Are suppliers getting the hang of outcomes-based selling?

Contracting executives are demanding that salespeople go easy on the features and heavy on the – provable – benefits. And suppliers are getting the message.

IDN supply chain professionals are demanding that manufacturers and distributors approach them differently. That’s no surprise, given the challenges providers face, including value-based purchasing, penalties for hospital readmissions, all the attention being paid to serious reportable (“never”) events, and, of course, never-ending cost constraints.

“I’ve been in healthcare 25 years, and I don’t recall a time when hospitals were under this much pressure, particularly the metrics around value-based purchasing and diminishing reimbursement,” says Richard Blackburn, vice president, support services, CaroMont Health, Gastonia, N.C. “Our expectations of distributors and [manufacturers] are evolving, just as the economic environment is evolving. Distributors and manufacturers have to get away from selling on features.”

“I believe we are in the beginning stages of a major change, where all supply system members are currently identifying what role we should play in our common purpose of patient-centered care,” says Ray Seigfried, senior vice president, administration, Christiana Care Health System, Wilmington, Del. “Materials resources – supplies, medication and clinical equipment – make up between 15 percent and 20 percent of a hospital’s total expense, a significant factor to the operation of every hospital. That’s why the [Christiana Care’s] Value Institute sees opportunity in redesigning the relationships between manufacturers, distributors, GPOs and hospitals, all of whom serve patients and can make a meaningful contribution to healthcare reform sustainable.” The Value Institute designs and studies effective, evidence-based systems of care that deliver better outcomes at lower costs.

Suppliers seem to be responding to these new realities. “Everyone at Sage is focused on ‘simple interventions that yield extraordinary patient outcomes,’” says Steve Anderson, vice president, corporate accounts, Sage Products, paraphrasing the company’s tagline. “Measuring the clinical and financial impact of interventions has a real impact on the healthcare-acquired conditions that providers are trying to avoid.”

“As a supplier of IV products and disposables, we have to work closely with our customers to ensure our products are helping them address the everyday issues they are faced with,” including medication errors, clinician and patient safety, and environmental issues, says Erik Graaf, director of marketing, hospital care, B Braun Medical Inc.

Demand-driven
To be sure, Seigfried sees the big picture in healthcare. Perhaps that’s not surprising, given his broad areas of responsibility, including the departments of pharmacy, pathology and laboratory medicine, EEG, EMG, clinical engineering, pastoral services, nutrition and food services, textile services, the Sleep Center, not to mention materials management. In addition, Seigfried is a member of the International Society for Systems Science and the System

Dynamics Society, an international, nonprofit organization devoted to encouraging the development and use of system dynamics and systems thinking around the world.

“Change really starts with us, that is, hospital executives,” says Seigfried. “That’s one reason Christiana Care Health System created the Value Institute. Those of us who have responsibility for materials management believe that clinical technologies need to have value not in and of themselves, but more so, in how they improve patient outcomes.”
Seigfried talks about a new, broader way of looking at provider/supplier relationships, opting to use the phrase “supply system” instead of “supply chain.”

“What’s the difference?” he asks. “Systems are not the sum of their component parts, like one would understand a series of chain links. They’re interdependent, holistic and organic.”

Providers have to do their part to turn systems thinking into concrete action, says Seigfried. For example, they need to move from a supply-driven materials process to a demand-driven one. Hospitals have “overplenished” their inventories for years, just in case, he says. “That’s our contribution to waste. Now, we must switch to a demand-driven approach. But in order for that to work effectively, all system members must forge a new relationship.” Other industries already have become demand-driven, says Seigfried, citing electronics company Apple as a prime example. “That is the model that healthcare needs to learn from, and it will be achieved through a closer relationship between all system members.

“I think we’re in the Stage 1 of development. For us to be successful, hospitals like us will have to work with manufacturers and distributors and address questions such as, ‘How do we stop overplenishing the system, and what role does the manufacturer, the distributor and the hospital play?’ I haven’t figured all that out yet. But I’m on the track of asking these questions, and trying to get others to join me in the dialogue.”

Big-picture thinking has practical ramifications on how Christiana Care evaluates medical technologies, such as clinical equipment. “Prior to this thinking, we would simply evaluate technology in terms of the acquisition cost and quality,” says Seigfried. “Today, the factors are quality, outcome, safety and cost. So in other words, we’re not looking at value relative to the technology itself, but value relative to the course of care for the patient.” Christiana Care will pay more for a piece of equipment, for example, that can help clinicians reduce the time it takes to make accurate diagnoses, or that can support quicker turnaround times in the emergency department. “The question now is, ‘What is the value relative to the patient?’ It’s a totally different thought process.”

Providers’ growing demands
Blackburn says that providers’ decision-making processes have evolved over the years, with definite implications for suppliers.

