Preparing for health care reform

1. Preparing for health care reform Dr. wm. Marty martin

2. Patient care protection and affordable care act in a nutshell • Incenting prevention and primary care. • Aligning incentives in payment. • Increasing transparency. • Increasing efficiency and investments in IT. • Rewarding value-based services. Source: Rooney (2011). Is Your Supply Chain Ready to Survive Health Care Reform? Journal of Healthcare Contracting.

3. Health insurance • 2010 • Several new provisions already implemented. • 2011 • Innovation Center for CMS established. • Prohibits federal Medicaid payments to states for services related to HAI conditions.

4. Timeline (2012-2013). • 2012 • Establishment of non-profit insurance co-ops to compete with commercial plans. • Penalty on hospitals with high rates of preventable readmissions by cutting Medicare payments. • Medicare Value-Based Purchasing (VBP) program begins. • Medicaid bundled payment demonstration project begins. • Comparative effectiveness research fee begins. • 2013 • Financial relationship disclosure required between providers and drug manufacturers and suppliers. • Medicare bundled payment demonstration project begins • Medical device tax of 2.3 percent.

5. Timeline (2014-2020) • 2014 • Individual and employer mandates begin. • Health insurance state based exchanges begin. • Independent Payment Advisory Board (IPAB) submits first recommendation on reducing Medicare spending growth. • Reduction in states’ DSH allotment. • 2015 • Reduce Medicare payments for HAI conditions. • 2018 • A new “Cadillac tax” on employer sponsored insurance. • 2020 • The Medicare “doughnut hole” will officially be closed.

6. Is this prediction plausible? “To make economies of scale work in an environment featuring lower reimbursement, I predict that the healthcare supply chain will feature further consolidation at every level. In addition, vendors will need to rethink how their products fit into the new processes being developed for disease management and care coordination (page 35).” Source: Rooney (2011). Is Your Supply Chain Ready to Survive Health Care Reform? Journal of Healthcare Contracting.

7. Environmental Uncertainty Performance Goal Incongruence Industry Challenges & Responses Strategy • Leveraging volume • Local SC capabilities • Process improvement • New entrants • E-commerce solutions • Distribution services • Other new services

8. Inventory and Store Receive and Pay Pick Pick Ship Contract Order Evaluate, Select Deliver to Point of Use Use Customer Manufacturer Distributor Customer What is Being Managed? The Enterprise-Wide Supply Chain

9. Cost Safety Assets Sustainability Responsive ness Outcomes Customer Satisfaction Reliability Revenue Supply Chain Performance Outcomes

10. Medicare Professional Reimbursement Changes Financial Challenges Hospital – Physician Concerns Private Payer Professional Reimbursement Changes Overhead / Expense Management Patient Safety and Quality Physician Concerns Hospital CEO Concerns Top Physician Concerns Top Hospital Concerns Care for the Uninsured 78% 78% 74% Hospital / Physician Relations 43% Practice Growth 71% 41% Personnel Changes Malpractice Costs 32% 32% Healthcare Reform Pay for Call 28% 30% Patient Satisfaction Hospital Relations 27% 26% Regulatory Changes 22% 22% Capacity 17% Quality Reporting 16% Technology 15% 9% Workload Malpractice 2% 14% 10 Source: Sg2 2009 | ACHE 2009

11. Is your plan aligned with the concerns of physicians and hospital CEOs?

12. Hospital – Physician Alignment Putting Them on Salary Ceding the Market Head-On Battle Splitting the Market Working Together Hospitals Complex/ Unprofitable Cases Complex/Co-morbid Cases Recruited or Employed Physicians Co-Management Employment / Foundation Joint Venture Independent Practice Physicians Independent Practice Surgery, Imaging, Ancillary Services Surgery, Imaging, Ancillary Services Source: Advisory Board 2008

13. Clinical Supply Chain and PPIPresent a Great Savings Opportunity • A typical 400+ bed hospital spends about $56M annually on Physician Preference Items (PPI) • On average, $6-10M (10-20%) could be saved on these items on an annual basis.

