by John Cunningham

Like most businesses, healthcare has been deeply impacted by the economy from both a volume and revenue/expense perspective. It appears that there is a "perfect storm" brewing that has created an environment more conducive than ever for providers to lower their supply and services costs in collaboration with their physicians through negotiation, standardization, and right sizing utilization.

But the economy is not the sole element creating the storm. It's also being stirred up by increased scrutiny on physicians and device makers regarding conflict of interest and relationships; the potential for national healthcare reform; changes in reimbursement methodologies to bundle payments for hospitals and physicians; and the increasing focus on evidence based and comparative effectiveness.

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According to a 2009 Goldman Sachs survey, hospital purchasing managers reported an 18 percent average price discount after consolidation among cardiology and orthopedic device makers. The PriceWaterhouseCoopers Health Research Institute report, Top 10 health industry issues in 2010: Squeezing the juice out of healthcare, even said: "Other industry estimates are as high as 55 percent, depending on the level of standardization, utilization management and net discounts off current list prices."

Additionally, the PWC study said: "Another factor that could affect medical product purchasing decisions is the proposed Physician Payments Sunshine Act, which would require pharma and device companies to disclose consulting fees paid to physicians, health insurers, pharmacists and others."

With all these influences in play, it seems that the time is now for providers to redouble their efforts in focusing on the cost of goods and services. For example, I am finding and hearing from my colleagues that physician preference is loosening its grip on the hospital's ability to negotiate discounts with key supply partners and bring greater standardization to the physician preference portfolio.

With very little evidenced-based data to point to for the selection of most cardiac and orthopedic devices, hospitals are looking at the wide variation in costs across providers and collaborating with the providers on sourcing strategies that include down selecting from the numerous suppliers on contract with the IDN or group purchasing organization.

The new willingness to collaborate and the suppliers interested in deepening discounts for added market share and commitment is bearing a great deal of fruit for the hospitals who are focused on strategically lowering its costs of goods.

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.