Strategy and Culture Roadmap to Orthopedic Savings SCD2

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Strategy and CultureRoadmap to Orthopedic
Savings (SCD-2)

• Premier, Inc.
• June 21, 2006

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Session Presenters

• Steve Statz, RPh, MBA,
• Senior Vice President, Hospital Operations
• Avera McKennan Hospital and University Health
  Center
• Sioux Falls, South Dakota
• Catherine Whitten, RN, BSN, MHA
• Senior Clinical Associate, Premier, Inc.

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The McKennan Team
Session Objectives

• Data collection requirements and methods
• Approaches to prioritization of clinical
  practice, resource utilization and cost
  opportunities
• Identify an organizational leadership team
• Strategies to engage physician support to meet
• organizational goals

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• Overview
• Member Avera Health
• 490 beds
• Magnet facility
• Campus
• Avera Cancer Institute
• The Orthopedic Institute
• Avera Doctors Plaza
• McGreevy Clinic
• Center for Family Medicine
• Sioux Falls Surgical Center
• Distinguished Clinical Hospital by HealthGrades
  2003 and 2004

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(No Transcript)
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The Burning Platform

• Total Joint Replacements
• Non Medicare population moved to surgeon owned
  specialty hospital
• 85 Medicare and third party fixed payment
• Reimbursement did not cover costs
• Lucrative orthopedic cases were lost to
  ambulatory centers

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Physician Preference Project Methodology
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The Process
The Process

• Phase 1 Assessment
• Assessment
• Data analysis
• Detailed surveys
• On-site observations / interviews
• Strategy and Target
• Physician selection
• Strategy development

• Phase 2 Implementation
• Physician Engagement
• Setting the example
• Purchase agreement development

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Balancing Patient Outcomes and Cost

Savings
Savings Focus
Patient Care Focus

• Savings Opportunity Identification
• Eliminate practice variation
• Implement better practices

• Patient process flow
• Identify practice variation
• Comparison to Better Performers

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Clinical Outcomes

• Average length of stay 3.6 days
• Dedicated orthopedic team in surgery
• Dedicated orthopedic team leader
• Patient education program
• Interdisciplinary approach to patient care
• Minor supply variation
• Identified 40,000

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Specific Implant Analysis

• Surgeon specific detail
• Three month snap shot
• Patient level detail
• Component level detail
• Reimbursement
• Six months by patient and payer
• Actual payment detail

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Understanding Implant Utilization
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Understanding Implant Utilization
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Understanding Implant Utilization
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Setting the Target

• Average Medicare reimbursement 9914
• Average implant expense 4,256
• Target 3,470
• Target savings 400,000

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Contracting Strategy and Approach

• Construct (bucket) approach
• Manages expense/procedure
• No surgeon change required
• Drives vendor to manage selection
• Focus on workhorse constructs to minimize expense
• Compensate for lack of selection process/demand
  matching
• Downside is carve outs/up charges
• Discount approach
• Manages price only
• No surgeon change required
• Drives hospital to monitor and manage selection
  and mix
• Vulnerable to annual price book increases
• Downside is potential sales rep up selling

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Identify Key Team Members

• Senior leadership/executive negotiator
• Sponsorship
• Physician negotiator
• Deal closer, can keep the promises, compact make
  to the surgeons
• Key liaison
• Go to person
• Understands orthopedics and can talk the talk
  with the surgeons
• Defines formulary and constructs with surgeons
• Helps facilitate setting the example to eliminate
  surgeon hassle factors
• Nursing
• Supports efforts
• Materials/purchasing
• Support data collection
• Finalize contract terms and conditions
• Facilitate vendor meetings

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The McKennan Team
The McKennan Team

• Steve Statz, SVP Hospital Operations
• Fred Slunecka, Regional President
• Al Schroeder, Director, Anesthesia and Operative
  Services
• Mark Brunick, Director Materials Management

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Strategy within Culture

• One orthopedic surgeon group
• 16 surgeons
• Private physician owned specialty hospital
• 50 of communitys orthopedic cases
• Identify incentives
• Monthly meetings
• Quality indicators
• Dashboards
• Apply process at specialty hospital
• Utilized the orthopedic groups governing
  committee

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Engaging the Surgeons in the Process

• Presenting a case for change
• Defining the implant constructs
• Setting pricing
• Level field all players
• Supporting the purchase agreement
• Counter-detailing
• Negotiations
• Ongoing process improvement
• Holding the gain

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Presenting the Case
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The average price for knees and hips is growing
at 10 and 14, respectfully while the average
Medicare reimbursement is growing only 0.72 a
year
Sources Premier, Inc., IMS Health, Orthopedic
Network News
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Orthopedics ChallengeProfitability by Service
Line as a of Net Revenue (Medicare Only)
Source Premiers Clinical Advisor, powered by
Perspective
2004
2003
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Orthopedic Trends
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Avera McKennan Story

• Average implant cost for THR/TKR
• Hip Range 3100-7737, Average 5403
• Knee Range 2374-3913, Average 3252
• Overall Average 4256
• Average DRG 209 reimbursement
• 9914 payment
• Medicare represents 75 of cases
• Hospital operating margin 4
• Target 35 of DRG reimbursement as average
  implant cost
• 3470 average cost decrease 800/case
• 400,000 savings

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Meeting Outcomes
Meeting Outcomes

• Surgeon partnership
• Agreed to support construct development
• Consulted on price points
• Put their support in writing
• Managed vendor response
• Surgeons held the line
• Communicated with negotiating team
• Voiced ability to move market share to a
  contracted vendor

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Orthopedic Implant Contract Savings
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Results

• Over 500,000 in annual implant savings
• On track for 50,000/month
• Strong surgeon relationships
• Ongoing patient care improvement process
• Ability to replicate with other service lines

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Questions?