Exercise and the Power of Behavioral Economics

For years it was "Reach the Summit." Then, at about 40, came "Hold the Line." Now, as I approach another post-50 birthday, I have my hands full with "Slow the Decline." It's getting tougher, folks!

Since my college years I have hit the gym several times a week. And there are always days when it is harder than usual to step on the stair climber or lift the bar bells. That's when a little friendly competition works miracles.

If you exercise with a partner you know that friendly workouts inevitably ratchet up to a contest of relative might and pain threshold, usually without either party even realizing it. When my friend finishes a set of bench presses, I'll casually add 5 pounds on either side before I lift. Likewise, when he sees me in a lather of sweat after 30 agonizing minutes on the treadmill, he'll run for 45.

This spirited game of one upmanship we play in the gym closely parallels the classic pattern of Behavioral Economics, i.e., using tools like simple reminders, social pressure, and rewards to gently nudge us to behave in desired ways.

I most recently read about the pattern in the Harvard Business Review Insight Center report (March 2010) entitled Health Care Innovations. The report highlights the impact that peer pressure played on a large practice in Boston.

A group of doctors were shown data revealing a large variation in how much each of them used certain radiology tests. It "called out" those who used radiology in excess and in turn empowered more moderate users to question these colleagues about their more indulgent diagnostic and treatment protocols. This peer-to-peer interaction led to a 15% decline in radiology use by this physician group.

We know of a similar example from a large, geographically dispersed hospital system where the price and lack of standardized physician preference items were a particular challenge. In an initial effort to rein in spending without resorting to strong arming physicians, the materials managers made a list of preference items for a particular procedure and then, each week, printed out usage and price by physician. They placed these charts above the scrub station for each surgeon to see.

The conclusions were obvious and significant. Physicians saw that, while most were using lower-cost items effectively, there was a subset using high-end (and high dollar) PPIs with no better outcomes. Over the next few weeks these high-end outliers began moving toward their lower-priced peers. And nobody had to say it! It just happened!

An additional benefit: physicians considering using a more expensive equivalent product offered by a competitor knew that that product's price and their name would soon appear above the scrub sink for all to see. A very effective counterbalance to the sales skills of the product company rep!

This subtle form of peer pressure has been around a long time and very few of us are immune to its power. Yet it is non-confrontational and instead leverages our common human nature. I highly recommend it to complement other methods you may use to convince surgeons to standardize. The same Behavioral Economics that drive me to match or exceed the performance of my workout buddy can be a major cost reducer in the OR.

Chuck Mauro at UNC Hospitals in Chapel Hill, NC: Redefining the Reputation of Materials Management

Chuck Mauro first joined the hospital business as warehousing supervisor in a hospital in New Brunswick, NJ, moving from industry to the healthcare field primarily because he felt there was something noble about working for a hospital.

He kept that noble feeling as he worked his way through supply chain roles in three different hospitals in New Jersey and Massachusetts before taking the director of materials management position at UNC Hospitals in Chapel Hill, NC, in 1999.

Having been without leadership for two years, much of the service the materials management department provided to the hospital developed a reputation for being unreliable and inconsistent. Additionally, for clinical staff, materials managers were seen as single-minded cost cutters who plowed through their initiatives without regard to clinicians or patients. There was a clear need for changing the hospital's mindset on the supply chain and developing more effective service delivery programs.

We sat down with Chuck to learn how he dealt with these issues at UNCH, what were some strategies employed to help develop a more clinically integrated supply chain, and how the relationship between physicians and materials managers improved.

MediClick: How are you working with the UNCH patient care providers to achieve your supply chain goals?

Chuck Mauro: It's very much a partnership between the clinicians and supply chain. It wasn't always so. That was quite frankly due, at least in part, to mistakes made on our side. People in my position would just try to plow ahead thinking we could save a couple of bucks without necessarily considering the clinical end.

So when I joined UNC, I saw the need to demonstrate to clinicians the value in procuring and utilizing products more cost effectively. One of the first big things we did was to convert our contract for infusion pumps. We were with a particular manufacturer for 20 years, and nursing was very comfortable with the product. When we looked at the market we felt that there was significant opportunity to upgrade our technology and reduce our overall spend for this product group. We therefore went out to bid, and we ended up going with another manufacturer. I'm really glad to say that that award has proven to be very valuable to the hospital both financially and clinically over the past nine years or so.

