by John Cunningham

With the ongoing debate on the cost of healthcare and the myriad of proposals to "fix" it, it's easy to become distracted from the daily operational issues that acute-care hospitals face in managing one of the fastest growing expense lines; physician preference items.

Physician preference items can end up accounting for a sizable portion of a hospital's total supply expenses. In 2008, the FDA reported that 3,370 new items were submitted for FDA approval and that number continues to climb. In fact, by 2011, the Healthcare Advisory Board predicts that 35 to 45 percent of all procedures will use an implantable device.

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Managing physician preference can be as complex as the technology that is being used. A physician's preference results from many factors, including training, relationships and outcomes. However, of the three, the one most easily measurable--outcomes--has yielded very little evidence to support one product's superiority over the other. In the absence of an implant registry, efficacy and outcomes will continue to be the ambiguous argument made in defense of physician preference.

Recently, I was talking with a colleague in the consulting field who described the work she's doing on physician preference with a large health system. She was flabbergasted to find that the hospital decided to support a physician's use of a line of implants while paying three times the GPO contracted price for the product line.

Why? Hospital administration informed her that when they presented the contracted price to the supplier, the supplier representative informed the hospital that in order to honor the GPO price, he would not be able to provide service to the surgeon in the operating room.

Hospital administrators approached the physician with the dilemma, only to hear from the physician that if the supplier representative could not provide service, the hospital would have to hire a resource to do so. Weighing the impact of added cost of goods with added full-time employees, the hospital elected to pay the premium price.

Good decision? From nine months of purchasing data, the hospital found it had paid more than $75,000 over the GPO contracted price for a single item within the supplier's extensive product line. This is not an anomaly or an isolated tale of mismanagement; it's the root cause of the escalating costs of physician preference items. Relationships are the chief driver of physician preference. Time and again we hear of physicians changing the products they prefer when the vendor sales representative changes employers.

What's the solution? The most effective approach to managing the expense of physician preference items requires the hospital, armed with credible data, to sit with physicians and discuss the financial considerations of practice variation and preference. After all, physicians are scientists, and as such, appreciate and respond to data-rich discussions (at least when it involveds data such as procedure direct margin, line item costs of equivalent products, and the cost effective practice patterns of their peers.)

Where to start? Hospitals that are paying more than 40 percent of a procedure's net revenue to the cost of implants might reevaluate the long term profitability of a physician's preference.

John Cunningham is VP, acute division, supply chain operations at Universal Health Services, Inc. He has extensive experience turning around and leading hospital supply chain operations in some of the nation's leading academic medical centers and large integrated delivery networks. In addition to his current position with UHS, John is also a member of the adjunct faculty in the Drexel University School of Nursing and Health Professions and served in the United States Navy.