Alignment between physicians and
non-physicians in purchasing:
Interests and incentives
by
Colin Jordin Steenge
University of Groningen
Faculty of Economics and Business
Msc Supply Chain Management
Juni 2016
Supervisor: J.T. van der Vaart , University of Groningen Second Assessor: A.C. Noort, University of Groningen
ABSTRACT
TABLE OF CONTENTS
ABSTRACT………..2 INTRODUCTION……….4,5 THEORETICAL FRAMEWORK……….5-9 Purchasing in healthcare………6,7 Relationship between physicians and purchaser in the purchasing process………7,8,9 Performance measurement………...9 Incentives…………...……….9,10 Research model………..10 METHODOLOGY………...10,11
Research design and Sample selection………..11,12 Data collection and Context of the cases………12,13 Measurements………...13,14 Data Analysis……….14 RESULTS………....
INTRODUCTION
Since economic conditions in which healthcare organizations have to operate are becoming more fierce, the pressure on the way purchasing decisions are being made has also increased (Kumru et al., 2013). The purchasing process is a promising area to reduce cost, because hospitals are currently paying varying prices for physician preferred item’s (PPI’s) (Abelson, 2005). The studies that investigate the purchasing process in healthcare all recognize the importance of the physicians, purchasers and suppliers as main actors (Lerner et al., 2008; Robinsson, 2008). In this study we focus on the interaction between the physician and the purchaser. Physician involvement in the purchasing process is needed because of the need of validity of the quality of products in the process. Furthermore, the physician is the end user, who selects which product will be used on a specific patient (Montgommery and Schneller, 2007). The involvement of the purchaser in the process is needed to guide and follow procurement policies and to ensure that the financial concerns are taken into account. The relationship between the physician and the purchaser is an interesting topic, because cost reductions are needed to ensure continuity off the healthcare sector and reducing these costs is a complex process (Lichtenberg, 2010). Furthermore, research has shown that there is currently a lack of alignment between the physician and purchaser in the purchasing process (Gold and Felt-Lisk, 2008; Montommery and Schneller, 2007).
Especially the purchasing process of high clinical items in hospitals is a promising area to address the challenge of restraining health care cost while maintaining patient safety and quality of care (Montgomery and Schneller, 2007). The purchasing of high clinical items consists 61% of the total supply expenses, so cost reductions in this area have high impact. It is a complex process because of the different areas of expertise and with these different parties there are different stakes involved. The physicians on the one hand are mainly influenced by their own desires, experience and benefit to the patient, while on the other hand purchasers have to pursue decreases in healthcare cost (Saleh et al., 2015). To achieve the goal of restraining cost while maintaining safety and quality of care, the actors in the purchasing process have to be aligned. Hibbard and Tusler (2005) found that alignment between physician and purchaser is expected to contribute to the effectiveness of the purchasing process. Although Montgomery and Schneller (2007) did research this topic the interest of the physician has been taken into account. Furthermore, they did not examine the effect of the alignment on the performance of the purchasing process.
interest between actors. An example of conflicting incentives could be rewards for patient care versus rewards for receiving cost reduction goals. These different incentives could lead to different interests of the actors. For example, cost reduction rewards could lead to a big interest in price, but less in quality of the products. Next to that Ellinger et al. (2006) found that conflicting reward systems could lead to misunderstanding, because of a lack of understanding between functional areas. The effect of incentives on the alignment between the different actors in the healthcare purchasing process has not been researched yet. Although Montgomery and Schneller (2007) studied incentives of the physician the research did not take the influence of incentives on the interest of the actors into account.
Summarized the first research part will examine the effect of the alignment of physician and non-physician on purchasing performance in different hospitals. The second part of the research will focus on the effect of incentives on the alignment between the physician and non-physician. Summarizing the following research question(s) will be proposed; part A: ‘How does the alignment between the
physicians and purchaser affect the performance of purchasing high clinical items?’. Part B of the
research will focus on the following research question: ‘How do the incentives of the actors in the
purchasing process influence alignment?’.