But the equipment conversion was not without a number of difficulties. The nursing staff was very comfortable with the existing product. Many nurses found fault with the new equipment and resisted the conversion. One approach we took with them was "I want you to work with me on this, and I need you to play a key role in helping me move through and improve this process." Some of them wouldn't help me. But enough did.

No product conversion, regardless of the perceived superiority of the new product, will be successful without clinical staff buy-in. With the help of clinicians and administrators, we demonstrated that saving isn't necessarily painful, and something new and different isn't always worse than what you've got.

MediClick: How is it that you might take a savings initiative on a Physician Preference Item (PPI) from start to finish and how would you engage the physicians along the way?

Chuck: We start off by comparing what we're paying for a PPI product group against what other hospitals are paying in general and getting round figures that are not hospital specific. This gives us an idea of fair market price based on our volume, which isn't always the lowest price we see nationally. This research tells us if our pricing is good or if it needs to be 5 to 8 percent better. We then set a CAP price for each of the various component parts of that product group. In other words, that CAP price is the most we'll pay for each product in that group.

We don't release the CAP pricing to the manufacturers until we have buy-in from the physicians. We want the docs involved to understand the process we're employing and that we are not restricting their ability to select a specific manufacturer, as long as that manufacturer agrees to abide by the CAP.

We then send the manufacturers the CAP letter, which when executed by them, becomes our contract. For the most part, this process plays itself out without too much difficulty and is effective in driving down our costs. We did have one situation with total joints where we sent the CAP letter to four manufacturers and three of the four we sent it to refused to accept the CAP price. The fourth, which didn't have business here, agreed to it.

Our chief of orthopedics, who supported our plan, was not about to compromise. He told his staff that they'd be trained on the fourth manufacturer if their existing manufacturer didn't agree to the CAP. It was because of his belief and dedication to the process that the three holdouts did finally sign off on the CAP contract.

I always enjoy telling the story about one of the manufacturers who was particularly adamant that UNCH would never get the CAP price we were asking for. When we told them "Without your signature, your product will be removed from the shelf by midnight on Friday," they agreed to sign. Once he did so, I recall him saying to me "I hope that there are no hard feelings." I said "Well I never have hard feelings, but I have to tell you I'm a little surprised. You told me that there is no way we'd ever get this pricing." He just chuckled and he said "Well, you're UNC we can't afford to lose you." To me, that clearly demonstrates that good and amazing things can happen when clinicians and materials managers work together.

He didn't think we were in a strong enough position to enforce the CAP. But when he found out that the head of orthopedics was unrelenting in his support for the program, the landscape changed for him.

MediClick: What's the tenor of the relationship between the materials department and the clinicians and physicians today?

Chuck: When I first started in this business it wasn't unusual for a doctor or a nurse to insist that they needed to use one and only one specific product. Over the years that mentality has changed because clinicians now understand that if we can select a product that is clinically acceptable from a field of competitors then we can contribute to a healthy bottom line. As an old boss of mine used to say, "no margin, no mission." If we can't reduce expenses on an on-going basis, then that will adversely affect their ability to care for their patients. There's much more of a "let's work together attitude" now.

The key to any effective partnership is understanding that problems will occur and believing that you will be able to work through and resolve them. Once our internal customers saw that we held ourselves accountable for the level of service we were providing and that we were committed to process improvements, a greater willingness to work with us on cost reduction projects surfaced. Just as there is no such thing as the perfect contract, there is no such thing as a mistake-free service. Another boss I once had – and I've been fortunate to have had many truly excellent supervisors who acted as teachers and mentors to me – said, if you don't make any mistakes, you're not doing any work. We therefore always strive to remain transparent in our activities and foster a spirit of openness and cooperation between us, the financial end of health care, and the people who treat and care for the patient.

Another change that makes the job easier today than it was 15 or 20 years ago is the creation of the clinical materials analyst position – a position within materials management staffed by a registered nurse who acts as a liaison between the business side and the clinical population. She speaks their language. She knows about patient care, but she's also an advocate for good business practice.

Before this position, I had to beg a nurse manager to give me a few minutes of her time; what I wanted was usually very low on her list because she had tons of other things to do. Now the clinical materials analyst is able to work directly with the staff and really move on things like product trials and contract conversions.

MediClick: What are your challenges for UNCH in 2010?

