The Supply Chain: A Gold Mine for Succeeding in Value-Based Payments?

By Scott Alexander 
Vice President, Sourcing Innovation & Marketing for ROi

Value-based payments are, essentially, a capped fee. So to succeed with a value-based payment model, it’s about how efficiently and effectively you can deliver care within that capped fee that determines if you can maintain a profitable health system.


Since supply chain expenses are 40%1 of a typical health system’s cost structure—and the fastest-growing of all areas of spend—it’s a primary target for rooting out cost and inefficiencies. But using fewer widgets is not always an option when delivering care, and only applying pressure on suppliers to lower the unit price of those widgets won’t yield the savings necessary to succeed in the future.


By viewing your supply chain as an area for strategic, organization-wide improvements, you’ll be much more effective than those who approach the supply chain as simply a transactional mechanism.


How do you use your supply chain as a strategic asset? It starts with focusing on the interaction between your supply chain and clinical functions, so you can gather cohesive data on a per patient, per episode of care, and per disease state basis.


At Mercy Health System, we’ve married our EMR with a number of other data sources to look at our cost to serve per physician, per procedure, per patient, per location and per day. Once you have that data, you can begin to have intelligent conversations about variations in clinical care that are driving up the cost of care. Through the partnership between clinician leadership and the supply chain, a provider can execute upon strategies to minimize the unnecessary costs associated with that variation, and can focus on ways to maximize patient outcomes.


Based on conversations I’ve had with peers in the industry, very few health systems have these capabilities today. But all see this as the future state to move toward.


Health systems need to build up their capabilities in marrying supply chain and clinical data, to handle value-based payment structures like CMS’ joint replacement program (a game-changer, in my opinion). This is clearly the first example of what will become a flood of capitated payment strategies coming out of CMS. When other procedures start to get bundled, it’s a big risk to the financial viability of health systems if their clinical and supply chain data is not properly linked and available for analysis. 


There are two places of value that your healthcare suppliers can bring to this equation:

  1. Creating products that demonstrate the ability to lower the clinical cost of care, ideally by providing better outcomes at lower costs. Those products must be wrapped in clinical data showing superiority to previous products, and a healthcare economics story justifying its payment.
  2. Sharing registries of data with providers. Registries allow the sharing of data across the country to show the nuances of care and how individual products can affect an outcome—and this is a role that a supplier is well positioned to do. By providing that data and potentially creating an ecosystem where providers can interact on the data, a supplier can empower a productive debate on proper clinical care and elevate itself from a vendor to a peer in the discussion on how to best care for a set patient population.

Team-based decision-making is what drives this strategy. Our approach at Mercy has always been a very integrated approach where we have clinicians, administration, and supply chain all come together to make unified decisions on product categories. “What are we going to do?” “How are we going to do it?” “Which manufacturer do we want to do business with and which do we exclude from the system?” And so forth. 


The supply chain will be a gold mine for success in value-based payments for those who can align it with their system’s clinical strategies and invest in the analytics to understand the opportunities underfoot.

Scott Alexander is Vice President of Sourcing, Innovation & Marketing for ROi. Scott’s team works on identifying, developing, and commercializing innovative solutions to supply chain-related issues that reduce the total cost of care for ROi customers. 





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