An open letter to President Obama, Congress, Secretary Sebelius and my fellow citizens:
As the CEO of a consulting firm that specializes in assisting hospitals gain control of their supply chains I write this with mixed feelings. I am taking a risk that you may follow my advice. If you do, you will eliminate the need of many of my company’s services for the vast majority of our clients.
During the current debate on healthcare there has been much talk about private vs. public. The obvious connotation with the word “private” is that organizations act in accordance with the rules of a free market. But, what does that really mean?
In at least one very vital aspect hospitals’ behavior is quite bizarre. Government interference could restore sanity. Hospitals have little control over their own cost structure. The most expensive supply items and equipment they purchase are often dictated by independent physicians, without regard to cost. Hospitals are told what to buy and from whom to buy. They follow the physicians’ buying directives or else - they take their patients to another hospital. The patient is not the customer, but rather the currency in this free market. High technology products are selected, not by competitive offerings as in other industries, but by claims made by physicians and sales people: claims that are often unsubstantiated by independent processes such as peer review. More often than not the physicians themselves are misled by salespeople regarding performance, cost and reimbursement.
Hospitals, desperately needing the patient volume to survive, are unable to curb this behavior on their own. They are stuck in this cycle as sure as any addict is stuck in a cycle.
To reduce the cost of delivering healthcare in America, true reform should include the following requirements:
Require all hospitals to bid their high tech supply products, including implants. The FDA already determines acceptable quality of these devices. By requiring every hospital to do this, no hospital would be at a disadvantage as the threat of physicians moving their patients would be moot.
Establish national standards for bidding by Group Purchasing Organizations (GPO) and other organized cooperative efforts. GPOs should entertain all qualified bidders, but they should be limited to bidding on behalf of hospitals that pre-commit to using the winning bidder. This gives sellers’ the reassurance they need to submit realistic and competitive bids.
Numerous firms reprocess items once labeled as single use to original specifications. They do so under FDA oversight. The original move away from reusable products to disposables only occurred because of Medicare’s initial reimbursement procedures. We can no longer afford this wasteful behavior. Require hospitals to utilize safe and effective reprocessed products when available. This not only saves money, but reduces waste.
Require all hospitals to form teams that represent their physician staff and administration to review and control the introduction of all new products, including drugs. New technology, in particular, needs scrutiny. These teams cannot be monopolized by either side, but must have equal representation. Once new technology is adopted by competitors, it too should be subject to the bidding process.
These simple steps will cut tens, if not hundreds, of billions of dollars from America’s hospitals without affecting a single person’s current access, insurance, quality of care, etc. But, it will force hospitals to do that which many cannot do alone under the current market structure. A lower cost base will make all other healthcare decisions much simpler and easier.
The SSCM5 Team and I are available to consult with anyone from the White House or Congress who wishes to explore this subject further. While much our evidence is anecdotal, we have a lot of it.
As the CEO of a consulting firm that specializes in assisting hospitals gain control of their supply chains I write this with mixed feelings. I am taking a risk that you may follow my advice. If you do, you will eliminate the need of many of my company’s services for the vast majority of our clients.
During the current debate on healthcare there has been much talk about private vs. public. The obvious connotation with the word “private” is that organizations act in accordance with the rules of a free market. But, what does that really mean?
In at least one very vital aspect hospitals’ behavior is quite bizarre. Government interference could restore sanity. Hospitals have little control over their own cost structure. The most expensive supply items and equipment they purchase are often dictated by independent physicians, without regard to cost. Hospitals are told what to buy and from whom to buy. They follow the physicians’ buying directives or else - they take their patients to another hospital. The patient is not the customer, but rather the currency in this free market. High technology products are selected, not by competitive offerings as in other industries, but by claims made by physicians and sales people: claims that are often unsubstantiated by independent processes such as peer review. More often than not the physicians themselves are misled by salespeople regarding performance, cost and reimbursement.
Hospitals, desperately needing the patient volume to survive, are unable to curb this behavior on their own. They are stuck in this cycle as sure as any addict is stuck in a cycle.
To reduce the cost of delivering healthcare in America, true reform should include the following requirements:
Require all hospitals to bid their high tech supply products, including implants. The FDA already determines acceptable quality of these devices. By requiring every hospital to do this, no hospital would be at a disadvantage as the threat of physicians moving their patients would be moot.
Establish national standards for bidding by Group Purchasing Organizations (GPO) and other organized cooperative efforts. GPOs should entertain all qualified bidders, but they should be limited to bidding on behalf of hospitals that pre-commit to using the winning bidder. This gives sellers’ the reassurance they need to submit realistic and competitive bids.
Numerous firms reprocess items once labeled as single use to original specifications. They do so under FDA oversight. The original move away from reusable products to disposables only occurred because of Medicare’s initial reimbursement procedures. We can no longer afford this wasteful behavior. Require hospitals to utilize safe and effective reprocessed products when available. This not only saves money, but reduces waste.
Require all hospitals to form teams that represent their physician staff and administration to review and control the introduction of all new products, including drugs. New technology, in particular, needs scrutiny. These teams cannot be monopolized by either side, but must have equal representation. Once new technology is adopted by competitors, it too should be subject to the bidding process.
These simple steps will cut tens, if not hundreds, of billions of dollars from America’s hospitals without affecting a single person’s current access, insurance, quality of care, etc. But, it will force hospitals to do that which many cannot do alone under the current market structure. A lower cost base will make all other healthcare decisions much simpler and easier.
The SSCM5 Team and I are available to consult with anyone from the White House or Congress who wishes to explore this subject further. While much our evidence is anecdotal, we have a lot of it.
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