Just-in-time supply chain practices have changed the way manufacturers do business, and the same may soon be true for healthcare. Having spent years working with physicians to limit the number of devices used during surgery, supply chain executives are now scrutinizing costs for everything else related to physician preference items (PPIs).
Medical device distribution is one area ripe for change, since hospitals have historically paid little attention to those costs. The issue is similar to a manufacturer needing parts for its production line—too much inventory means crowded, costly warehouses, and not enough means having to wait for (in this case) an urgently needed device.
The manufacturing analogy isn’t as farfetched as one might think: implantable devices like knees and hips are somewhat bulky, and a variety of sizes must be stocked to ensure surgeons have the size they need for each procedure. Ideally, every item associated with a procedure, including implants and multiple instrument trays, would be delivered a day or two beforehand from a nearby warehouse alongside regularly scheduled deliveries of products like syringes and gloves.
Currently, many hospitals are nowhere near this efficiency level, with PPI device ordering and tracking taking place outside the hospital’s usual purchasing stream and devices often delivered via courier—at an exorbitant cost.
The below table shows the hospitals with the greatest number of Medicare claims in 2014 (the latest year available) for a major joint replacement or reattachment of lower extremity (DRG codes 469 and 470). Also shown is the average payment per claim, which varies significantly, and whether the hospital is now participating in the new Comprehensive Care for Joint Replacement (CJR) model. These numbers represent a lot of hips and knees that must be kept in stock or shipped at the last minute!
There are other potential gains from a distribution-system revamp. First, multi-hospital systems often have difficulty tracking PPIs across facilities, forcing them to keep large numbers of devices at each location. A just-in-time agreement with a distributor would free up storage space and reduce the labor associated with inventory tracking.
Second, hospitals using a distributor for PPIs should be able to take advantage of advance buying models and bulk-buying discounts they couldn’t previously participate in because of space constraints. Working with a distributor, devices and instruments can be bought in advance, kept in a warehouse managed by the distributor, and brought to providers as needed. Third, hospitals will be able to vastly reduce the costs associated with rush shipments of PPIs.
Join the mainstream
Reducing PPI distribution costs is not simply a matter of targeting the next logical budget item. 385 hospitals are now participating in the Bundled Payments for Care Improvement (BPCI) initiative, and another 800 in the CJR model, increasing their motivation to reduce costs on every aspect of the procedure.
Finally, bringing inventory data about expensive PPIs such as orthopedic and spinal devices into the main hospital purchasing system can significantly improve purchasing executives’ ability to manage the costs and special logistics associated with them, while providing an opportunity for an informed discussion around inventory management.
Definitive Healthcare has the most up-to-date, comprehensive and integrated data on hospitals, physicians and other healthcare providers. Our hospital database tracks nearly 7,600 US hospitals and includes robust analytics based on DRG, ICD-9 code, participation in Medicare programs, and more.
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