PPI Standardization: Is This the Right Strategy? · 2009. 5. 12. · MedAssets company 2....

CONFIDENTIAL – PROPERTY OF MEDASSETS. MedAssets® is a registered trademark of MedAssets, Inc. Copyright MedAssets, 2008. All rights reserved.

PPI Standardization: Is This the Right Strategy?Nick Sears, MD

Chief Medical Officer

MedAssets

CONFIDENTIAL Property of MedAssets

Introduction

• Nicholas Sears, M.D.

• Chief Medical Officer, MedAssets

• Senior Vice President, Aspen Healthcare Metrics, a MedAssets company

2


Is This the Right Strategy?

• Will I be shot by my physicians?

3


Agenda

• State of Healthcare

• Stakeholders

• PPI Standardization

• Alignment Methods

• Other Issues

• Questions…at any time

4


State of Healthcare

• Demand

• Macroeconomics

• Political football

• Transparency

• Cost drivers

5

Growing Demand on Healthcare System

6© 2009 MedAssets


Cost of Caring for Seniors

• 24% increase above inflation since 2000

7


National Health Expenditures as a Share of Gross Domestic Product

8

9

10

11

12

13

14

15

16

17

18

19

20

1980 1985 1990 1995 2000 2005 2010 2015

National Health Expenditures as a percentage of GDP

Actual Projected


U.S. Healthcare Growth is nearly ¼ of U.S. GDP Growth

158B : U.S. HC

711B : U.S. GDP= 22%

$ billions

5.1%

7.1%

9


State of Healthcare: Facts

• US Healthcare Expense and Projections

2006 2009 2015

$1.9 Trillion $2.9 Trillion $4 Trillion

2-3 times normal economic growth

10


Hospital Industry Pressures in a $650B Market

25%

75%

% With NegativeTotal Margins

….And Weak Financial Performance

% of Community Hospitals With Negative Total Margins – 2005

Source: AHA Annual Survey

(26)(23)

(14)(6)(5)(5)

(30)

(20)

(10)

0

10

20

30

2000 2001 2002 2003 2004 200570

80

90

100

110

120

130

Source: American Hospital Association – 2007 Trendwatch Chartbook

Private InsuranceMedicaid Medicare

Government Shortfalls Subsidized by Private Payors…

Payment vs. Cost ($Bn) Payment / Cost (%)

Self-Pay Driving Higher Rates of Bad Debt & Charity Care…

% of Total Expenses

5.75.65.65.55.45.66.06.26.1 6.1 6.0 6.06.1

0.0

2.0

4.0

6.0

8.0

10.0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: Health Forum, AHA Annual Survey Data

Lead To Declining Operating Margins…

% Pretax Margin

02468

101214

1Q94

4Q94

3Q95

2Q96

1Q97

4Q97

3Q98

2Q99

1Q00

4Q00

3Q01

2Q02

1Q03

4Q03

3Q04

2Q05

1Q06

4Q06

Source: Company Reports and Wall Street Research

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0

1

2

3

4

5

6

1Q01 1Q02 1Q03 1Q04 1Q05 1Q06

Rising Supply Costs & Complexity Pressuring Hospital Margins

Consistently higher growth in hospital costs versus overall inflation− Technology and innovation driving increased cost

of care

Historically profitable procedures are becoming less profitable− Aging boomers will drive additional demand for

key implant procedures

− Device costs / procurement processes

− Competition from specialized facilities

Complexities inherent in procuring the vast number and quantity of supplies− 35,000 SKUs used by a typical hospital

− MedAssets: 4MM SKU master item file with 40MM price points

Hospital Cost Trends

Source: CMS, Bloomberg

Annu

aliz

ed In

crea

se /

Dec

reas

e B

y Q

uart

er

(%)

Joint Implant Cost as % of ReimbursementMS DRG 470 Total Joint Replacement – Lower Extremities

Spend Management – Size / Challenges

Cost Pressures

Total Hospital Cost Index Core CPI

78.9% 74.3%

70.1%

50.0% 54.6% 60.1%

64.7%

45.0%

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1999 2000 2001 2002 2003 2004 2005 2006

(%)

4Q06

Hospital Cost IncreaseOver Core CPI

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State of Healthcare: Policy

Obama Healthcare

Fix Coverage

13


Average Annual Premiums For Employer-Sponsored Family Health Coverage

• The average annual premium for a family of 4 reached $11,500 in 2006 and is projected to increase 60% by 2012.

14

$0$2,000$4,000$6,000$8,000

$10,000$12,000$14,000$16,000$18,000$20,000

2001 2003 2005 2006 2012

Annual Premium


Healthcare Policy

• Obama healthcare– Fix coverage

• Primary Issue– Not coverage, but cost

15


State of Healthcare: Transparency

• Our healthcare system is far from transparent

• Why?