Ten or so years ago, providers looked at the price of products as the primary way to reduce costs, he says. “If it was a good product, if the features were there and the clinicians liked it, we would buy it, so long as the price was good,” he says. Then, providers’ thinking evolved. More than just the purchase price, they began investigating the impact of a new product or piece of equipment. “That’s the benefit piece,” he says. Clinicians, finance, materials and others came together to ask, “What are the actual benefits of this product? What will it do for us?”

Fast forward a couple of years, and providers grew more demanding of the sales reps who called on them. No longer would they accept the rep’s claims that a product could, for example, reduce infections. “The reality today is, if a rep walks through the door and says, ‘My device will reduce infections or improve quality,’ I want hard, empirical evidence that will, in fact, happen,” says Blackburn.

Many reps understand this new reality, he says. Others still believe that features-based selling will win, or that they can leverage strong personal relationships with clinicians to push their products into the hospital. But neither approach works, at least not at CaroMont.

“Our clinicians and physicians clearly understand that it’s all about whether a product will do three things – reduce cost, improve quality, and improve community or population health,” he says. “Every healthcare provider has to be competent at all three things. And when reps come through the door, they need to understand everyone is aligned around these three competencies. We have a lot of reps who get that and who understand it’s all about the tangible, quantifiable benefits their products can bring to us.”

In some cases, particularly with new technologies, hard-core proof of outcomes may be hard to come by, says Blackburn. And few hospitals – even teaching and research facilities –are equipped to conduct carefully controlled studies. In those cases, the provider has to rely on its clinical team to vouch for the effectiveness (or lack of effectiveness) of a technology.

“Our early attempts at comparative effectiveness were rudimentary for sure, but frequently produced the right outcome, which was the best product at the best price for the clinical need,” he says. “Unfortunately, those early efforts almost always ended in purchasing newer technology at a higher cost than current technology.

“Today, we still focus on product price, clinical efficacy, utilization and total cost. However, we no longer accept that buying the latest version or newest product is the only means to achieve quality outcomes. Our clinicians and providers recognize that newer is not always better, especially if the product comes with an unsustainable total cost with little or no incremental benefit for the patient.

“The manufacturer and distributor must present empirical evidence that their products or services directly and quantifiably produce a sustainable, valuable benefit for the organization, patient, and payer. The days of pass-through costs are over, unless the [manufacturers] want to contract directly with payers, such as Medicare, to get reimbursement for their devices. The reality is that hospitals cannot sustain an ever-increasing cost structure. OEMs and distributors must understand that new technology cannot come with a higher price tag and total cost of ownership.”

Vendors respond
Sage is serious about developing the evidence to support its product interventions, says Anderson. The company’s salespeople are trained to work with accounts to develop and measure the effectiveness of clinical protocols for prevention of a number of conditions, including ventilator-associated pneumonia, heel/sacral pressure ulcers, and surgical-site infections.

Sage recognizes that providers face a difficult transition from the fee-for-service world to value-based purchasing, says Anderson. “There’s so much financial pressure on them right now, and they’re kind of caught in the middle.” Purchase price will always be an issue, particularly for supply chain executives, whose compensation rests in part on cost-savings.
“Yet the cost of the problem they are addressing – including ventilator-associated pneumonia and pressure-related skin injury – is exponentially larger than their spend on products. The increased focus on data-mining and comparative-effectiveness research is terrific, and it will help the entire market understand the true cost of these infections. We all have a responsibility to tackle them.”

B Braun is working hard to develop products that add value, says Graaf. With more factors involved in the product selection process than in years past, the company hasn’t strayed from addressing its customers’ key issues, he says. One of those issues is safety – for the patient, healthcare worker and environment. Regarding patient safety, the company helps its customers address such things as the prevention of medication errors and the reduction of central-line infections, and even hospital readmissions (due to pain), he says.

“Occupational exposure to bloodborne pathogens, needlestick injuries and dangerous cytotoxic drug exposure are at the forefront of issues that constantly beg us to ask, ‘What else can be done?’” says Graaf. The company’s “RA advantages” website (www.raadvantages.com) addresses the positive impact regional anesthesia – where indicated for surgery – can have on all the different stakeholders, including administrator, surgeon, anesthesiologist, supply chain executive and patient. Moving away from general anesthesia, which is performed using gas and opioids, to a regional anesthesia approach using peripheral nerve blocks can help reduce PACU stays, readmission rates and potential addiction to oral narcotics following surgery, Graaf points out. “All of these things represent an opportunity to reduce costs, but they also result in reduced patient anxiety and better outcomes. Patients are awake and more alert coming out of surgery, and able to get back to their families a lot sooner.”

“We have known for more than 50 years about this concept of system, interdependency and the need for us to work together as a holistic process,” says Seigfried. “Healthcare reform will force this thinking on us. It has to, because we can’t continue overplenishing the system. The question is, ‘Will we join forces to work out how we can all make this a ‘go?’” JHC