The quest for price parity: Aligning cost containment strategies across hospital and non-hospital locations

Hospitals and health systems are increasingly using alternate care sites to address patient needs, but to build out their footprints, they must ultimately achieve price parity across acute and non-acute facilities. HBI spoke to leaders at a rapidly-expanding academic medical center about how they are making it work.

Alternate care sites—clinics, urgent care, physician practices, home health, and long-term care—increasingly represent key access points for patients. A recent survey, conducted by the Health Industry Distributors Association, found that 71% of health systems plan to increase their community footprint by acquiring non-hospital facilities.

Despite the potential financial benefits of system expansion, providers continue to face pressures from an evolving regulatory landscape and changing reimbursement models, which can result in narrower profit margins. To overcome these pressures in the context of system growth, supply chain leaders are increasingly looking to achieve price parity across their acute and non-acute facilities.


Strategy for managing non-acutes

HBI recently spoke with leaders at an academic medical center that has acquired seven larger sites and opened several small physician practices over the last few years. While the newly added non-acute locations account for a smaller share of overall supply spend compared to the larger facilities, its supply chain team still made cost containment at those locations a priority.

To achieve consistency across facilities, the organization reviewed price disparities between acute and non-acute locations. The organization collected supply spend data for non-acute facilities to identify the gaps.  For smaller acquired facilities, it pulled spend data from one of its non-acute distributors, and for larger acquired sites that share service with the main campus, it analyzed purchasing data in its in-house systems to locate the disparities.

The organization uses a centralized supply chain system to monitor and assist non-acute facilities. Strategies to manage community sites vary depending on the acquired facilities’ back-end systems, which are sometimes different than those used at the legacy facilities. Although the intention is to have all of the non-acute sites operating on the same systems, the organization’s supply chain team had to develop short term workarounds to mitigate potential challenges and ensure unimpeded operations.

Purchase independence is balanced at the non-acute facilities. Community sites are restricted to formularies established by the centralized supply chain system for medical supply purchases but are allowed tail-spend buying for peripheral supplies in some controlled spend categories through an online store.

Establishing an integrated distribution system

The cost of distribution is a key factor that influence prices for the non-acute care market, as servicing community sites costs more on a per-unit basis than servicing a hospital. For the organization, purchasing systems established at most of its non-acute sites are based on low unit of measure, utilizing the organization’s primary distributor.

The organization also leverages its distributor partnership to monitor and compare line counts, volume of orders, billing rates, and annual performance targets at non-acute sites to ensure consistency, understand purchase trends, and minimize concerns of unbilled lines.

Additionally, the organization created a leadership position within its supply chain team to specifically manage non-acute operations. The primary role of that leader is to focus on the key needs of its non-acute locations and provide support. Also, the leader partners with the distributor to evaluate and compare the yearly performance of the sites, enabling the organization to adjust its strategies and improve its non-acute processes.

A key focus for the organization while connecting non-acutes with its centralized supply chain is to avoid hefty mark-ups on list price that suppliers often offer these sites compared to its contracted pricing. The organization has been particularly successful in driving the same acute-care pricing and distribution model for all its non-acute sites due to an uncommon, but mutually beneficial, partnership with its distributor.

As an important secondary benefit, providers with price consistency resulting from standardization at acute and non-acute sites can reduce care variation and offer consistent quality of care irrespective of a facility’s type or location.

Interested in learning more about this topic? Contact the team at Clarivate Healthcare Business Insights today.