Health systems in the United States have had to contend with continuous economic pressures, including inflation, high labor costs, shifts in sites of care away from acute settings, and downward pressure on reimbursement. To adapt to these factors, health system leaders are pursuing multifaceted approaches to reduce costs and improve revenues without compromising quality of care.
External spend for supplies, pharmacy, and purchased services makes up 30 to 40 percent of a typical health system’s total cost base, and optimizing clinical supplies spend is a critical method to consider to reduce total costs.1 Identifying and implementing spend optimization opportunities can result in 5 to 15 percent cost savings from health systems’ external spend baseline.
Supply chain leaders often focus on managing spending on clinical supplies such as medical devices. Yet clinical stakeholders have the valuable perspective of knowing which devices can provide the highest-quality care at the lowest price point. Physicians can also be valuable partners when negotiating with vendors. Given this, physician agency and autonomy in the pursuit of health system–level goals for managing supply costs could go a long way in not only reducing costs but also engaging and retaining physicians.2
So how can health systems effectively engage physicians to optimize supply spending?
Health system executives should find ways to effectively engage physicians in decision-making to responsibly reduce costs and improve standardization while maintaining or improving quality. This article discusses how these leaders can build a culture that fosters physician engagement, tailor health systems’ analytics platforms to physicians’ needs, and consider creative ways to encourage physician involvement in supply chain decisions.
Physicians’ role in the supply chain
About the survey
In September 2024, we surveyed 150 physicians1 across the United States to capture their perspectives on the supply chain and on how health system leadership can best engage physicians on supply chain–related topics. Physicians included surgeons and interventionalists across several specialties, including orthopedics, cardiology, and neurology. Nearly 80 percent of respondents hold a leadership position within their health system or medical group (such as senior leader in a health system, department leader, or physician group leader), and most did not report a financial relationship with vendors (exhibit).
According to a recent McKinsey survey of physicians in the United States, more than 80 percent of respondents believe they can reduce supply cost without affecting quality, view managing supply costs as part of their responsibility, and indicate that they would like to be involved with supply chain initiatives (see sidebar, “About the survey”). Despite this desire to engage, more than 70 percent said they currently engage with the supply chain less than once or twice per quarter—creating a significant opportunity for improved collaboration between physicians and supply chain, finance, and clinical leadership within health systems to meet goals for clinical quality and finance.
The majority of physician respondents said they would like supply chain leadership to engage them more frequently in decisions and provide them with better data and insights about the cost of supplies (Exhibit 1).
Physicians also reported a willingness to change their preferred products if less expensive, clinically viable alternatives are available. Prices that different health systems pay for the same items from the same manufacturers can vary by as much as 100 percent.3 In addition, clinically similar items from different manufacturers often have drastically different prices, offering potential savings for health systems that switch products or manufacturers.
Moreover, apart from clinical evidence and practice guidelines, physicians ranked price as a top factor that would increase the likelihood that they would consider a change in the medical devices they use (Exhibit 2). These responses suggest that giving physicians insights into viable alternative products that result in more cost-effective care can be a compelling way to inspire change.
To better connect with physicians about supply chain topics, chief marketing officers (CMOs), chief technology officers (CTOs), and CFOs may have to take a new approach. Insights from the survey can inform how health systems can encourage collaboration with physicians to reduce costs and improve standardization without compromising quality of care.
How health system executives can more effectively engage physicians
Generally, physicians are willing to make changes to their practice to provide more-valuable care. One respondent commented, “As physicians, we need to continue to provide quality care at an affordable price for our patients.” This sentiment was common, but health systems have still struggled to engage physicians effectively.
Health system executives could bolster existing clinician engagement efforts in partnership with supply chain leadership by establishing business processes and cultures that foster physician engagement, tailoring analytics platforms and reports to physician needs, and finding ways to encourage physician involvement in supply chain decisions.
Health system leaders can create an environment that promotes physician involvement in supply chain decisions
Leading health systems have created operating models in which the CMO (or equivalent) and the CFO are accountable, along with supply chain leadership, for managing supply chain costs. Committees, such as value analysis committees (VACs) or specialty-specific committees, collaborate with teams of practicing physicians to identify and pursue supply chain initiatives in priority specialties. For example, a health system could set up an orthopedic physician committee led by a leader in orthopedics or the chief of orthopedic surgery and consisting of orthopedic surgeons who can represent different facilities within a health system. This team can review data, make key supplier decisions, and enforce compliance in partnership with health system leadership. Because such committees would be led by physicians and supported by the supply chain, decision-making would lie in the hands of the professionals who are ultimately responsible for patient care.
