Analysis of the data set yielded an annual savings in excess of $2,000,000 in the spinal implant and tissue graft product categories — a 19 percent cost reduction.
The task of identifying and implementing implant cost reductions is inherently data intensive and politically sensitive. In our experience, both concerns can be mitigated by ensuring physician choice, mining the right data for analysis and tracking and quantifying the results efficiently.
SHS's experience is that by preserving physician choice for implantable devices leads to physician satisfaction and creates the best possible scenario for a good patient outcome. Often a hospital can achieve a savings on implant costs without consolidating vendors or drastically changing their implant utilization — this project was certainly no exception. The approach is designed to reduce a health system's expenses while having a minimal impact on the current implant utilization. The analysis is completely data driven and specific to vendor, implant and doctor.
Projects are comprised of two phases with each phase consisting of three steps.
Phase I – Implant Utilization Analysis and Cost Benchmarking
1) Accurately identify current implant spend
Accurately establishing what the health system was spending on implants was critical to developing an achievable savings target. This goes well beyond receiving a general ledger data dump containing high level expenses and case counts. We worked with the health system's staff to extract implant costs from their computer system(s) and/or directly from the implant log. The method of utilizing computer system(s) in conjunction with the implant log as our data sources gave us the most complete and accurate picture regarding the health system's specific implant utilization and spend.
2) Benchmark costs
The benchmarking process involved comparing the health system's implant prices to other hospitals. We used the manufacturer's part number as our primary data point to compare pricing to other hospitals utilizing the exact same product.
3) Develop savings targets
The savings target was developed by merging the benchmarked price points with the current volume and implant utilization. Using the health system's actual usage data along with the benchmarked price point gave us a hard dollar savings target that was not based on physician behavior.
Phase II – Implant Cost Reduction Implementation
1) Attain physician support
A traditional recommendation to reduce implant costs is to consolidate vendors. In our experience, this is very difficult to achieve largely due to almost uniform response among physicians that such an approach is unilateral and dictatorial. We believe negotiating directly with the vendor, using a detailed analysis and benchmarked price points as leverage, is a much more effective way to achieve implant savings. Sharing with the physicians the implant data, savings targets, and communicating the intent of preserving physician choice on implants is the most effective approach for attaining physician support for the project.
2) Negotiate with vendors
SHS staff has facilitated many successful implant manufacturer negotiations. We lead these negotiations by combining the three critical elements of a successful project: detailed analysis and price benchmark data, expertise in negotiating with vendors and ensuring the health system's administration and physicians' support for the project.
3) Track results
When new pricing is implemented the health system's implant purchases are actively monitored to ensure the vendor's contract compliance and savings targets are being met.
Delivery of a comprehensive implant utilization and cost report. The report detailed:
• Savings opportunities by item
• Savings opportunities by vendor
• Savings opportunities and product utilization by doctor, by case
Case level data compiled in the above fashion allows meaningful analysis. Product utilization and cost trends will emerge.
• Which parts offer the greatest savings opportunity?
• Which parts and constructs are used most?
• Which vendors have cost imbalances on similar items within the hospital?
• Which doctors have high per case costs?
• Which procedures have high per case costs?
Data analysis at the surgical case level will provide focus and clarity for the cost reduction effort. In the case of this Midwest health system the savings amounted to over $2,000,000 annually. Additionally, the system was provided an ongoing implant usage and tracking database that supports sustained implant usage tracking, savings calculation and contract price validation.
SHS is a financial consulting firm that specializes in Implant Expense Reduction by decreasing the implant spend across the total joint, spine, trauma, and cardiology service lines without altering surgeon preference. Using a robust implant database, expertise in benchmarking, and keen negotiation skills, SHS analyzes data at the surgical case level by vendor and identifies all opportunities for savings. SHS works closely with senior hospital administration, purchasing, value analysis teams, and physicians during the process in order to gain trust and support for the project. Additionally, SHS will facilitate vendor negotiations, implement new pricing, and provide ongoing support to ensure the targeted savings are achieved. Once new pricing is implemented, SHS will assist in monitoring the implant utilization to be certain the vendor is billing the agreed upon price and any new items are bought under contract.
Contact: Joe Jackson