Update on ACOs

Brave New Supply Chain World

The Affordable Care Act has dramatically altered the healthcare environment. As traditional care models give way to population-based models such as Accountable Care Organizations (ACOs) and Patient-Centered Medical Homes (PCMHs), those involved in delivering care must evolve to survive—including supply chain managers.

In this new environment, reimbursement will be based not only on treatment during hospitalization, but also on the results of care both before and afterward. This will, of course, involve supply chain in new ways and likely shift the ground under traditional vendor-physician-hospital relationships.

Supplies rank just behind labor as the single largest cost for hospitals, so careful assessment of products and cost, relative to patient outcomes, will make or break an institution’s financial health.

“As ACOs we must think about how to expand the supply chain beyond the hospital, because the provider’s responsibilities cover the entire episode of care, not just during hospitalization but also before and afterward,” says Eugene S. Schneller, PhD, of the W.P. Carey School of Business at Arizona State University in Tempe and a frequent speaker at HealthTrust and other related industry events.

Approximately 25 to 31 million Americans are currently receiving healthcare services from an Accountable Care Organization.
—A 2012 study conducted by Oliver Wyman

“The new climate demands a much higher level of care integration. More than ever, purchasing decisions must be based on value—not only to the facility, but also to the patient,” Schneller adds.

In the future, each episode of care will be viewed longitudinally, starting before admission and running to several months after treatment, says Albert Tomchaney, M.D., senior vice president and chief medical officer of the Franciscan Alliance healthcare system and a member of HealthTrust’s Physician Advisory Committee.

This will include determining whether admission could have been avoided by taking earlier action, as well as what needed to be done to prevent a readmission.

“This presents opportunities to engage patients in their own healthcare and help them understand what their goals should be and to actively work with providers on making decisions about their health,” Tomchaney says.

Pioneering Change

Tomchaney’s system is at the forefront of change. Based in Mishawaka, Ind., Franciscan Alliance is a 13-hospital health system that includes clinics, home health services and doctors serving Indiana and Illinois.

Franciscan Alliance is one of 32 participants in the Pioneer ACO Model—a Centers for Medicare and Medicaid Services/Center for Medicare and Medicaid Innovation (CMMI) initiative designed to support organizations with experience operating as ACOs or similar entities in providing more coordinated care to beneficiaries at a lower cost to Medicare.

The Pioneer Model will test the impact of different payment arrangements in helping these organizations achieve the goals of providing better care to patients and reducing Medicare costs. Based on this experience, Tomchaney says healthcare systems are facing two primary issues. “One, in trying to lower cost, there must be a healthy discussion about the comparative effectiveness of differently priced products.”

Franciscan Alliance has a technology assessment team that uses information from a variety of sources—including patient outcomes within the system—to evaluate products. Supply chain personnel are integral members of these teams.

Second, traditional product use and purchasing patterns will change, which will impact pricing and contracts.

“For example, if you have a contract with three or four vendors for an item and begin to use less of that, it may be necessary to reduce the number of vendors in order to get the price you need,” Tomchaney says.

HealthTrust recognizes this reality, securing fewer vendors for certain contracts in order to provide more volume and greater savings to members overall.

ACOs Place Focus on ‘Big Data’

Both Schneller and Tomchaney say the role of “big data” in the new environment generally has been under-appreciated. While robust data sets exist for comparing the relative effectiveness of drugs, there’s been relatively little comparative research done on items such as expensive Class 3 (implantable) devices.

The ACA contains funding to promote comparative effectiveness research and data collection. And development of a standard unique device identification (UDI) system should facilitate comparative research in the long run, Schneller says.

The FDA submitted its proposed new rules for UDIs to the federal Office of Management and Budget for its review in mid-June 2013. At press time the rules were still with OMB, and no date had been announced when a decision would be made.

“The new climate will include a much higher level of care integration. More than ever, purchasing decisions must be based on value—not only to the facility, but also to the patient.”
—Eugene S. Schneller, PhD, of the W.P. Carey School of Business at Arizona State University

This will provide invaluable data in the future. However, in the meantime, surgeons and the hospitals in which they provide care will need ways to find the most appropriate device at the best price.

Large systems such as HCA and Franciscan Alliance already have considerable information internally on outcomes, and have created value analysis teams to make decisions from on-contract options.