The research method is a multi-case study. Three different hospitals throughout the Netherlands will participate in this research. This paper will contribute to theory by researching the effect of alignment between the actors on the purchasing performance. Furthermore, different interests that affect alignment will be researched. Practical contribution of this research could be achieved by using the knowledge of the purchasing decision process to increase cost reduction or set up more aligned incentives.
The remainder of this thesis is structured in the following way: the following chapter will outline the theoretical framework of this research. Chapter three will describe the methodology used to research the topic. Chapter four will describe the results of this research. Concluding chapter five provides the discussion based on the outcome of the results. Finally, chapter six states the conclusions and
THEORETICAL FRAMEWORK
From the introduction the main subjects of the theoretical framework could already be distracted. The theoretical background will start off with discussing previous research on purchasing in healthcare. After that there will be a focus on the purchaser and physician and the alignment between them. After that the relationship between alignment and performance of the purchasing process will be discussed. Finally, incentives and the impact of incentives will be described.
Purchasing in healthcare
Since purchasing in healthcare differs from purchasing in industrial contexts it is important to discuss this topic. The purchasing process differs in complexity, because of the high amount of different suppliers and several different distribution channels (Kritchanchai, 2012; Rivard-Royer et al., 2002). Next to that the environment is changing fast because of medical and technological innovations (Chen et al., 2013). Especially the high technological purchased items are part of a fast changing
environment. Next to that the costs of buying high clinical items are responsible for a substantial proportion of the expenses and are expected to rise by 8,9% annually (Burns et al., 2009). Furthermore, the purchasing context consist of specific demands and needs of the patient and physician in terms of quality of the products and service from the suppliers (Lee et al., 2011). In purchasing these items, the expertise of the physician is important in determining if products meet the qualifications needed. The purchased items are dedicated to a certain specialism and because of that very specific in terms of demands (Montomery and Schneller, 2007). Purchasing in healthcare deals with various products related to: home care products, laundry cleaning, pharmaceuticals, consumables and general supplies. All these different types of product demand a different procurement strategy. Basic materials will be purchased using an automatic approach while more complex materials will require a more in-depth relationship with the supplier (Lambert and Cooper, 2000Vento). The
relationship with the supplier is another aspect why the purchasing in healthcare is a complex process. It was already mentioned that the physician has a special position in the process, as an important decision maker and internal user. The relationship with the supplier makes the process complex because of the different interests that could be conflicting.
stakeholders there are also external stakeholders, the most important external stakeholders are the suppliers involved in the purchasing process.
The attention for purchasing in healthcare has grown during the last decade because of the gaining financial pressure (Lichtenberger, 2010). The pressure is strengthened by research that indicated that substantial cost reduction could be realized (Walker et al., 2013). American hospitals could achieve savings of 10-15% and 40% on administrative costs (Nollet and Beaulieu, 2005; Schneller, 2000). The European market has achieved substantial cost reductions during the recent years and researchers believes there is still a lot of potential in reducing costs of healthcare (Walket et al., 2013).
Relationship between physicians and purchaser in the purchasing process
Purchaser
The purchaser in healthcare work in a complex environment, where the exact tasks differ from hospital to hospital. The role of the purchaser is getting more critical since selecting medical items based upon physician preference only is no longer acceptable (Ventola, 2008). After doing research on purchasers Mulder et al. (2005) found that specifying the purchasing need, selecting the suppliers and contracting suppliers are the most important job tasks during the purchasing process. The first task of specifying the purchasing need is a process during which the physician is an important actor. The relationship between physician and purchaser is crucial to successfully manage this process. The second task of selection of suppliers consist of making the decision to choose for a certain supplier. Aspects that are important for the purchaser are price considerations, meeting quality demand, and also the relationship with the supplier (Saleh et al., 2015). The final task consists of contracting of suppliers and is
important to hospitals because price arrangement are being made. Although this process seems crucial, hospitals have huge differences in the prices negotiated for medical devices. A research of Abelson (2005) in the United States revealed that prices for the same device may range between $2000 and $9000. Specifying the purchasing needs consists of the internal integration with stakeholders within the company. A step that is not mentioned but is important for the process is evaluation of
requirement. Evaluation is needed during the purchasing process, because without evaluation of requirement purchased items could be far from the physician’s actual needs (Saleh et al., 2015).
