Harmony or Discord: Quality and Cost in an Academic Medical Center
For the past several years, health-care economists and hospital administrators have pondered how hospitals and surgeons can align to reduce costs while improving the quality of care for our patients. In academic neurosurgery, as surgeons training surgeons, we have a duty to our patients and our students to be leaders, mentors and innovators in our fields. As was aptly pointed out in the article “How do we make physicians our cost-cutting champions” in the 2012 University of Utah Health Care Algorithms Report, “doctors have fiercely guarded against the reach of business interest into the decision-making realm of patient care.” The article notes that doctors have seen no financial incentive to save the system money and that engaging in cost-saving measures does not usually benefit their practice, their students or their patients’ health. Conversely, the hospital administration is challenged by market forces, governmental entities and insurers to rein in costs. This has been the crux of the problem.
Improving the Bottom Line
Despite the conflicts inherent in the two sides of this issue, there is no question that improving the bottom line has become a critical issue in health care. We must identify opportunities to do so while protecting the mission of academic medicine and patients’ health. An example from the University of Utah provides instruction:
Because of skyrocketing implant costs in the 1990s, or perhaps simply because the spine team grew quickly in the early 2000s with the addition of three surgeons (orthopaedic and neurosurgery) who specialized in the treatment of adult deformity and complex instrumentation techniques, spine surgery at the University of Utah was deemed “too expensive.” In 2001, the hospital CFO questioned the hospital cost and reimbursement for all spine surgeries. In fact, there was even a discussion about limiting revenue-losing procedures, such as long-construct adult scoliosis cases.
In an effort to avoid the hospital’s attempt to control procedural volume and to continue to provide high-quality quaternary care for the patient population regardless of cost, the surgeons banded across specialty to form the “Spine Committee,” comprised of all five spine surgeons and the director of surgical services. The goal of this committee was to identify cost-saving measures that could be implemented without a negative effect on patient care. With their unique backgrounds, the members of the group were able to identify certain opportunities, and agreed to and signed their first “sole-source” agreement with Medtronic Sofamor Danek, which set a lower implant cost to the hospital in exchange for a usage guarantee.
Changing the Strategy
The surgeons quickly recognized their position to negotiate as a team, and, following the conclusion of that contract, changed the strategy. The spine committee then took on the task of formalizing the process of (1) setting implant costs, (2) discussing the adoption of new products and (3) identifying cost-saving opportunities. This strategy allowed the surgeons to use products from any company that would adhere to the pricing agreement. Additionally, it allowed surgeons to trial novel products and set appropriate pricing for unique implants.
Starting in 2009, in addition to creating uniform pricing for implants, the spine committee also started looking at operating room disposables, including draping and prepping techniques, to identify cost savings. By simply evaluating and modifying a few items in a surgeon-driven environment, we saw a substantial rise in the contribution margin to the hospital for our inpatient surgeries. In less than a decade, spine surgery had gone from a money-losing proposition for the hospital to one of the leaders in the contribution margin.
While the surgeons were satisfied with the impact their committee had on controlling costs in an expanding market and creating a win–win relationship with the hospital administration, there was a growing sentiment of, “What’s in it for my team, my students or my patients?”
Coincident with the changing attitude among surgeons, in 2013, the university launched the Utah Health Policy Project (UHPP). In an effort to engage physicians and align financial incentives across the hospital and physician groups, the hospital proposed that projects with demonstrated cost savings would share the savings with the groups that drove the change. With this new model and the addition of several more spine surgeons, the spine committee, already formed and fully operational, went to work.
Moving Forward to Support the Mission
With the help of key hospital administrators with negotiating power and the ability to project implant cost and savings, the surgeons engaged in a discussion with the implant companies. Once again, we changed our practice from allowing any implants to negotiating with a limited number of vendors. While the contract with industry set the cost and volume guarantee for the hospital, the contract between the hospital itself and the spine group specified that savings would be shared 50/50 between the hospital and spine group.
The University of Utah invited 11 suppliers (down from approximately 15) to contract for two years at specified pricing with a goal to have 95 percent of implants used from contracted vendors. The projected spine-implant cost savings was 17 percent. Monthly and year-to-date net savings were calculated starting in January 2014. Substantial year-end savings were distributed, 50 percent going back to the hospital and the other 50 percent split evenly between the orthopaedics and neurosurgery departments. Collectively, we have dedicated this to funding clinical research and fellow education, two pillars of our academic initiative.
When I reflect on the algorithms article of 2012, I am struck by the surgeon commitment and engagement of the individuals involved in the spine committee for years, without reward, and the more recent recognition of the hospital by aligning incentives. It is through these types of programs that we can move forward in a cooperative fashion to have the margin to support our mission.
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