16


Healthcare Cost Drivers

• Medical Malpractice

• Labor

• Uninsured/Indigent Care

• Supplies and Pharmaceuticals– Branded pharmaceuticals and utilization

– New technology

– Physician preference items

17


Stakeholders

• Physicians

• Administrators

• Vendors

• Patients

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Medical Staff Functions: Traditional

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Medical Staff Functions: Deterioration

• Factors Causing Medical Staff Fragility– Political issues

– Understaffing with collaborative leaders

– Financial pressures• Disparate payments for physicians and hospitals

• Shrinking pie

– Health services market demands• Increased efficiency and effectiveness

• Increased responsiveness

• Increased transparency

• Increased accountability

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Medical Staff Functions: Deterioration (cont’d)

• Factors– Changes in workforce demographics

• Work/life balance

• Decreased job satisfaction

• Decreased reimbursement

• Increased pressure on performance (scrutiny)

• Decreasing specialists, “turf wars”, competition

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Medical Staff Functions: Paradigm Shift

• CEO can’t depend on medical staff– Alternative ways to fill in the traditional roles

• Clinical excellence

• Safety

• Organic growth of service lines

• Cost management

• CEO work-arounds– Joint ventures

– Special contracts

– Co-management agreements

– Physician employment

22


Stakeholders

Vendors

23


Stakeholders: Vendors

24


New York Times

“In the last two years, Medicare payments to hospitals for implant surgery have risen about 40 percent, from $10 billion to $14 billion...”

“... in the last two years alone, spending on implant surgeries by Medicare...increased twice as fast as the program’s spending over all...”

25


Medical Supply Industry: Spending Dominated by Device Market

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Medical Supply Industry Factoids:Supplies vs. Devices

• $85,000,000,000 industry

• Distribution: 55% vs. 35%

• Growth: 7% vs. 23% per year

• Ave SG&A: 18% vs. 34% of revenue

27


Medical Supply Industry Factoids:Supplies vs. Devices (cont’d)

Therefore…

• Medical Device industry 16% higher

• 16% of $85,000,000,000 = >$13,600,000,000

• Sales commissions, executive salaries,

administration and options

28


What does that REALLY mean?

$13,600,000,000 would double the net income of all non-

profit community hospitals in the country!

29


Trends in Orthopedic Implant Price, Physician and Hospital Medicare Payment

$4,209

$6,898$7,512

$1,583 $1,631 $1,655 $1,600 $1,427 $1,455 $1,486 $1,336

$9,360 $9,150 $9,223 $9,057$9,681 $9,835 $10,110

$7,985

$6,268$5,440

$4,575 $5,037

$10,120

$1K

$3K

$5K

$7K

$9K

$11K

1999 2000 2001 2002 2003 2004 2005 2006

Implant Cost Surgeon Reimb. Hospital Reimb.

The implant consumes 80% of the hospital’s reimbursement

30


The Picture for Orthopedic Implant Vendors

28%

7%

40%

9%17%

0%

20%

40%

60%

80%

100%

Orthopedic Implant Companies

Perc

ent o

f Tot

al R

even

ues

Net Income Margin

Taxes, Net InterestExpense and OtherSales, Marketing, General& AdministrationResearch &DevelopmentCost of Goods Sold$7,640 Versys Hip $1,300 Profit

$3,056 Sales/Marketing

$534 R&D

$2,138 COGS

31


Implant Sales Commission Versus Surgeon Medicare ReimbursementCPT# 27447 - TOTAL KNEE ARTHROPLASTY

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1993 1995 1997 1999 2001 2003 2004 2005 2006SALES COMMISSION RBRVS PAYMENT

$700 $800$900

$1,000$1,400

6.3% Price Increase in 2006

$1,600

32

Stakeholders


Stakeholders

Patients

34


Stakeholders: Patients

• Internet

• Direct to consumer marketing

• Word-of-mouth

35


Example

“Jack Nicklaus Tees Up Hip Replacement Awareness”

Jack Nicklaus, shown with his grandson, got a new hip in 1999.

36


Stakeholders

Alignment

37

Stakeholders

38

Align!!!


Procurement Professionals

The View from Materials Management

Physicians Executive Team

Alignment: Key To Success

39


Device Manufacturers

Hospital X

Whoever has two against one usually wins!

Physicians

Alignment: Key To Success

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http://www.qatarembassy.net/Qatar Gallery/health care/women hospital .JPG�


Alignment: Physician

What is the favorite wine

of your doctor?

What’s in it for me?