Physicians
The main tasks of physicians consist of taking care of patients. During this task the physician decides if the patient has to receive a certain implant and which exact type of implant (Montgomerry and Schneller, 2007). The main focus for physicians is serving patients in the best way possible. Since the focus is set on service, cost reductions could be less important for the physician (Kaplan and Badad, 2011). Although cost reduction are getting more important for hospitals in order to survive,
choices (Robinson, 2008). Physicians decisions are frequently based on: personal experience with a particular product, their assessments of a particular patient’s interest and their relationship with manufacturers’ representatives (Ortho People, 2000). Furthermore, the preference of physicians could also be based on specific brands, because those are used in training (academic) and switching to other brands could be very challenging (Meier, 2006).
Relationship
The relationship between physicians and non-physicians is assumed to be important to keep up with hospital goal of executing high quality patient care against the right price. This alignment between physician and purchaser is an important aspect for achieving integration with partners in the supply chain (Gimenez and Venture, 2005; Stank et al., 2001). The importance of alignment between functions is underlined in several papers (Ellinger et al., 2006; Van Hoek and Mitchell., 2006). Although this relationship is of high importance no in-depth research has been conducted on the effect of the alignment between the actors on the purchasing performance in healthcare.
The physician is certainly involved in the process, because implants are of major importance during clinical surgery’s (Miah et al., 2013; Robinsson, 2008 and Russo et al., 2007). As previously mentioned the purchaser and the physician have different criteria on the decision making of
purchasing high clinical items. As discussed alignment between physician and non-physician could be crucial to meet hospital goals. There are many forms of misalignment that could cause a less effective purchasing process. One of the most common forms of misalignment is conflicting interests and a lack of understanding between functional areas (Ellinger et al., 2006; van Hoek and Mitchell, 2006). Chen et al. (2013) state that a certain amount of supplies is initiated by physicians’ preference. Since cost considerations are not the main concern of the physician, letting physicians’ select the supplier could lead to purchasing more expensive products. The items that are purchased based upon physicians preference, cause a disconnection between the one who actually purchases the item and who is responsible for the buying decision (Chen et al., 2013; Robinson, 2008). To minimize the
consequences of this disconnection it is important that there is cross-functional integration (Van Hoek et al., 2008). Cross-functional integration will lead to understanding of each other’s criteria. When purchasers and physicians have a better understanding of the purchasing criteria of one another these criteria could be combined in selecting the right supplier that suits the combined interests.
physician is used to develop products and developments (Abelson, 2005). Next to advantage’s the relationship with the supplier could also cause some disadvantages. It could lead to internal conflicts of interests between the physician and purchaser within hospitals (Baim et al., 2007). An example of internal conflict is a physician who has a high preference for a certain supplier, because of their relationship, while the purchasers wants to select the supplier with the lowest price.
Performance measurement
To measure the effect of the alignment the outcome of the process has to be measured. Performance measurement in healthcare procurement has been researched by Kumar et al. (2005) and is needed in order for an organization to achieve its ultimate goal of satisfying customers. To measure the
performance of purchasing more than one performance measure needs to be taken into account, since interactions among supply members are an important factor. Performance measurement in healthcare is quit hard, a cause for the problem is the lack of price transparency within the industry. Prices are not fully clear until the product is ordered and billed. Furthermore, data gathering about performance of the product during the treatment is important, but this process is difficult and time consuming (Robinson, 2008). Next to the difficulty and time consumption innovative products could have a lack of performance data, but might be excellent developments. The conclusion of the research of Kumar et al. (2005) states that there is currently no coherent method to measure the performance of the
procurement process. This could lead to harder decision making and evaluation of the procurement departments in the medical world.
