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Healthcare Spotlight: Physician Preference Items

In recent years, supply costs have been the mitigation target of many healthcare institutions. Opposed to more fixed costs such as overhead and labor, supplies are rather discretionary and has less impact on outcomes, and thus, patient satisfaction. The Association for Healthcare Resource & Materials Management is now predicting that supply costs will surpass labor as the largest expense in hospitals in only 3 years. Though there are many initiatives and groups that help reduce the cost of supplies (see our article on GPO's), research now suggests that providers can equally play their role in making more conscious bottom-line decisions.

The physicians themselves are now seen as playing a large role in being a price-driver. Though some supplies is consistently used, transcending the specific physician, some devices are selected specifically by them for their practice. These items have come to be known as "physician preference items" (or PPI's), as they are purchased solely at the discretion of the physicians. These tools may have little to no actual benefit to the patient or hold any advantage over alternative medical devices, this decision may be made simply due to brand familiarity or previous exposure. Though this may not seem like too daunting of an issue, multiple reports have come out estimating that these PPI's contribute to roughly 40-60% of total supply costs.

The infographic above (Fig.3) shows that in a recent survey, under the assumption that clinical outcomes would remain relatively equal, 2/3 of physicians would be willing to try non-branded or un-familiar medical devices. There was only 3% of responding clinicians who refused to use alternatives to their PPI's.

This solution becomes a tad muddied when we realize that reducing supplies costs is not as easy as moving to a cheaper alternative. Efficient improvements require healthcare organizations to educate their physicians, staff, and administrators on the actual medical device's impact on outcomes and spending.

So how is this effecting the healthcare supply chain?

It is recorded that the cost of wasted products each year due to unused, expired, or obsolete products equates to $5B. Organizations are realizing that historical approaches to minimizing supply chain costs is no longer working. Pressuring manufactures to drive-down pricing has fallen to the wayside and bulk-buys are now leading to the high un-used/expired product costs. Since PPI's are completely discretionary based on physician, this supply chain cost will likely need to be solved by a change in culture at a given healthcare system and will take some time to persuade physicians to use non-branded or cheaper medical devices. This effort will need to be supported with research on comparable patient outcomes and ease of use/transition. If PPI's can be reduced to a cheaper option, supply costs in healthcare systems will likely fall to a sustainable level.

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