41


Redesign sessions to improve service linesMeetings with all stake-holders to improve clinical and financial parameters

InterviewsIndividual and group interviews with medical staff members

Medical Management SurveyDetailed questionnaire about knowledge, attitudes and behaviors regarding medical management and resource utilization

Focus GroupsStructured focus groups of homogeneous clinical specialties designed to gain a deep understanding of physicians’ attitudes, beliefs and behaviors about clinical systems and computerized physician order entry and begin to educate physicians about what is possible

Hospital/Medical Staff Relationship ScorecardSummary assessment grid evaluating overall state of relationships between medical staff and hospital or system and its leadership

Clinical Systems Survey Paper or web-based detailed questionnaire on attitudes, beliefs and behaviors about computerized physician order entry

Readiness for Change Assessment Tool Abbreviated tool to assess physician’s readiness for engaging in computerized order entry

Alignment: Physician Driven Design -Assessment

42

Standardize


PPI Supplies –Difficult for Hospitals to Win

• Consolidation of PPI Companies

• Utilization of high-tech devices eroding margins– Physician desire for multiple vendors (Standardization difficult)

• Non-clinical issues may drive selection– Design relationships with physicians common

– Direct to Consumer marketing, similar to Rx now becoming common in the medical device arena

– Vendor/physician relationship

44


Cardiac

General Surgery

Orthopedics

Neuro/Spine

Once the “Cash Cow” of hospitals, profitability declining due to technology costs outpacing reimbursement. CABG still profitable but declining volumes.

Profitability

Most cases continue to be profitable.

High % Medicare and high cost of implantables. OP procedures profitable but being skimmed-off

Positive margins highly dependant on payor-mix and ability to “carve out” spinal implants.

Changing Profitability of Clinical Service Lines

45


What These Clinical Service Lines Have in Common…

• High percentage Medicare (fixed reimbursement)

• High surgical/procedural volume

• High supply costs

• Managed by a relatively small number of specialty physicians

46


What These Clinical Service Lines Have in Common: Physicians

• Physician Attributes– Ego– Technical capabilities– Knowledge base

• Physician Stimuli– Cutting edge technologies– Differentiator in the community– Income enhancement

• Declining procedural reimbursement

• Bigger patient load

• Ancillary income

47


Key Approaches to Engaging Physicians in Clinical Resource Utilization Initiatives

• Position physician champions to lead clinical initiatives by:

– Clinical leadership and accountability

– Oversight and initiative direction

– Allowing for interpretation of quality and cost per case data

– Determining key areas of focus for appropriate clinical resource utilization

– Enhancing physician knowledge and skills

48



• Engage physicians early in the process– Identify high cost/high volume supplies

– Identify high volume users

– Profile physician utilization by vendor/product

– Determine best case scenario for cost savings

– Determine physician willingness for change to new vendor

– Hold one on one meetings to discuss results and options for change

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• Focus on quality issues

• Highlight successes– Communicate quality and financial improvements to medical

staff and hospital/system community– Recognize physician contributions and accomplishments

• Personally

• Publicly

50


Standardization

• Multiple Sources

• Dual Sourcing

• Single Sourcing

51


• Pro– Preserves physician choice– Protects against recalls– Allows flexibility of supply

chain– Preserves communication to

many vendors• Easier introduction of new

products• Allows for ongoing

competition

– Allows medical staff access to clinical trials

• Cons– Contracting difficulty– Storage Issues– Staff Unfamiliarity

• Decreased OR efficiency

– Multiple Reps roaming the halls

Standardization: Multi-Source

52


Standardization: Dual Source

• Pro– Preserves some physician

choice– Protects against recalls– Allows some flexibility of

supply chain– Allows for better pricing

concessions– Preserves communication to

many vendors• Easier introduction of new

products• Allows for ongoing

competition

• Cons– Storage Issues– Staff Unfamiliarity

• Decreased OR efficiency

– Multiple Reps roaming the hall

– Limits clinical trials to some extent

– Potential legal issue due to product limitation (hospital practicing medicine)

53


Standardization: Sole Source

• Pro– Allows best pricing deal

– Eases inventory management

– Staff become experts

• Cons– No physician choice

– Recall risk• Could shut down a service

line

– Vendor complacency

– Physician recruitment difficulties

– Limitation of clinical trials

– Potential legal issue due to product limitation (hospital practicing medicine)

54


Compare and Contrast Through Detailed Analysis

Vendor Medtronic Guidant St. Jude Other TotalUtilization 326 70 56 27 479Sourcing % 68% 15% 12% 6%Cost/Unit $6,531 $6,068 $6,389 $6,474Spend $2,130,153 $420,150 $355,461 $176,556 $3,082,320

Vendor Medtronic Guidant TotalUtilization 394 85 479Sourcing % 82% 18%Cost/Unit $5,000 $4,900Spend $1,972,367 $413,735 $2,386,102

Vendor Medtronic Guidant TotalUtilization 96 383 479Sourcing % 20% 80%Cost/Unit $5,200 $4,700Spend $498,065 $1,800,698 $2,298,763

A savings opportunity can be derived by consolidating the number of pacemaker vendors.

Savings = $696,218 Savings = $783,557

Significant savings can be found in narrowing selections

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Other issues


Other Issues

• Gainsharing

• Conflict of Interests

57


Questions

Nick Sears, MDChief Medical OfficerMedAssets(303) [email protected]

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CONFIDENTIAL Property of MedAssets 59

PPI Standardization: Is This the Right Strategy? · 2009. 5. 12. · MedAssets company 2....

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