Incentives
Incentives of hospitals are a way to improve alignment between physician and purchaser. Conflicting interests or a lack of alignment could be a consequence of the different incentives or reward they receive from the company. Incentives are a way to motivate employees to demonstrate certain behaviour. There are several forms of incentives: instructions, money, knowledge of results and participation are examples of incentives (Locke, 1968). This example could be divided into two groups of incentives: Financial incentives and non-financial incentives (Montgomery and Schneller, 2007). The current non-financial incentives of the physician are often service related. Although motivating physicians to execute excellent service could increase the performance on service, overuse of services could also occur as when structure and incentives aren’t aligned with the hospital goals (Kaplan and Badad., 2011). Physicians could provide medical services that aren’t necessary to ensure meeting certain service incentives.
giving the physician indirect financial incentives that have a higher net value than the incentives of the suppliers the physician will be motivated to support the hospital goals.
Finding the right balance between incentives of physician and purchaser could improve the way these actors are aligned to manage the hospital objectives (Robinson, 2008). A right balance could be formed by ensure that there are no conflicting interests. Conflicting interests could be a consequence of the different incentives or reward they receive from the company. In the healthcare sector there are different forms of incentives for the purchasing department. Some hospitals tend to focus on setting up a cost incentive, while other hospitals don’t have clear incentives or focus on service incentives (Kaplan and Badad, 2011). An example are the differences in incentives are those between the physician and the purchaser. For the physician incentives may be awarded for the number of patient successfully helped or satisfaction of patients. While purchasers may have incentives that are more focused on cost related performance (Kaplan and Badad, 2011).
Research model
Altogether this paper will focus on researching the effect of alignment between physician and non-physician on the performance of the purchasing process. Furthermore, the effect of incentives on the alignment between the physician and non-physician will be researched. Figure 1 gives an overview of the research model of this paper.
Figure 1: Research model
METHODOLOGY Research design and Sample selection
The purpose of this research is to gain insight in the effect of alignment between the actors in the purchasing process on the purchasing performance. The first research part will consist of researching the effect of the alignment of physician and purchaser on purchasing performance in different hospitals. The second part of the research will focus on the effect of incentives on the alignment of interest between the physician and purchaser. In order to conduct research on the model that can be found in figure 1 a multi case study method will be used. Since the research topic is rather unexplored it is important to get understanding of the underlying mechanisms. To get understanding of the
underlying mechanisms it is needed to conduct in-depth research. A case study is the most appropriate method to analyze a phenomenon in-depth in its natural setting (Yin, 2009). Yin (1994) describes a case study as ‘empirical enquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident.’
Another reason why multiple case-study will be used is because this research method is well suited for contextual analysis and interrelations between factors (Blumberg et al., 2008). Since two ‘how
questions’ are proposed the ability of case studies to generate theory is another reason to select this method (Harris & Sutton, 1986). Furthermore, a multi case study will ensure that the research will not be influenced by an observer bias. The multi case study consist of five different cases, which is more than the minimal amount required by Eisenhardt (1989) to get evidence.
relationship with the supplier has been recognized as an important factor in the selection of implants (Ortho People, 2000).
Although there are some downsides to the multi case study in terms of the high time consumption, need for skilled interviewees and the need for data analysis skills, results of a multi case study could have a big impact (Voss et al., 2002).
Data collection and Context of the cases
During case studies several types of data collection are used: archives, interviews and observations (Eisenhard, 1989). During this research the main data collection approach that will be used are interviews. Data has been gathered by semi structured interviews, next to that data on the size of the cases in terms of purchasing volume and number of employees has been collected. The interviews have been conducted at the different hospitals participants work. The reason why interviews are used as a data collection source is the possibility for further clarification and in-depth analysis. During the interviews several factors that could influence the alignment could be identified. The interviews are conducted with people from different perspective and different positions within the hospital in this way triangulation could be enabled.
