Emily Tremmel, associate general counsel for Advocate Health Care, spends much of her workday focused on what may be the last frontier for wringing cost savings from the nation’s healthcare system.
Tremmel was hired in 2014 as the attorney responsible for all supply chain and other commercial contracts, a newly created position aimed at achieving consistency and better coordination of legal risk management. After two years in the position, Tremmel believes that procurement may be one of the last areas still ripe for reducing the cost of healthcare.
For the past decade, the federal government, primarily through the Medicare program, has created payment incentives and penalty programs focused on increasing quality in clinical care, Tremmel explains. This is accomplished by structuring reimbursement schemes that reward efficient use of resources. Although that pressure has prompted some beneficial reforms, she believes that those savings are more or less tapped out. She sees procurement of supplies as one area where health systems still have significant room for further cost trimming—particularly with respect to drugs and medical devices.
But in addition to bargaining for better prices, healthcare providers are also concerned with the risks that come with purchasing goods and services, including quality-of-care issues—when an artificial joint doesn’t perform as expected, for example. Data privacy, with potential sanctions if sensitive patient information is accessed or stolen, is another example. Tremmel points out that an increasing number of medical devices run on software that may record or store patient information on computer servers outside of the hospital or clinic. As a result, healthcare organizations must vet vendors to ensure that patient data is secure wherever it resides, and create contractual incentives for vendors to structure and monitor their systems accordingly.
All of this leads to risk and cost management in the healthcare environment growing more complex each year. Tremmel views her role as helping to balance the legal and financial risks with Advocate’s goal of continuing to evolve and innovate in its pursuit of clinical excellence. It’s undoubtedly a challenging job that has a significant impact on the financial well-being of Advocate, which operates eleven hospitals in the Chicago area as well as Northern Illinois.
But the challenges extend much further than just hard-line price negotiations. One of Tremmel’s major hurdles is that medical-equipment manufacturers and pharmaceutical companies hold a commanding bargaining position that often allows them to all but dictate pricing and purchasing terms. Even when dealing with organizations such as Advocate that buy a significant volume of goods, many of the large vendors successfully adopt a take-it-or-leave-it approach.
“Medical device-sellers and manufacturers have been merging like crazy over the past few years,” Tremmel explains.
As a result, competition has been reduced, thus increasing vendors’ leverage.
DID YOU KNOW?
Advocate Health Care incorporates some of the most technologically advanced medical equipment in the state, including the Robotic da Vinci surgical system, Cyberknife surgery, and intra-operative MRI brain surgery.
In some instances, vendors of a competing product will insist on exclusive, five-year contracts, binding the customer to purchasing a minimum number of units each year, with significant penalties for not meeting the minimum purchase requirement. This not only restricts the ability of healthcare providers to bargain for better prices and terms, but also limits their ability to purchase new and better products as they come to market. To add insult to injury, sometimes the vendor can’t keep up with demand, and the customer has to buy products from another vendor at higher prices in order to continue to provide care. In Tremmel’s experience, such cases find the exclusive vendor typically refusing to reimburse the healthcare organization for the difference between their product’s contracted price and the higher price paid to the alternate vendor.
Perhaps more importantly, if Advocate wants to move to a new breakthrough product from another vendor, it would have little ability to renegotiate a contract or terminate it early. Hospitals have to postpone purchasing an improved or clinically preferable product, or be faced with significant financial penalties if they start buying the new product before the existing contract expires. In addition, vendors also offer better pricing to purchasers who agree to buy an entire line of products, rather than just one or two items in the line. This further restricts purchasing options. Another tactic is for a vendor to design products that will only work with their brand of supplies.
While Tremmel has been successful in negotiating some minor improvements to the terms, there isn’t much she can do when all vendors refuse to budge. It could take regulatory reform to change this situation, but there are other ways she contributes to the bottom line.
“My position was created to provide consistency in contract terms system-wide,” Tremmel says. And although she has instituted guidelines and controls to better mitigate risk as she refines these rules, she sometimes uncovers areas of potential risk in unexpected places.
For example, a recent contract for an equipment purchase prompted a closer examination of the contract terms. A standard contract cover sheet form stated that the product would not implicate disclosure of patient information. But Tremmel was skeptical.
“In my experience, many devices and equipment these days have embedded software, and many times, the software is web-based,” Tremmel explains.
Upon further investigation, Tremmel discovered that the item in question would likely have patient information held in memory or on the cloud. That could put Advocate at higher risk for an inadvertent disclosure of patient information, and thus the potential for a violation of the federal Health Insurance Portability and Accountability Act, which is in place to safeguard patient privacy.
“My position was created to provide consistency in contract terms system-wide.”
While Advocate has boosted training to make safeguarding private data a broad-based responsibility, Tremmel says it’s not surprising that she will often be the first to identify such an issue. “Typically, when looking at new products, practitioners are focused on potential care improvements or efficiencies, and are not aware of the potential risks associated with these capabilities” she says. Data-gathering and sharing is more pervasive in medical equipment than before, and so too are the opportunities for hackers to steal information.
However, it’s not possible for lawyers to completely eliminate all risk via contract terms. What Tremmel can do is make decision-makers aware of the risks, then make recommendations to reduce them. A key goal is to raise awareness and make process improvements so that all players with a role in procurement—business owners, negotiators, privacy specialists, and technical staff—are coordinated so that Advocate, as an organization, becomes better at identifying and managing risks earlier in the procurement process. That way, potential issues can be resolved before they reach Tremmel’s desk.
Decisions on the types of supplies and equipment to buy are for doctors, other clinicians, or procurement specialists to make—and rightfully so, Tremmel says.
“By the time it gets to my desk, the decision on which vendor and device to be used has already been made,” she says.
It’s her job to backstop that decision with appropriate risk mitigation. And, the most successful way to do that is by embedding more risk analysis into the procurement process.
It’s not something that can be done quickly, though, given the number of people involved at Advocate and the time required to adjust mind-sets and routines. Tremmel will keep chipping away at the problem, and also continue to work to reduce the pitfalls of buying healthcare supplies and services.