Six months after the passage of healthcare reform the proverbial pendulum still swings over the head of physicians who treat Medicare patients. A payment cut of 23.6% is scheduled to take effect on December 1 unless Congress acts to once again delay its implementation. But on January 1, 2011 an additional 6.5% cut is scheduled to take effect. Readers will recall that many years ago Congress passed a cut but then every year (or every several months, as in the case of this year), have kicked the can down the road hoping it would become someone else's problem. The issue is particularly interesting this year because paying for healthcare reform means $500 billion in Medicare cuts over ten years and physicians face their share.

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The November mid-term elections are only days away, and we are besieged by political ads everywhere we look. One of the attacks permeating both sides is on those reviled, feared and all-powerful special interest groups. We can't seem to get through a day without hearing some politician use the term. But like most other words used in politics, the term is never defined, and it is just assumed that we know what/who comprise these groups.

Well, now comes the time to debunk the term and define it. When a politician uses the term, he or she is usually referring to any group that supports a political opponent. Depending on which side you are on, special interest groups could be oil companies, labor unions, wall street bankers, environmental groups, tea partiers, gender based groups, religious groups, race based groups and so on.

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Spend Matters would like to welcome Lynn James Everard for today's guest post.

In a down economy, sales organizations are under enormous pressure to negotiate new deals with potential customers. And some will see advantage in creating reciprocal agreements. The concept is simple from a sales perspective. If we buy from them, they will buy from us, and that will strengthen our revenues. Of course, sales management will also see the prospect of sales commissions. But salespeople are more likely to overestimate the potential revenue as well as the potential profit. If the net profit on an extra million dollars in sales will be fifteen percent, or $150k, but it will require foregoing a savings opportunity of $200k on the same volume of purchases that would have been offered in the reciprocity deal -- it is simply a bad deal. Although it may be difficult, procurement management must attempt to quantify the lost savings opportunity while convincing the sales organization to present a realistic assessment of the net profit the deal will bring.

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Most companies require at least some of their employees to travel on a regular basis. To do so, those employees need access to a credit card. Companies often choose a standard corporate card, partly because it provides good reporting tools and often because it provides rebates to the company. At this point the company has a choice to make -- it can provide a card to each employee and be the guarantor, or it can require each employee to apply for the corporate card using their personal credit with the employee as the guarantor. This is where things get interesting. On the one hand, by forcing each employee to be the ultimate guarantor for their own card it decreases some of the company's risk and encourages responsible management of the card. On the other hand, the company can play a role in doing significant damage to the credit standing of its employees in several ways. First, some top-level managers can improve their own compensation by refusing to approve expense reports with legitimate expenses, and the employee has little recourse but to pay the bill or risk his or her own credit standing. Second, by delaying approval for legitimate expenses thus forcing the employee into temporarily covering the expense of their own pocket. Third, by delaying payment to the employee or credit card company.

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Many weeks have gone by now since the President signed the health care reform bill into law. What could have been a proud moment for the country has become a steady stream of recriminations, lawsuits to repeal the law and political energy aimed at wresting control of Congress from those who voted for the bill. Sadly, much of this could have been avoided. What could have been a strategic bipartisan solution to one of the country's major challenges instead produced a rushed, overly complicated and one-sided bill that advances a single viewpoint of the world and only agitates the continual strife between the right and the left. Surely this is not what hope and change were supposed to bring.

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This morning we welcome back Lynn James Everard, a voice of both expert and objectivist commentary around the US healthcare debate and its Spend Management implications for the country.

President Obama has won a major political victory in the passage of a healthcare bill -- a healthcare bill does not, however, automatically become healthcare services for 31 million uninsured. For starters, those 31 million people will need doctors to care for them. Yet a mere six days from today, on April 1, 2010, the 21 percent cut in Medicare reimbursement for doctors (originally passed in 1997, but delayed every year since then) will go into effect with no congressional action. Congress had meant to deal with it, but could not put the $250 billion price tag (over ten years) within the healthcare bill: otherwise the healthcare bill wouldn't have appeared to cut the deficit over ten years.

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A number of groups in the health care industry, including Group Purchasing Organizations, believe that supplier contract pricing information should become part of a knowledge base shared by hospitals subscribing to certain information services. This issue has been simmering for years having heated up several years ago with a lawsuit between Aspen Healthcare Metrics and Guidant Corporation (now part of Boston Scientific). Among other products, Guidant makes cardiac stents -- small expensive devices inserted in blood vessels to prop them open. Guidant believed that their pricing to individual customers was confidential information and contractually required hospitals to maintain their contract pricing as confidential.

But organizations such as Aspen and ECRI that, among other services, make money selling contract pricing information to hospitals, believe that hospitals have the right to share that information so that other hospitals can use it to improve their own pricing position. Their position is that sharing such pricing creates a level playing field for hospitals wanting to compete with other hospitals. Ironically, GPOs that claim to negotiate pricing on behalf of members but often have trouble getting good pricing on a class of products known as physician preference items -- of which stents are a part -- are also in favor of what they call price transparency. Note: Stents are an integral component of the product (clinical outcomes) sold by hospitals. They are not paper clips.

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Forward buying can be a smart procurement strategy in the right market conditions. But those who participate in forward buying are able to specify exactly what they are buying. They know what they want and know what they will get. The Congress of the United States, however, wants many of us to pay for three or four years for undefined health care services that we won't be able to access until 2013.

So why is this being done? The healthcare bills before the Congress are all very expensive but the President has set a goal of having whatever bill is passed come in at a price tag of under one trillion dollars over ten years. As written each of these bills would come in well over that so the only way to make the numbers work is to initiate the proposed cuts in year one and have them be in place for the full ten years while new coverage and access would not be made available until year three or four. If you add ten years of cuts to six or seven years of new costs you get to the number you want.

So the question for the reader is: Would you pay a supplier today for an unspecified product that would not be delivered for three of four years?

Does your company have a procurement challenge that might benefit from a fresh set of eyes? If so, drop me a line (leverard (at) bellsouth.net).

- Lynn James Everard

Has this ever happened to you? You have just put out RFPs for a new component and before they even appear in your suppliers' email inboxes the specifications have already changed. This seems to be what is happening in Washington these days. In the House there are currently three separate health care bills in process. In the Senate they are trying to merge two bills. The goal appears to be to pass differing bills in the House and in the Senate and then use the committee process to create one final bill that both the House and Senate could pass. The bills themselves have each changed many times so far and more changes are assured. Some of the changes result in a new scoring by the Congressional Budget Office but some don't. If they scored each one they would not be able to keep up anyway. But the negotiations have continued even though there is no agreement on specifications.

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