Chuck: It gets a little tougher every year to find savings and to make money; we spend more on indigent care every year. We're up to about $300 million a year just on uncompensated care. That figure is likely to keep growing too. All of the revenue and expense trends are unfavorable to us.

So if we're going to remain a viable institution with a healthy bottom line we have to be more creative, we have to work harder, we have to really push the envelope in order to remain healthy.

That's why when I saw C&A [MediClick for Contracts & Analysis], I knew I was really going need it because, although I'm doing ok now, I'm not always going to be able to rely on the tools that I have now to take me where I need to go. I need to get out of my Volkswagen and get into a starship, and I think C&A is that starship for us.

With the help of C&A, we as the buyers finally have our hands on tools and information that are as sophisticated as the sellers. I've always felt that the vendors have had a leg up on us because they were able to spit out information much more easily than we ever could. That information helped them with their negotiating strategy because they knew information that we didn't.

With the implementation of MediClick for Contracts & Analysis, I often feel like I'm creating a new religion. I'm not normally taken to hyperbole, but I truly believe that the C&A tool opens up a whole new dimension on how we can do our business. It gives us not just information we've never had before, but it adjusts the way that we work and negotiate significantly. It changes our whole buying strategy and the contract landscape to the point where we see things with new eyes now. It's like we have these supercharged glasses and our whole vision has been substantially improved.

For example, prior to implementing C&A, we thought our master files had been pretty clean. Boy did we find out otherwise. C&A showed us that there were all kinds of funky stuff going on in there. In my mind that was all good. Everything we discovered that we thought was not a problem, all of the sudden we're finding that it needs to be fixed. It was extremely valuable to be able to – during the implementation –uncover things that we really didn't even know were going on with our own databases.

TXT Savvy Dad Applies Lessons from the Supply Chain

It may be poor form to strut my newfound text-savviness after so long a blog hiatus, but since leaving my youngest child at college in August (whose imminent departure was the reason for the hiatus in the first place), I have learned to thumb my way around a QWERTY keyboard pretty darned well.

Yes, this former texting phobe has learned that, like a Skinner rat pounding for food pellets, my persistent thumb jabs also are rewarded: my daughter "talks" to me! I live for the tinny buzz that signals a new message of abbreviated words and punctuation smiley faces.

How does this relate to the hospital supply chain? Give me some latitude, and I think you'll see where I'm going.

So my youngest daughter and I are texters. My oldest daughter, a bona fide Facebook fanatic, uses the browser function of her cell phone to provide status updates to all her cyber-friends. And then there's my wife…she actually believes cell phones are meant for talking. Strange concept, I know.

Here's my dirty confession: since we each got cell phones at different times, our accounts were with different vendors. Yep. A brief lapse in paternal oversight, and they had effectively divided and conquered the family cell phone dollars! Not only did we use all these different features (billed for individually I might add), but we let the cellular carriers charge us top rate because I didn't bother to pool our accounts to get some purchasing power.

A colleague showed me this article about a poor dad whose teenage daughter was apparently trying to set the world record for number of texts sent in a month. She beat 10,000! The phone bill was $4,756.25!

My family never did that kind of damage, but you can be sure it snapped me to attention. I decided to take control by borrowing a page from the value analysis play book.

I brought together all the various bills from the phone carriers to analyze the expense. As expected, it was a lot!

Next, I sat down with my family to determine what everyone really needed to stay in the communication loop. Unlimited texting was a given. But my oldest daughter took one for the team, offering to give up the phone-based internet access and foregoing the real-time Facebook updates. Finally, it was clear that – with my wife as the only "talker" – we didn't need quite as many minutes as our plans allowed.

I had buy-in from my "users", I had the information I needed to shop around for a better deal, and so I started calling the cellular carriers to find the best price.

Cutting to the chase, we ended up with a family plan (one consolidated bill) where we could share voice minutes and take advantage of unlimited text messaging. Best yet, I got rid of the variable components of my monthly bills (mainly overage charges), and we're saving over 30 percent a month!

What's the moral here? For one, sometimes what we learn at work can help in our personal finances, too. More importantly, even though I let multiple vendors take advantage of my inattention to this expense for a brief period of time, it's never too late to take control.

The same basic rules apply in the hospital supply chain. To take control you need to be able to aggregate your spend data, analyze exactly where your dollars are going, sit down with your users to understand their needs (separating "nice to haves" from true needs), identify where you can standardize, and take this new purchasing power to market to negotiate the best price possible.