14. Physician Preference Items Intensify Challenge • 30-40% of supply expense are • physician preference items • 6–10% of operating expense • Preference items may or may not… • be linked to outcomes/ performance • have associated contracted purchase price • be fully reimbursed “We had our first physician preference contract negotiations to narrow the number of vendors down and guarantee 95% utilization of one vendor through engaging the physicians, resulting in an annual savings of $300,000.” - Mid Sized Hospital Survey Respondent

15. Physician Engagement Strategy • Value of Time • Don’t Compromise on Quality • Show Tangible Results of Their Efforts • Recognize….

16. Hospital–Physician Alignment Integration / Employment Trends Hospital and health systems acquire primary care practices. Growing interest in alignment and willingness to partner with physicians. Degree of Integration Employment of specialists and PCPs will become more common. Many hospitals divest of primary care practices, refocus on core business. Employment of hospital based specialists. 1980 1985 1990 1995 2000 2005 2010 2015 Source: Sg2 2008

17. Chart 4.1: Percentage of Hospitals with Negative Total and Operating Margins, 1995 – 2007 Negative Operating Margin Negative Total Margin Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals.

18. From A large Slice of the Pie Total Supply Chain Expense as a Percentage of Total Hospital Expense Supply Chain Management Expense 35% to 45% Other Hospital Operating Expense 55% to 70%

19. What are you thinking if you are the cfo, ceo or board?

20. 15% Others 15% Logistics & Distribution 100% 25% Total Supplies 45% Supply Chain Management Clinical & General Labor, Other To a tipping point size slice: >50% of the budget Total Cost Incurred by Hospitals * Figures based on HFMA estimates. Labor cost includes salaries, wages and benefits based on average of leading hospitals in the U.S. and Others is inclusive of profits to the hospitals. Source: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis.

21. Supply Expense Management Strategies • Reduce product pricing • Leverage total volume with single supplier • Utilization/renegotiation of corporate contracts • Assessment/reduction of value add costs • Utilization of bid process • Increase inventory turns • Par Levels • Ordering frequency, volume • Product standardization • Fewer items • Leverage to sole source • Increase budgetary accountability at department level

22. Supply Expense Management Strategies(continued) • Product utilization review…Physician Preference Items (PPI) • Use of clinical pathways • Quantity of items used • Type of items used • Alternative procedure • Utilize a Value Analysis approach for product selection • Based on matching (not exceeding) the quantity and quality of resources to the required outcome

23. Total Supply Expense DriversImpact, Manageability • Patient acuity • Procedure volume • Patient care protocols/clinical paths • Technology • Product quality • Product brand • Price inflation • Procurement proficiency

24. ’08: Improving Profitability By Supply Chain C-Suite SC Execs • APPROACHES CONSIDERED or TAKEN • to IMPROVE PROFITABILITY • Enhancing collaboration with physiciansin supply standardization and expense reduction • • Identifying appropriate metrics to benchmark the organization’s supply chain performance • • Decreasing direct/off-contract ordering • Initiating a value analysis process • Achieving minimum total expense for specialty/physician preference supplies (e.g., stents) • AHRMM Survey 2008 1 1 2 5 3 6 7 2 6 3

25. Preparing for health care reformrecommendations for action • Read the actual law in a PDF format and search for terms that are relevant to materials management like value-based purchasing. • Draw out a timeline of when specific provisions impact your work. • Develop a concrete action to address each provision outlined the health care bill. • Identify your stakeholders by formulating a stakeholder map and ask the question: How will the healthcare law impact our key stakeholders? • Formulate at least three scenarios for your materials management function including the following: • The Ideal Case • The Most Probably Case • The Nightmare Case

26. Recommendations for Action • View your action plan as a change management initiative using Kotter’s Model of Change. • Be sure that materials management is positioned not only as a cost-center but also as a center of value. • Innovate your organizational structure, work processes, administrative processes, supply chain processes, and business model. • Persuade the CEO to have a board committee on strategic supply chain. • Enlist clinicians to advocate for the value of materials management but be prepared to give up some control for enlisting clinicians.

28. Kotter’s Change Model • 1) Establishing a sense of urgency • 2) Creating the guiding coalition • 3) Developing a vision and strategy • 4) Communicating the change vision • 5) Empowering broad-based action • 6) Generating short-term wins • 7) Consolidating gains and producing more change • 8) Anchoring new approaches in the culture

29. Do You have career insurance?