And GPOs such as HealthTrust provide their members with access to large amounts of data, assessing comparative effectiveness as well as best practices and clinical guidelines, Tomchaney says.

Working with Clinicians on the Integration

Both Tomchaney and Schneller stress that highly credible comparative data is the key to securing clinician involvement and buy-in when discussing issues such as alternatives to physician preference items (PPIs).

Clinicians should be involved at every step. Franciscan Alliance, for example, has established physician leadership councils that collaborate with its clinical operations group and clinical resource management team on purchasing decisions.

The vice president of materials management is actively involved in these groups. His executive position indicates both the importance of supply chain and the need for a big picture approach to it. This high-level, high-touch approach has worked well in resolving thorny purchasing issues, according to Tomchaney.

“As we begin to move from a system based on illness to one based on the continuity of care, we will want to demand product innovation.” —Schneller

“At one time, each of our 13 hospitals had a different pattern of item use. We were able to look at the data in each hospital to compare costs and outcomes. Most often the outcomes weren’t very different, but there were clear and significant cost differences,” Tomchaney says.

At the same time, clinicians are irreplaceable in identifying reasons to deviate from the norm in certain cases. “This helps to ensure that we can individualize care based on the person’s needs,” he says.

“In an ACO model, value analysis must be moved to the next level, adds Steve Tarkington, former vice president, Supply Chain Solutions for HealthTrust. “Value analysis must be clinically driven with clinical evidence as the foundation. This will include adding physicians to the team, reviewing data such as patient outcomes and product utilization, and making sure to obtain clinician end-user feedback when making the decision to add a product to the formulary.”

New Thinking

With so many changes afoot, healthcare providers are tapping other industries to acquire new skills, perspectives and ideas. They also are looking beyond traditional suppliers for technologies to help them better manage costs, risks and clinical appropriateness.

“The idea is to quickly inject lessons from other industries into healthcare, which as an industry has generally been a late adopter of supply chain technologies,” Schneller says.

For example, EHR software quite effectively captures information, but generally lacks the data aggregation and analysis horsepower ACOs will need, especially the ability for real-time cost- and quality-of-care analysis, Schneller and Tomchaney explain.

This capability is vital so that a care coordination team can identify potential gaps in services and take appropriate action.

“They need to be able to analyze in real-time the longitudinal care experience across all different areas of care—to be able to say here’s what happened in the past, what’s happening now and what should happen in the future,” Tomchaney says.

“HealthTrust is already investigating non-traditional IT vendors for tools and technologies that may be more effective in managing an ACO or another population-based model,” Tomchaney says. “These are not inexpensive services, so by aggregating the demand for them, HealthTrust should be able to get better pricing than individual healthcare systems can on their own.”

“HealthTrust provides their members with access to large amounts of data assessing comparative effectiveness as well as best practices and clinical guidelines.”
—Albert Tomchaney, MD, senior vice president and chief medical officer of Franciscan Alliance

Meanwhile, supply chain should be more active in demanding innovation of specific value-oriented products and services rather than waiting for suppliers to propose new technology.

“As we begin to move from a system based on illness to one based on the continuity of care, we will want to demand product innovation for the inpatient, outpatient and home care environments. While linking products to strategic objectives is relatively new to U.S. health systems, it is evolving as a key to value-based purchasing within the European Union,” Schneller says.

“For instance, hospitals are not reimbursed for treating bedsores. So a handheld device that detects bedsores before they become acute would be helpful,” Schneller explains.

In many cases, this will redefine relationships between hospitals and suppliers, most of whom have had stronger working ties with clinicians. Suppliers will have to provide solutions that are best not only for the clinical customer—the patient—but also for the economic customer—the institution.

“This will require a delicate balance,” Schneller says. “We don’t want to damage relationships between physicians and suppliers that in the past have driven many purchasing decisions, but at the same time, providers must be an active part of the conversations.

“There is a lot of talent within the supplier community and among their representatives,” Schneller continues. “Reps do many positive things, such as managing inventory and advising on products and procedures. Nobody wants to see that go away.”

Supply chain managers will need to build trust with suppliers and actively engage them in collaborative efforts to solve problems and develop best practices that can be integrated across all sites of care.