VACs that include physicians, administrators, supply chain leaders, and other relevant parties can help health systems standardize clinical products within high-spend categories (such as pacemakers or knee replacements) and scrutinize new-product introductions to ensure that new technology (which usually comes with a higher price tag) delivers improved clinical outcomes before it can be approved for use. However, fewer than half of survey respondents reported that their health system had a VAC or an equivalent committee, and 20 percent of physicians reported a negative or nonexistent perception of their health system’s supply chain. At the same time, more than 80 percent of physicians indicated a desire to meet at least quarterly with supply chain leadership to provide input in contracting or utilization initiatives and co-create solutions for supply-related challenges in their service line.
CTOs can tailor their analytics platforms and operating models to meet physicians’ needs
To empower physicians to make cost-effective decisions about clinical supplies, health system leadership has the responsibility to provide them with timely, actionable data. Health systems have an immense amount of data at their fingertips, but aggregating and categorizing it—and putting the right data in front of physicians—has been a common challenge.
Clinically relevant categorization is important, as previous McKinsey research has shown.4 McKinsey’s recent physician survey provides insights into the kinds of data clinicians say they need to manage supply costs; most relevant is transparency on pricing for current (and alternative) products. Fewer than half of physicians reported that they currently receive cost-per-case reports that include comparisons of supplies and associated costs used in procedures and that often have comparisons to peers performing the same procedures within their specialty; nearly two-thirds of physicians reported being only somewhat aware of prices for products they currently use.
When asked which types of reports would be most influential to their product decisions, physicians cited price lists for the products they use and cost-per-case reports with peer comparisons. When asked to share ideas to reduce costs, one physician reported, “I think it would be useful to show [physicians] individual items, their costs, and alternative items with costs to see if those are easy things to change.”
Addressing this lack of data requires coordinated efforts between analytics and supply chain leaders to ensure that clean and accurate surgical and cost data are available to help inform actionable decisions for physicians. CTOs could also explore how cutting-edge technologies such as gen AI could assist with identifying actionable insights and product utilization opportunities within their health system’s data for physicians to review.
CFOs can encourage physicians to participate in supply chain initiatives and align financial objectives across leadership
Physicians indicated that incentives would be especially helpful because engaging on supply chain topics is typically “unpaid” time for them (Exhibit 3). Physicians are also more likely to engage with cost reporting if they are rewarded.
Whether physicians are employed by a health system or an affiliated practice, building in compensated, dedicated time for them to engage in supply chain initiatives, processes, and decision-making could empower them to reach system-level objectives. It is worth noting, however, that providing financial rewards for these efforts could offset cost savings.
Alternatively, because most physicians say that managing supply costs is one of their responsibilities, some may elect to participate without incentives. Health systems could consider including clauses in employment or physician services agreements regarding engagement and how physicians’ objectives relate to operational improvement initiatives, including supply chain initiatives. Aligning financial objectives for clinical supplies across supply chain and physician enterprise leadership can also help foster collaboration and participation between both entities.
In addition, a common sentiment from CFOs is that any cost savings achieved by optimizing clinical supplies could be outweighed by physicians leaving the health system because of vendor restrictions. However, less than 10 percent of the physicians surveyed said they would be “very likely” to leave their health system over vendor selection restrictions, and the majority said they would be “not likely” to move.
Finding opportunities to improve physician engagement in the supply chain
Health system leaders can assess potential opportunities to improve physician engagement within their organization by considering several questions and aligning desired outcomes to overall health system goals and strategies. The following questions can serve as a starting point to launch the conversation:
- Who is accountable for achieving supply chain cost savings targets?
- Do we have service lines or category-level physician committees that discuss relevant supply chain initiatives?
- How are decisions made and communicated about supply chain initiatives? What are the performance management processes that sustain impact?
- How can we manage conflicts of interest among physicians and vendors? Alternatively, how can we use physician relationships with vendors to negotiate costs?
- How do we identify physicians to participate in supply chain efforts? How are VAC leaders selected?
- What data and reporting are we providing our physicians to support their decision-making?
- How are we encouraging physicians to participate, propel decision-making, and manage performance in supply chain initiatives?
- How are we, as members of health system leadership, fostering collaboration between the health system and the physician community?
Physicians want to provide the best, most valuable care to their patients, and they recognize the critical role they play in managing costs. Health system CMOs, CTOs, CFOs, and supply chain leaders should find ways to leverage physicians’ expertise while making the investments needed to promote true collaboration. Health system leaders can collaborate to establish business processes that promote physician engagement, use custom analytics that can provide physicians with the data they need to make informed decisions, and consider creative ways to promote and encourage physician involvement in supply chain decisions to optimize one of their largest nonlabor cost centers.