It works for a family with out of control phone bills, and I see it work every day for hospitals that decide to take control of their supply expenses.

Postscript: Last week, my younger daughter told me that she wanted a webcam for her laptop so she could Skype with her friends. It doesn't end, does it?

Kerry Gillespie at Ardent Health: It All Starts With Quality

MediClick met with Kerry Gillespie a few weeks ago at HFMA's ANI Conference in Seattle. Kerry is CFO at Ardent Health, a for-profit network with 11 acute care hospitals in Oklahoma and New Mexico.

For Ardent, establishing a culture of savings starts with a focus on quality. Ardent always talks with its clinicians about how to improve quality and patient outcomes before discussing cost reductions. Kerry says this shows his clinicians that Ardent shares their priorities, and it helps align the interests of the clinical staff with the teams responsible for driving costs out of the supply chain.

Kerry also argues that medical device suppliers need to hold themselves to a higher quality standard: If they're increasing prices 20, 30, 40 percent and justifying it with claims that their new technology is generating better patient outcomes, give us the proof. Show us how quality outcomes have improved at least as much as you've increased the costs to our hospitals.

Below, we talk with Kerry about how his organization fosters and benefits from a culture of savings.

MediClick: How do you involve your clinicians with Ardent's culture of savings activities?

Kerry Gillespie: We rarely talk with clinicians about cost without talking first about quality. That resonates with them. If all they hear is "cost, cost, cost", they think all you care about is process and money. But if they hear "quality and cost; quality and cost", then they know this is an organization that cares about me and cares about my obligations to the patient. They know we're focused on doing the right things.

Managing costs in a quality organization is easier than managing costs in an organization where your nurses and other clinical staff don't think you care about quality. It affects their willingness to participate in your savings initiatives.

There's a business purpose to quality, too. At Ardent, we know we have to stay healthy from a patient volume perspective. It's really easy to manage out your costs when your volumes are there, but it's tougher to manage costs out as volume drops. There's a circular nature to it: we believe that in driving quality up, we'll keep the volumes coming in. If the volume comes in, we're more confident we can manage the costs.

MediClick: Physician preference items present an ongoing struggle for hospitals trying to rein in costs. What is Ardent's approach to the challenge, and what results have you seen?

Kerry: We've come to realize that vendors try to sell us a lot of extraneous supplies, especially for total knees, total hips, and cardiac services. For example, they insist on selling us high-end catheters even when a lower cost product would produce the same quality outcomes.

These vendors are driving the cost factors through our physicians and taking control away from the hospitals. The medical device companies put their reps on aggressive commissions, so they go out and build these great relationships with the doctors. Before you know it, you're using stuff in your operating rooms you didn't have a clue were being used. It's a ton of money, and it's driving up the costs of your services.

So, we're working hard to address this.

We're part of the Acute Care Episode [ACE] Demonstration project through CMS which allows us to work with our physicians to reduce costs. It lets them participate in the up-side of cost reductions through gainsharing. We're able to substantially improve their payments on individual cases.

In terms of engaging physicians, if you can give them an appropriate economic incentive that includes an enhancement to the quality of care delivered, they will work with you every time. We're exploring this through the ACE Demonstration project. 

We also stay very focused on the top 20 most expensive med/surg items in all of our facilities. The individual hospital's CFO, materials manager and department heads have conversations with the physicians about utilization and alternative items they might use. Our regional materials managers are ultimately responsible for reducing costs on these items and they report monthly to the corporate office. It's part of our ongoing supply chain operational review.

This process has been very successful. In 2008 alone we took almost $4 million out of supply costs.

MediClick: Does Ardent blaze its own trail, or do you subscribe to a particular process improvement methodology?

Kerry: We recently introduced Lean to our revenue cycle management and realized we had significant waste in our upfront registration processes. We're going to take out 60 percent of the steps and 30 to 40 percent of the costs associated with registration.

We're beginning to bring Lean into our clinical departments, too. Right now we're building a value stream map of the emergency room of one of our biggest facilities, and we'll implement Lean processes there soon.

For people who say Lean works well in manufacturing but not in the patient care setting, I see that as an excuse. It's true that every patient is different, and we're not making simple widgets. But you can use the same principles: pull out the steps that don't add value, reduce the variability, etc. All those things make complete sense in any environment, not just manufacturing.