Part A of the research (Appendix A and B) is developed in cooperation with the University of Buffalo (New York). This part is set up to create understanding of the purchasing process, the alignment between physician and purchaser and performance in terms of quality and costs. Two different
versions of Part A and B have been set up, one for physicians and one for the non-physician. Part B of the researched is developed to determine if incentives contribute to alignment and in which way they affect the alignment. The way the questions are set up will be discussed in the measurement section. The interviews will take place in the hospital. Information received from participators will be strictly anonymous and interviews will be taken with each actor of the purchasing process separately. The interviews will start with a short introduction of the research, the study design and the selection of the case. The main task of the researcher conducting the interview is to understand the meaning of the words of the interviewee (Kvale, 1996). To ensure that the maximum amount of rich data is gathered the interviewer could depart from the schedule, the order of questions may be revised and new questions may arise as a consequence of the answers given (Bell and Bryman, 2007).
Hospital Size of purchasing department in €
Size of purchasing
department in terms of Fte
Hospital 1 UMC(Case 1 and 2)
160.000.000 (excl. medicines) 23
Hospital 2 UMC (Case 3 and 4)
350.000.000 20 (27 people)
Hospital 3 NON-UMC (Case 5)
30.000.000 5
Table 1: Size of different hospitals
In the Dutch setting there is another actor next to the purchaser and physician that is very important in the purchasing process; the head of department. The head of department is responsible for the financial budget within the department, because of the fact that this is crucial for the purchasing process the head of department is taken into account in this research. The interviewees per case can be found in table 2.
Case number Interviewees
1 Head of department, head of purchasing, purchaser and physician
2 Head of purchasing, purchaser and physician
3 Head of department, head of purchasing, purchaser and physician
4 Head of department, head of purchasing, purchaser and physician
5 Head of department, head of purchasing, purchaser and physician
Measurements
The alignment of the physician and non-physician will be measured by monitoring the way these actors work together, checking the interest of the actors in the purchasing process, examining collaborative behaviour and their understanding of each other’s functional area (Ellinger et al., 2006; Van hoek, 2006). These ways have been selected, because the theoretical background already showed that interests are an important factor in the purchasing process. Next to that these forms of
Figure 2: Coding Tree
To examine the effect on the purchasing process performance, the purchasing performance has to be measured. Kumar et al. (2005) states that currently there is no coherent method to measure the performance of the procurement process. To measure the performance of the purchasing process the perceived quality of the purchased materials and the time effectiveness will be taken into account (Van Weele, 2009; Zeithaml, 1988). These performance measurements have been selected, because they can be derived from interviews and are supported by literature.
The incentives will be measured by asking the actors of the purchasing process about their job objectives. Next to that the reward system of the actors will be measured and the effect / influence of the reward system (Montgomery and Schneller, 2007; Van Hoek and Mitchell, 2006). The influence of incentives could be measured by using this method. Although not every case will have some reward system actors could be questioned on the possible effect of a reward system.
The semi structured interviews took on average 60 minutes. The interview protocol was followed, but there was also room for more in depth questions if the situation demanded this. The interviews were recorded and transcribed. Recording of the interviews has been done with compliance off the interviewees.
Data analysis
RESULTS
In this section of the paper the results of the case study will be presented. The results part of this paper will consist of two sections. The within case analysis during which the data of the single cases will be analysed and the cross case analysis during which the cases will be compared.
Within case analysis
Hospital 1, Case 1, Orthopedic
Alignment between the actors
The interests of the different actors in the purchasing process are mainly focused on their own job objectives. However there are some interest that all actors mention, for example stability of implants because of the learning curve of a product, this is an important factor when a new product is being purchased.
Every implants has their own learning curve, because physicians have to learn how to use the material. The learning curve is a costly and time consuming process, but is essential to have better results with the purchased implants – Head of department
Although the head of department is not directly concerned with the learning curve, this is an important factor that is taken into account in the purchasing process. This reveals that the direct interest of the actors don’t always predict the concerns the actors take into account in the purchasing process. The other way of measuring the alignment is by questioning the understanding of each other’s functional area. When questioning about functions of themselves and the other actors it became clear that these actors are aligned. Furthermore, several quotes indicate that although actors are not always pleased with certain decisions there is understanding for the decision making.
