knowledge, technology and experts to control costs at a whole new level,” says Tim Lancaster, president and chief executive officer, Hendrick Health System. “Acting on our own we could never afford a staff to conduct a comprehensive value analysis on the total costs of care. This agreement is an essential step toward sustaining our financial viability and ability to continue to provide excellent patient care in our community.”

Brenner adds, “MedAssets has brought structure, process and predictability to an otherwise challenging and disparate supply chain process. Our members are benefiting from aggressive pricing programs combined with flexibility in contracting to maximize benefits. Our results to date demonstrate we have made the right choice.”

Features

  • Leveraged the combined strength of a “virtual IDN” business model to create economies of scale and significant financial benefit to the coalition and individual members
  • Introduced Operational Analytics as the next step in achieving greater cost reductions in clinical supplies, based on standardizing and reducing variability in supply usage by procedure, physician and service line
  • Worked with all TPC members to consolidate distribution spend for med/surg, laboratory and pharmacy under a single custom-contracting agreement
  • Used custom-contracting strategies to craft agreements at the facility level for PPI categories such as orthopedics
  • Converted member usage of sutures, endomechanicals, trocars, surgical mesh and topical skin adhesives to one supplier—and achieved significant savings
  • Applied proven methodologies to create structure and processes to create an informed clinical voice into PPI purchasing decisions

Optimize Cost Management Performance

  • Experienced value-driven savings of $107.6 million, achieving $54 million within the first 18 months
  • Generated $6.5 million in savings by consolidating members’ combined volume in med/surg, laboratory and pharmacy to one distributor
  • Utilized pharmacy services to gain another $18.5 million in savings
  • Generated GPO savings of $8.4 million
  • Gained an additional 10 percent savings on contracts for non-clinical products through pre-commitment strategies

Optimize Clinical Resource Utilization

  • $63.5 million in PPI savings
  • Hendrick Health System and Mission Regional Medical Center chose to join TPC to benefit in the demonstrated supply chain cost reductions and clinical process improvements

Optimize Clinical Resource Management

  • Generated $52.4 million in savings by converting usage of PPI
  • Premier member (Hendrick Health System) chose to join TPC to benefit in the demonstrated supply chain cost reductions and clinical process improvements

Tags:  Cost  MedAssets  Texas  Texas Purchasing Coalition 

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