As I've mentioned, quality is a critical part of the equation. The interesting thing is that when you reduce cost and reduce variability, you improve quality. It's a Six-Sigma concept, and while we haven't implemented that specific methodology, we're borrowing heavily from its ideas. It's making us considerably better and improving our quality metrics.

MediClick: There's been a lot of talk lately about Harvard Business School Professor Clayton Christensen's The Innovator's Prescription. It has renewed dialogue about the true definition of "integrated delivery network." Tell us about Ardent's approach to providing integrated healthcare.

Kerry: I'm familiar with Dr. Christensen and his works, and we're trying to follow a true integration model.

For example, Ardent has a pretty good-sized health plan in our Albuquerque market with about 40 percent market share. We've developed the program so we can sell insurance to organizations at a significantly reduced cost. We pass that cost down to the hospitals, so they're motivated to reduce their costs in order to continue to maintain their budgets.

Albuquerque represents a single market inside of Ardent. It includes the hospitals, the health plan, and all the other services we provide. These are all rolled up into an overall market budget with an earnings target. A significant portion of compensation for the managers is tied to the success of the entire market as well as their individual business units. So it creates aligned incentives. They're motivated to make the health plan successful by containing costs, and they're also responsible that the hospitals keep costs in check.

We don't own physician practices, so the doctor side of it can be a challenge. But everything else is integrated very well.

MediClick: What challenges do you see for the future of the healthcare supply chain? 

Kerry: If the industry is really going to reform itself, the suppliers have to come along. They have to participate and sacrifice, too, or reforms are going to be real problematic and put too heavy a burden on the hospitals.

There's something wrong with a medical device company making a 40 percent gross margin on their business and we're doing well to be at seven percent. What's wrong with that picture?

Every time I turn around there's a new pacemaker or new defibrillator. I can't keep a lid on hips and knees because all these joints are always getting a new tweak and being marked up more each time. The device manufacturers are pushing them on the doctors saying they provide better care for their patients. So the doctors are bringing the new products into the hospitals, and we don't have a say in the matter.

The hospitals have to ask: do the innovations improve outcomes at the same rate their prices increase? I'm not seeing new devices producing 20, 30, 40 percent better outcomes. Then how can we justify their prices going up at that rate? We must look at effectiveness when addressing rising costs.

MediClick: Thanks for sharing, Kerry!

Open Letter XII: Motorcycle Daydreams & the Evolution of Cooperation

Spring is the most fleeting of North Carolina's seasons. It's not uncommon for winter to morph directly into the brutal 90/90 days of summer (that's 90 degrees Fahrenheit and 90 percent humidity). So, when nice, temperate weekends present themselves, I take full advantage by getting on my motorcycle and touring the countryside.

I logged over 1,000 miles in the latest trip, winding through the back roads from Raleigh to western North Carolina and down into the mountains of north Georgia. All that time in the saddle means a lot of time to think…a potential hazard to the committed readers of my blog.

I was reminiscing on a recent conversation with the supply chain executive of a large IDN. He spoke of changing the culture of his contracting teams in their approach to suppliers. All too often, he said, it's easy to slip into an antagonistic mindset where you make negotiations a zero-sum game. Your gain is my loss, and my loss is your gain. He sees merit in creating true partnerships with key vendors, and so he spends a lot of time with his contract specialists talking about the kinds of collaboration that produce wins for both sides.

More and more hospitals are talking about the advantages of cooperation. The trend is a good one, and I'm confident we all benefit from investing in partnerships rather than looking to gain an edge from each transaction. But cooperation only works as a two-way street, and it's most effective when, to paraphrase Teddy Roosevelt, the hospital can speak softly but carry a big stick. This is especially true when it comes to relationships involving expensive physician preference items (PPIs).

Let me explain.

Robert Axelrod, a professor at the University of Michigan, wrote The Evolution of Cooperation in 1984. It's a fascinating study of why cooperation makes sense in almost any setting. His argument starts with a simple game (think Rock, Paper, Scissors) in which there are two players, each of which has two choices in each round: cooperate or defect. If both players cooperate, both get three points. If both defect, both lose one point. If one cooperates and the other defects, the defecting player wins a big five points and the naïve, cooperating player gets zero.

The game was played out in computer simulations with various academics submitting strategies in an attempt to get the most points.

