Soaring spinal implant costs have made it increasingly difficult to perform spine services profitably in our hospital system. Our spinal implant budget increased nearly 11 times over a five-year period, from $380,000 in 2000 to $4.1 million in 2005, while our spine surgical volume increased by only 63 percent, from 722 cases in 2000 to 1,354 in 2005. Here's how we're keeping costs under control.

Undivided attention
Understanding the importance of spine to our system, valuing the profitability of the case mix and realizing the challenges that lay ahead, our administration decided in the fall of 2004 to establish a spine care program director. Since we already had several service line directors, this wasn't a new concept for the organization. But a position dedicated solely to our spine caseload created the resource necessary for efficient management of the specialty.

The duties of the spine care program director include functioning as the surgeons' ambassador to administration and as the customer service representative to patients and other hospital departments; coordinating program design and development; facilitating access to ORs; overseeing supply management; educating staff, other physicians and patients; and developing leadership and clinical co-management groups.

Experience in the specialty, the OR and management is a must for any service line director candidate. As I'd had several years of hands-on OR experience in neurosurgery and orthopedic spine, coupled with more than 10 years of operating room management, I made the transition to spine program director easily.

Sounding boards
The spine program director can't do it alone, though. One of my first steps was the development of a spine leadership group to assist me in examining the issues of implant cost, capital equipment and new orthobiologic technology. I recruited the materials management and surgery directors, purchasing manager, ortho-neuro service line director and our implant database manager.

Our spine implant database merges patient demographics, implants used in their procedures and costs in one place. Reviewing the data we'd collected, the group was able to track the purchasing trends for each facility, surgeon and case type back to 2000. We compiled this information - the starting point for our implant cost reduction plans - and shared it with our surgeons. Besides engaging the doctors in our efforts, this data also proved useful in identifying coding errors, supporting claims to insurers and negotiating prices with vendors.

The next step was forming a spine clinical co-management group. This multidisciplinary committee, made up of surgery, physical and occupational therapy, nursing, pharmacy and infection control managers as well as spine surgeons and primary care physicians, advised our system's administration on such clinical matters as quality, efficiency and economics in the spine program.

Those invited to join the group were issued contracts through which they'd be paid a fair market value for their participation. They'd also be required to take the heat for any decisions the group made. The group met at two-hour sessions every other month, with communication and work occurring outside of meetings and tracked for compensation.

Counting costs
As we reviewed the purchasing trends from our implant database, it became apparent that our spine surgeons had carte blanche, that they'd been allowed to purchase products from any vendor, with the cost of implants mainly at list price. This needed to change immediately. But the spine leadership group also realized the importance of not making decisions without the surgeons' involvement.

Our hospital system had drawn up a value-analysis program that helped other departments and service lines contain their purchasing costs. We began applying the policies to spine implants and equipment. This meant educating our MDs about the process to get them on board and to assist us in explaining the changes to our vendors.

Step one of the value-analysis program was that the materials manager required a new-product request form before she'd order any new or previously unstocked implants, supplies or equipment for trial or purchase. The form needs the signatures of the requesting physician as well as the surgery director and pricing information is mandatory. The manager conducts a financial analysis and, if time allows, a value analysis committee discusses the request. We're not going to reject every request, but we want to take a look at what's coming in, in order to secure the best value for our hospitals. We won't pay for items brought in and used without completion of a request form.

Step two was laying down the law on trials. Any items ordered for trial are requested to be at no cost or at a significantly reduced cost. We also instituted a "no loaner fee, no shipping fee, no drill bit fee" policy, to keep unexpected charges off invoices. Again, we communicated this to our surgeons and to the vendors. We paid invoices short if any of these costs appeared.

Never pay list
Step three was addressing the list-price issue. Now physician involvement became critical, as it was clearly an issue of getting the doctors aligned with their hospital rather than with their currently favored vendors. During our review of the implant database information, we noticed that our surgeons' purchasing trends changed rapidly. Every six months or so, they'd be purchasing from a different vendor. Following the lead of our hospital's orthopedic clinical co-management, we presented the surgeons with a plan to limit the implant-purchasing field to three primary vendors who would collectively get 85 percent of our implant business.

We in turn approached these preferred vendors, chosen based on our historical purchasing trends, to sign a contract: They get the lion's share of our business if we get substantial discounts. We also notified the remaining vendors that they'd have to submit acceptably discounted pricing in order to be players in our hospital's arena.

Our physicians, who'd agreed that action needed to be taken to control the cost of implants, were willing to make this commitment. As you'd imagine, many vendors were taken by surprise and some were even reluctant to make such deals. Access to a hospital's doctors and purchasers is a powerful commodity, though, and we kept ours apprised of which vendors had contracts in place and which were on hold. The moral of this story: Get your physicians' support and play hardball. Sooner or later, the vendors will come around.

Attending to physicians
The implementation of the three-primary-vendor program has been fairly successful for us. In its first year, we were able to realize a savings of more than $350,000. Given that our system-wide spending for spine implants, including bone, tissue, biologics and hardware, was more than $4.1 million in 2005, we're well aware that our savings were just the tip of the iceberg.

That's why we maintain relationships with our physicians and vendors: to keep up with the latest technology, boost our capabilities and case volume, and explore avenues in cost reduction.

The materials management director and I regularly meet with each spine surgeon in his office, at his convenience. It's a non-confrontational way to show him his score card - a periodic report of his case volumes, implant costs, manufacturer usage and compliance with the value analysis program - along with a blinded comparison of all the surgeons. We also listen and respond to our surgeons' concerns about spine surgery economics and their suggestions for additional savings.

We found these meetings very beneficial. However, it was clear from the beginning of our cost-saving initiatives that "What's in it for me?" wasn't far from the surgeons' minds. They're more than willing to help the institution, but they want something in return.

Hospital-physician gain sharing and reinvestment programs are two possible answers to the question. Each has its own advantages and drawbacks. Gain-sharing, in which a hospital financially rewards surgeons for its cost savings and clinical improvements, can tread perilously close to Stark Act and Anti-kickback Statute violations. Reinvestment doesn't offer the same cash-in-pocket incentive, but letting surgeons decide where to feed cost savings back into - new spinal support staff, research, marketing, call coverage pay? - isn't a legal risk.

Determining which option serves your facility best will require a judicious review, and likely legal and financial consultations, on your part, as well as input from the physicians themselves. Keep in mind throughout the entire cost containment process that your MDs are the ones with the clinical knowledge and experience. They want to be compensated for their work and effort, and at the same time they're your customers. Your recognition of them and cooperation with their needs will go a long way toward accomplishing your goals.

Beyond today
The spine business is growing. According to industry observers, the volume of spine surgery in the United States exceeded 1 million cases last year. The cost of supporting these procedures is rapidly increasing; the cost of spine implants alone rose 22 percent between 2004 and 2005. And an increasing number of spine procedures are moving to outpatient facilities. While it's estimated that 9 percent of spine procedures were outpatient in 2005, observers expect that number will be 30 percent in another decade.

For a surgery director, managing the cost of her facility's specialty services can be overwhelming. On top of the rising cost of supplies and equipment, the steady stream of new technologies, the magnitude of growth factor options and reimbursement and coding issues on her mind, she also has to contend with competition and the increasing volume of newly outpatient procedures either leaving her hospital or arriving at her surgery center. Look and plan beyond today, anticipating these future changes. Remember that improving a specialty's performance demands individual attention, physician support and multidisciplinary collaboration. And remember that if you can't measure it, you can't manage it.