3 Ways to Handle Supply Chain’s Greatest Budget Challenge


Tue Mar 29 13:00:28 CDT 2016

Supplies are a big part of healthcare costs. They are usually a hospital's second largest expense after labor costs, and physician preference items (PPIs) -- specific medical devices or supplies that are "preferred" by a hospital's doctors and surgeons -- can ratchet up that line item very quickly. 

PPIs are arguably a supply-chain manager's biggest challenge when it comes to staying within budget. But as cost containment and better outcomes must both be met under accountable care, business as usual will be changing for everyone.


This is a unique window of opportunity for supply chain managers to develop new strategies and work with physicians to establish new processes surrounding supply costs. Successful leaders in supply chain management agree that engagement and partnership with physicians are key. Here are 3 ways to do that.


1. Leverage the move toward value-based, accountable care. Supply chains once targeted PPIs as part of cost-cutting initiatives (hence physicians' angst), but now supply strategy should shift according to the goals of accountable care. Hospitals see these goals (cost reductions and improved outcomes) as part of everyone's job, not just one department, so the opportunity for partnership has never been riper. 


At a conference we recently attended, it learned Intermountain Healthcare has eliminated the term PPI because supply decision-making has become a group decision based on various factors, such as outcomes and cost. Now, there is no need for a term that describes a specific group’s “preference.” This is an interesting win-win approach for both supply chain and clinicians, and one we expect to hear more about.


2. Talk reimbursement. Physicians know reimbursement rates are declining, so their willingness to take an active role in improved profit margins has increased. Take advantage of this as PPIs come up in discussion. Be sure to have up-to-date reimbursement information available to know whether or not the PPI’s have additional opportunity for payment based upon coding procedures. Engage the Medical Records team to identify trends in coding or reimbursements that may have an impact on the procedural areas you are evaluating. Be willing to receive inputs from the physicians should there be concerns with how procedures are coded and tracked. Sometimes a focused audit is necessary to answer some of the concerns that may arise. Often the suppliers of PPIs can provide assistance through their reimbursement teams.


3. Speak physicians' language. Avoid supply chain jargon when you're talking with physicians. Terms like "dual source prime contract" will NOT engage them. And speak within their realm of concerns -- perceived patient interest, comfort level with the product, patient outcomes and safety, etc. -- not how difficult it is to get, the price and other supply chain concerns. 


For more ideas, here's a related post I wrote last month: "Getting Along: 3 Collaboration Strategies for Supply Chain & Clinical"


How are you handling PPIs at your hospital? What do you think of Intermountain Healthcare’s decision to do away with it all together? Leave your thoughts in the comments below.