Given the scoring system, defectors stand to win big, right? In a one-time transaction, yes, both parties are motivated by a "winner-gets-all" strategy…I can win a major five points if I defect and make a sucker out of my opponent.

But the game was played in multiple rounds where participants engaged each other over and over again. And in the iterations, a player who defected would get punished by his opponent who would also begin to defect. Soon, both sides would figure out it's in their best interest to start cooperating with each other. In Axelrod's experiments, the most stable approach was continual cooperation.

But there was one catch. Cooperation only works in the long run if players are willing to punish their opponent if he defects. So, if the other player defects, you show him you won't tolerate being taken advantage of and you defect right back. It's the stick you must wield in order to keep everything in its proper check and balance.

Okay, at this point I've probably been on my motorcycle far too long. Let's bring this back to the real world and see if there's anything practical to learn from it.

Hospitals can find a lot of benefit from cooperating with key suppliers. Over time, it tends to reduce overhead costs (e.g., you're managing fewer vendors) and minimize administrative burden (e.g., you have less vendor turnover and get longer term pricing locked in). But it has to be mutual. You can't afford to cooperate only to find your supplier is defecting.

This is where hospitals run into problems, especially when dealing with PPIs. All too often, we enter into agreements based on complicated market share assumptions. When it's time to demonstrate that we're living up to our side of the bargain, we find ourselves unable to produce data that proves our position. The supplier has the data, but he's not sharing with you.

That puts you at a real disadvantage. You may think you're cooperating, but in reality the supplier has defected and you don't even know it. You need to invest in the tools to keep your data capabilities at least as good as theirs.

Even worse, we might spend months negotiating a price with a PPI supplier. When we're ready to sign the contract, it's filled with all sorts of confidentiality restrictions that threaten hefty punishment if we share our special pricing with any of our colleagues. The supplier probably used the term "partnership" all through the sales process and promised us we were getting a great deal. But how can we trust that we're not getting the sucker's end of the bargain if they won't even let us benchmark against our peers? There's something about that practice that just doesn't add up for me.

In the end, if we're to achieve true cooperation and true partnership with our PPI suppliers, we must wield our big sticks. We must make sure we can hold them accountable by tracking on our own whether we're meeting the market share requirements. We must not let them keep important benchmarking information from us and stop doing business with them if they do.

Only then can we enter into a truly stable, cooperative relationship with our suppliers.

Open Letter XI: Comparative Effectiveness and…Porsche Makes Knives?!

Supply chain and finance executives are so attuned to the bottom-line that I wasn't sure what kind of response to expect when injecting a policy issue into this email/blog series. But last week's entry on comparative effectiveness generated some good discussion.

The key theme was this: we care about price, but our greatest responsibility is providing high quality patient care. How will comparative effectiveness balance the need for quality outcomes against our need to hold down costs?

Consumer Reports comes to mind. I'm a subscriber and a much more informed buyer because I take seriously its recommendations on a wide range of products. Why? Because in its 70+ years, Consumer Reports has established itself as an honest broker of information that balances quality and price. Subscribers know that it conducts thorough tests that are not influenced by manufacturers.

The June issue arrived at my home last week. One article evaluates kitchen knife sets, comparing 49 separate products from a variety of companies. Nine of the products made the cut (should I take credit for this pun?) for the "Select Ratings" list because they demonstrated the best combination of quality and price. The seal I look for, "CR Best Buy," is reserved for the lowest cost products that don't sacrifice quality. The best values.

One element of the knife evaluation caught my eye and got me thinking about comparative effectiveness and physician preference items. Consumer Reports tested a set from Porsche (who would have thought they made knives?) and found that it was among the best. Its price tag, however, was nearly twice that of any other set of comparable quality. So, Porsche wasn't a good value. It didn't make the Select Ratings list.

A similar evaluation process is part of the vision for the Agency for Healthcare Research & Quality (AHRQ). Develop it into a trusted resource for comparing clinical data on competing products to: 1. Determine quality of patient outcomes when the products are used, and 2. Rank the products' value based on its cost versus its effectiveness. The research must be unassailable both for its scientific integrity and its freedom from influence by medical device and pharmaceutical manufacturers.

So, for a hypothetical situation, say Porsche were to enter the arena of hip implants, introducing its own "new and improved" product; building an army of smart, smooth, Carrera-driving reps that knew how to curry favor with surgeons; and underwriting expensive research praising the clinical value of this implant.

