Physicians and supply chain leaders at Inova Health System have collaborated to reduce their supply spend by $61.5 million since late 2013.

Many physicians fail to become engaged in organizational efforts to reduce supply costs because the conversations tend to get stuck on acquisition costs. Leaders at Inova, a not-for-profit health system based in Falls Church, Va., wanted to make these conversations more meaningful by leveraging two topics that were on physicians’ minds: bundled payments, which bring the potential for financial gain, and narrow networks, which can significantly decrease patient volume if a health plan chooses to exclude the physician’s organization.

Charles Neikam, MBA, MHA, CMRP, vice president, supply chain management, says narrow networks and bundled payments have the potential to change the dynamic between physician leaders and hospital executives.

“Now physicians want to know how we can help them lower costs,” Neikam says.

Setting an Ambitious Goal

Dwindling Medicare payments, increased cost pressures, and a more competitive landscape were just some of the factors that drove leaders at Inova to set a goal to reduce their supply expenses by an aggressive 15 percent, or roughly $55 million, between mid-2013 and the end of 2015.

Fortunately, clinical department leaders at Inova’s five hospitals were already fairly engaged in supply chain strategies, Neikam says. Together, the department leaders and supply chain executives set out to help spark greater engagement among physicians across the health system. They also leveraged the health system’s value analysis process as the cornerstone of their collaborative efforts to reduce supply costs. “We wanted the physician community to know that they were going to be driving this,” Neikam says.

Early on in the initiative, Neikam, who had just joined Inova, asked William L. Jackson, Jr., MD, MBA, the health system’s medical director for adult critical care and telemedicine (who subsequently became Inova’s associate CMO for clinical effectiveness) to get involved in the value-analysis project. “As a clinician-researcher, he knew how to speak the language of value analysis, and he wasn’t connected to any particular discipline,” Neikam says.

“My role was to engage physicians and explain the benefits of this approach to their patients and practices,” Jackson says. “By having a physician help lead the efforts, it ensured that clinical considerations remained at the forefront and mitigated the perception that this was just another administrative, cost-cutting initiative.”

Using Shared Savings to Create Alignment

One of the first projects physicians and supply chain leaders tackled was joint implants, which they believed represented a $3 million savings opportunity. To get started, leaders at Inova reviewed each of their medical groups to determine which had a level of quality performance that would allow them to reap the benefits of shared savings. At the same time, the groups had to be willing to participate in a bundled payment program. Specifically, leaders at Inova were interested in a bundled payment arrangement based on Model 2 of the Centers for Medicare & Medicaid Services’ Bundled Payments for Care Improvement (BPCI) initiative, which covers retrospective acute and post-acute care for dozens of procedures, including hip and knee replacements.

Eventually, supply chain leaders and the president/COO and the CEO of Inova’s health plans met with an orthopedic group responsible for more than half of all joint replacements across the health system. “Because of their high quality marks, they were an ideal candidate for a bundled payment program,” says Kurt Banas, MBA, FACHE, formerly senior director of value analysis and strategic sourcing at Inova and now senior manager at Deloitte Consulting LLP, McLean, Va.

As part of their presentation, leaders shared a target cost for each episode of care with physicians. They then presented physicians’ actual costs per quarter and identified potential gainsharing opportunities. For example, if the group had a $2,000 opportunity to save on each hip implant and all other costs in the bundle stayed steady, low-cost physicians could receive considerable quarterly gainsharing payments—perhaps even more than $120,000 a year, Banas says. However, the leaders stipulated that to participate in the program, all physicians in the group would have to support price negotiations and standardization efforts. This approach created some positive peer pressure within the group.

As a result, the orthopedic physicians became more engaged in standardization efforts, including physicians who had resisted efforts in the past. Ultimately, the group exceeded its savings goals, Banas says.

Considering the Impact of Narrow Networks

Some physician groups were still not interested in participating in bundled payment arrangements, which require reducing expenses to be successful, Banas says. Leaders at Inova got these groups more engaged by explaining the potential implications of a future narrow network. “We explained that if they continued to be a high-cost provider, they might be left out of these types of insurance products, which have been growing every year,” Banas says. “Participating in these cost-reduction efforts was a risk mitigation strategy for some physicians so that they could continue to be relevant to insurers and potential patients.”

Inova leaders focused on helping physicians understand the potential impact of a narrow network on their practice’s patient volume over the course of just three or five years. Surgeons in one group of 50 employed orthopedists were surprised to learn that some of their own employed physicians were excluded from Inova’s insurance product because their costs were too high. After considerable debate, the surgeons unanimously agreed to switch suppliers if their primary joint implant vendor did not meet price targets. The following week, the vendor met with supply chain leaders and agreed to lower the price of implants.

Lessons Learned

Through their collaborative efforts, physicians and supply chain leaders at Inova reached their goal of reducing total supply spend by $55 million by the end of 2015. As of May 2016, they have achieved another $6.5 million in targeted savings and are in the process of saving an additional $6 million, Neikam says.

Banas and Neikam share the following advice for physician executives and finance leaders looking to engage more physicians in cost reduction efforts.

Create a steering team. To lead the cost reduction effort, leaders at Inova created a senior team that was co-chaired by Neikam and the health system’s president/COO. The team also included the health system’s CMO and the CEOs, CFOs, and CMOs from all five hospitals. Clinical leaders and physicians from the hospitals were added when needs arose as the initiative progressed. The team met monthly to review the work of 10 value-analysis teams dedicated to each service line.

Develop a road show to get physicians onboard. Together, Neikam, Banas, and Jackson developed communications and set up high-level meetings to gain executive and physician support. They spoke at meetings of the medical affairs committee, medical executive committee, and specialty sections. “We utilized the chief medical officers at each Inova hospital so we could get on the agenda and continue to communicate that we weren’t going to be telling physicians what to do, but rather enlisting their help to develop strategies for better supplier management and cost savings,” Banas says.

Communicate more often than you think is necessary. Banas recommends using print, email, and visual communication such as posters and even in-house videos to help reach physicians. “You need to hit them with multiple channels of communication to explain what you are doing and why you are doing it,” he says.

Use an “all or nothing” approach to leverage the power of peer pressure. Surgeons at one orthopedic clinic were able to persuade one of their partners to participate in the bundle, even though it was not to his financial advantage because of residuals he received from a device company. Eventually, the surgeons helped him focus on what would be best for the organization.

Think inclusion. Many times, smaller hospitals can feel like they are just along for the ride during systemwide initiatives, Neikam says. That is why he included leading specialists from each Inova hospital during standardization discussions with each service line. “Lack of inclusion can kill an initiative,” Neikam says.

Don’t take on too much. Physician and supply chain leaders at Inova completed more than 300 supply chain initiatives over the course of two and a half years. With the benefit of hindsight, Neikam suggests pacing these initiatives to avoid staff and physician burnout.

“At some points we were doing 18 value analysis projects a month,” Neikam says. “At the midpoint I realized we needed to back off and focus on two or three big projects with our steering team. To keep sustaining your success, you cannot focus on everything.”


Laura Ramos Hegwer is a freelance writer and editor based in Lake Bluff, Ill.

Interviewed for this article: Kurt Banas, MBA, FACHE, senior manager, Deloitte Consulting LLP, McLean, Va.; William L. Jackson, Jr., MD, MBA, associate chief medical officer for clinical effectiveness, Inova Health System, Falls Church, Va.; Charles Neikam, MBA/MHA, CMRP, vice president, supply chain management, Inova Health System, Falls Church, Va.

This article is based in part on a presentation at the 2016 ACHE Congress, held in March in Chicago.

Publication Date: Monday, May 23, 2016