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Cost containment options for hospitals

projected number of primary THA TKA USA 2005 to 2030
More than 40 rural hospitals have closed in the U.S. since January of 2010. Why are hospitals not profitable any longer? Are the traditional revenue engines such as orthopedic service lines sputtering?

An orthopedic surgeon generates a yearly median revenue of $2.7 mm for a hospital, while his or her median compensation is $519,000. Hospitals pay in average from $3,408 to $10,830 for Total Knee Arthroplasty (TKA) devices device while reimbursements for plateau and now decline. For example the 152 hospitals of the VHA spend more than half a billion dollars on surgical implants and purchase requirements are not always followed. Operating rooms are resource-intense and costly hospital departments. Implantable medical devices (IMDs) account for approximately $40 billion per year in revenue for manufacturers and are often introduced into the marketplace with little or no data on their effectiveness compared to similar devices. Hospitals are constantly challenged to meet the procurement needs of their physician while respecting a tight budget for IMDs and surgical consumables. With the advent of healthcare reform, and reimbursement methodologies shifting to an outcomes-based approach, it is more critical than ever that hospitals improve outcomes through their medical device selection.

The health care professionals tasked with fulfilling these needs struggle to navigate clinical evidence, research, analysis and price data, which is scarce, highly decentralized, and often biased. The supply chain decision-making process is complicated by competing priorities and inefficient collaboration within hospitals. Most hospitals and vendors rely on manual, paper-based processes to manage contracts and pricing for implantable devices. Typically there is no shared record of what was agreed upon in terms of product pricing, and both sides are forced to evaluate how products were used in a procedure to come up with a mutually agreed upon price.

Faced with the tremendous cost pressures associated with implantable devices, the vendor industry has come up with ad hoc business rules to accommodate this non-traditional method of contracting and attempt to keep pricing within certain guidelines. Because these business processes and rules are so vague and complex, they have generated mistrust and misalignment among hospitals and vendors. Maximizing efficiency is essential to maintaining an economically viable medical facility. To enable continued investments in implantable devices, industry leaders identify consumable products with the greatest opportunity for standardization and cost containment.

Instead of cost cutting in the number two spend category of a hospital- supplies, there is of course the option to cut cost in the number one spend category. Columbus (Ga.) Regional Health plans to eliminate 219 positions,  which will lead to 99 layoffs, including three members of executive leadership. Akron, Ohio-based Summa Health System laid off 140 employees, reduced the hours of 30 others and will leave another 30 positions vacant. Robert Wood Johnson University Hospital Hamilton, in Hamilton Township, N.J., plans to lay off up to 87 workers and transition the focus of its obstetrics and gynecology program. Columbus, Ga.-based St. Francis Hospital announced it will lay off 65 employees and not fill an additional 15 positions due to financial inaccuracies that were discovered. Fayetteville, N.C.-based Cape Fear Valley Health announced plans to lay off 19 employees at Harnett Health, which includes two hospitals in Dunn, N.C., and Lillington, N.C. Minneapolis-based Allina Health announced another round of layoffs, but did not disclose how many or what kinds of positions will be affected. The decision comes as part of the system’s effort to trim $100 million in expenses. The health system has already laid off 1,600 employees since May.
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