In today's world these efforts and its powerful brand identity might enable Porsche to charge a premium over the competition and still make it onto physician preference lists and your purchase orders. If the docs want it, many of us would have little choice but to procure it for them.

In a different world, AHRQ would present comparative effectiveness research to you and the physicians. It would establish quality rankings by measuring patient outcomes from hip implant procedures. It would collect data on the costs of hips used in those procedures. And it would matrix the highest-quality/lowest-price hips as "Best Buy" in its own version of Consumer Reports Select Rankings.

If Porsche's "new and improved" implant demonstrates a real improvement in clinical outcomes, AHRQ gives it a gold star recommendation and we all buy it feeling confident we're getting value for the price. If, however, it turns out the improvements are more marketing gimmick than clinical reality, then AHRQ's research and ratings educates the physician, the hospital buyer, and the patient by showing that the outcomes don't justify the cost.

I don't see AHRQ and comparative effectiveness taking decisions away from the physicians. Nor do I see it sacrificing quality for lower costs. What I do see is a much needed counterbalance to the existing system.

Rather than relying on manufacturers' own research about the virtues of their products, let's develop AHRQ as a trusted broker of this information. Let's make an investment so it can be the Consumer Reports that guides our value analysis purchasing decisions.

Open Letter X: Why Hospitals Should Support Comparative Effectiveness

The Association for Healthcare Resource & Materials Management (AHRMM) should become more vocal in support of the comparative effectiveness proposal, a key plank in the current administration's healthcare reform platform. It's not often that hospital supply chain executives find a policy issue so worthy of our support, and I urge AHRMM – as the nearest thing we have to a public policy voice – to begin educating its membership about it.

Allow me to explain my thoughts, and I'll be eager to know whether you agree.

The costs of physician preference items (PPIs) continue to inflate more quickly than our ability to get fair reimbursement from payors. It's eating away at our margins, and in some cases threatening the viability of our hospitals. (See Open Letter III: These Aching Joints.)

Even though our hospitals foot the bill, the physicians decide which supplies we purchase for a given procedure. Supply chain managers can be diplomats, trying to persuade surgeons to consider cost implications when selecting PPIs. But the doctors hold the trump card. Physicians make the final determination about which item is best suited – medically speaking – for a procedure or a specific patient. No matter how convincing our argument for saving hospital dollars, the clinical decision rules the day.

And I agree that clinical decisions should prevail. We and the physicians share the same goal of achieving superior patient outcomes. But after that, our goals hit a disconnect: we are charged with doing it in the most cost effective manner possible while surgeons rarely share the responsibility of getting the best price.

As supply chain managers, it's not often our role to bring clinical information to the value analysis process. When we do, we know it must be bulletproof or our data-minded surgeons will be quick on the trigger and shoot it full of holes.

So…what if we had a clearinghouse of treatment guidelines based on cost, quality, and clinical outcomes? What would happen if a panel of well-respected physicians (with no financial ties to medical device manufacturers!), RNs, research scientists, and administrators were to conduct comparison studies of which items are most effectively used in specific procedures?

This, in a nutshell, is comparative effectiveness. The Federal Coordinating Council for Comparative Effectiveness (catchy name) guides federal research dollars to the Agency for Healthcare Research & Quality (AHRQ), the National Institutes of Health (NIH), and the Department of Health & Human Services (DHHS). These agencies are responsible for conducting the research and reporting on the results.

The administration is trying to make this part of its reform agenda, and you better believe the device manufacturers are fighting it tooth-and-nail. (See this WSJ article). As part of February's economic stimulus legislation, the initiative was funded with $1.1 billion. But Congress stripped it of any real teeth by taking the "comparative" piece out. In other words, AHRQ, NIH, and DHHS are allowed to conduct research, but they cannot say whether a device from manufacturer A demonstrates a clinical and cost advantage over its counterpart at manufacturer B.

This should be revised in the next legislative proposal, and it's on this point that AHRMM and supply chain executives should make our voices heard.

Ultimately, each agency should be responsible for studying which treatments and medical technologies are best in providing patient care for various disease states. They should compare devices against their competitors to help determine equivalency and effectiveness. They should make recommendations about which devices deserve reimbursement for producing the best outcomes versus those that come to market with higher costs but scant additional benefit.

