Every healthcare supply chain executive is speculating about what their healthcare organization’s cost, quality, and outcome goals will look like in 2017 with the impending appeal of the Affordable Care Act. It is my prediction that there will be even greater emphasis in 2017 on lower costs, higher quality, and better outcomes. This is because healthcare costs continue to climb. Costs are expected to grow by 6.5% this year, which is much greater than inflation. This out of control growth is unsustainable for providers, insurers, and their patients in the short and long term!
Bundled Payments Seem to Be the Payment of Choice
Even though the Centers for Medicare and Medicaid Services will continue to tinker in 2017 with alternative payment program’s bundled payments, which links multiple services along with financial and quality accountability during an episode of care, it seems that bundled payments are the winner since they are saving more money than Accountable Care Organizations. So far, there have been bundled payments in COPD, ADHD, joints, AMI, and birthing that have been successful. More are to follow…
Supply Chain’s Future Role in Bundled Payments
Considering that an episode of care could consist of up to 50% or more in medical device costs alone, Dr. Joseph Bosco, Vice Chairman of Clinical Affairs, NYU Langone Medical Center, said at a recent AHRMM panel discussion that, “Supply chain can be a key support for healthcare organizations as bundled payments expand with sold data and analytics to assist clinicians to identify various utilization patterns.” The goal is to identify product and care outcome variation and provide data to assist clinicians to change care patterns which will decrease costs and improve clinical outcomes.
It’s No Longer About Price: It’s All About Utilization Patterns
If you think that the answer to bundled payments is better pricing, then you don’t understand that price is the smallest element in the total lifecycle cost (i.e., the sum of the purchase price, plus the subsequent cost of ownership over the useful life) of the products, services, or technologies you are buying.
So, if you buy a car for $25,000, that’s not the cost of your car over its useful life. You must include gas, tune-ups, oil changes, repairs, tires, insurance, etc. (or, cost of ownership) over, say, 5 to 10 years to determine its actual lifecyle cost.
In healthcare, if you buy a widget for a dollar and a clinician utilizes three a day unnecessarily, then your per patient day cost is $3.00, not $1.00. Multiply that by 30 clinicians and you could be spending $90.00 per day unnecessarily. That’s the cost you want to target and eliminate thereby, reducing your bundled cost in the process.
Supply Chain is Uniquely Skilled to Take on This New Challenge
Supply chain has been waiting for an opportunity to have a seat at the executive table. Finally, it is my prediction that this will happen with the advent of bundled payments because supply chain is uniquely skilled to take on this new challenge.
The challenge is to reduce supply chain expense utilization costs, which average 7% to 15% at every hospital, system, or IDN. Now is the time to re-position your supply chain for bundled payments. Don’t wait to be told to do so.