Comparative effectiveness will be subject to all sorts of political attacks, calling it an attempt to limit physician decisions and ration healthcare. But I don't see it that way. In my mind, it's about creating an unbiased assessment of the most cost effective ways to achieve superior patient outcomes. That's our ultimate job!

Why am I urging AHRMM and hospital supply chain executives to support it? Comparative effectiveness holds the promise of leveling a playing field tilted too far away from cost considerations. It will allow us to approach our value analysis team meetings with a framework for fair discussions using neutral clinical data. And it might just help us toss a lasso around the runaway costs of PPIs.

I invite your input. What are your thoughts?

Open Letter VII: Psychology & Preference Items: What Happens When You Spend a Semester on the 6th Floor

Long, long ago I was a psychology major. It was a compromise (as many of my life decisions are) in that it gave me a flavor of biology, philosophy, statistics, english, religion, and my personal favorite – abnormal behavior – all packaged into one legitimate degree.

My senior year project involved sitting in on group therapy sessions on The 6th Floor, i.e. the psych ward, of a Charlotte hospital. (Remember, this was over 30 years ago, before the advent of SSRI's, SSNRI's, etc., and group therapy was a core treatment strategy.) I had many memorable experiences that semester. Some were good, like the time I snuck two women out of the hospital and took them to Baskin Robbins. Some were very bad, like when a first-time group member – a delightful, gregarious, middle-aged woman – killed herself that night.

My experience on The 6th Floor led me to a lifelong belief, one reinforced by my own shortcomings as well as my observation of others. It was the theme of my semester term paper: "The difference between a normal person and one with a clinically certified neurosis is not a solid line; it is merely a matter of degree." Anyway, there's your thought-to-ponder for the day.

Why this psychological reminiscing? Well, to transition to a story about the supply chain, of course!

Sitting at lunch last week at the IDN Summit meeting in Orlando, I overheard a conversation between two materials folks about what workshop to attend that afternoon: One remarked, "How to Manage Physician Preference Items is a waste of time; every time I try something either administration or the surgeons cut my legs off." The feelings of frustration and defeat were palpable. The comment conjured memories of a behavioral psychology concept (yes, this is my transition and yes, it's a stretch) known as "learned helplessness," a term coined by Dr. Martin Seligman in the late-1960s.

Dr. Seligman ran a research lab at Cornell University and spent much of his time experimenting with lab rats. In one particular and somewhat cruel study, he placed a lab rat in a specially constructed box, repeatedly rang a bell, and followed the sound with a mild electric shock. The rat quickly learned to anticipate the shock when he heard the bell. As you can imagine, the rat would become frantic at the sound, running around his box in a futile attempt to avoid the discomfort.

It took very few rounds of this "bell-plus-shock" routine before the rat's behavior changed. The bell still evoked agitation, but once he resigned himself that he had no control to stop the shock, the rat basically gave up and took it.

This observation led Dr. Seligman to his theory of learned helplessness, a phenomenon that he believed was observable in other species as well, including us humans. Makes sense – I don't know about you, but when I'm faced with a stressor and perceive that I lack any control to resolve or avoid it, I usually suck it up and go with the flow.

Going back to the supply chain managers at my lunch table last week, I suspect they had experienced their own version of the "bell-plus-shock" routine. Like many others in their position, they have been charged with taking control of supply costs in their hospitals but then are met by a barrage of stressors when they try to tackle the high dollar preference items. You work long hours to gather case specific cost data, you work with VA teams to verify clinical equivalency, you present results to the docs and admin, and you get... nowhere. A stressor scenario on steroids and no authority to do a damn thing about it! So you pick yourself up and confine your efforts to the commodity end of the supply spectrum.

I see two lessons here. The first is basically a repeat of my mantra: there are millions of dollars of savings to be realized in the supply chain if CEOs empower the supply chain executives and actively (and publicly) support them with the clinical community.

The second lesson is broader in scope: too many of us accept the existing operational characteristics of the supply chain – business relationships and their pre-defined "balances of power," pricing practices, transparency or lack thereof, software system limitations, timeworn workflow patterns, etc. – as immutable. They are entrenched, but they are not immutable.

We in the provider community need to realize this. Changing these characteristics and asserting control over them is our right, our obligation, and a critical piece of the savings equation. I'd like to discuss some specific cases-in-point in my next several blogs.