When examining the alignment between the physician and non-physician the collaborative behavior between the actors is something that is noteworthy. The actors are concerned about factors that are not their direct responsibility.
An end has come to the time where you could just purchase whatever you wanted, that kind of behavior could really harm the department - Physician
The success of the purchasing process really dependent on the people who participate in the process. X (purchaser) is one of the success factors in the purchasing process, because of her expertise. Her expertise is really important to keep the triangle in balance – Head of department
All participants in the purchasing process mention the expertise of the other actors. Furthermore, the balance within the triangle is mentioned by two of the three actors.
Purchasing performance
Looking at the performance of the purchasing process there are no big differences between the different A-brand products. The physician believes that there are differences, but these are more based on details. Looking at the perceived quality all actors feel that the purchasing quality is the best compared to other departments. Furthermore, the department has been remarked as one of the two best in the Netherlands in terms of purchasing procedures and quality.
These brands are all tested and therefore all have a kind of…. minimum level. Then, in particular, the physician still feels that there are quality differences, but in my view these differences are more on details or other criteria then quality. – head of department
Although the actors mention that the purchasing of implants could be described as a bureaucratic and time consuming process they feel that the effort in terms of time they put in certainly has a positive effect on the purchasing performance. Furthermore, the actors mention that the process is time consuming, because of regulation and that it is hard to change this aspect.
Incentives
Since alignment seems to have an effect on performance it is important to align the actors. A method how alignment could be improved is by setting up the right incentives. Objectives of the actors are mainly concerned on their own expertise. The physician has an objective focused on maintaining a certain service level, while the head of department has an objective that mainly focuses on the financial aspect.
The reason why physicians are involved in reducing costs seem to be motivated by incentives set up by the department.
We motivate physicians by making arrangements about the cost savings. A part of the savings return to the department for example in the form of research funds. – Head of department
Case 2, Hospital 1, cardiovascular
Alignment
Looking at the interests it becomes clear that there are different interest in the purchasing process. Although the purchaser mentions that cost consideration are important to him, the decision making is done by the physician.
The process starts with the cardiologist who decides which materials will be purchased. After that we will look how the market is set up and which different types of materials are available. - Purchaser
Since the physician is the end user of the product within the hospital, it is important that this actor has an important voice in the decision making, but when the authority for the decision making is fully appointed to the physician, cost considerations might be underrated.
Although there is some understanding of each other’s functional area both actors feel that the main focus is set on their own objectives. Although the purchaser mentions that this might be a good thing, he feels that the physician isn’t that concerned with financial issues.
When examining the collaborative behavior within the department it becomes clear that the actors are mainly focused on their own job tasks. The department is less concerned with collaborative behavior.
I always tell the purchaser: ‘just make sure you get a good price’. I prefer to have no interference with that, because I have contact with the firms about new innovations and developments. They'll come to me to show materials and whenever there is something new again (new product) they visit me ’- Physician
The relationship with the supplier is an important reason for the physician to not get involved in the price negotiation process. As suppliers usually know that the physician is often the most important decision maker the hospital could have a stronger negotiating position when the physician is involved. Although there is not much collaborative behavior, there is understanding of each other’s functional area. The purchasers believes it is even needed that the main concern of the physician is the patient care only.
Performance
The performance of the purchasing process has been criticized as sufficient.
The quality differences are not that big. But you have to see the bigger picture, with all the relationships. Sometimes a certain products is just more comfortable to work with – physician
products. Comfort and the relationship are two subjective matters and could change from physician to physician.
The physician mentioned that he believes that sufficient time is spend on purchasing and he believes that it doesn’t deserve more time. It is seen as a distraction from the main task of the physician, but they underline the importance of the purchasing process.
Incentives
When considering the incentives of the actors it is noteworthy that the purchaser and physician both mention that the purchaser does not have an incentive or objective. The only objective the purchaser has is guiding the process.
Guiding the process is my main concern. We (purchasers) don’t have a real objective in terms of a goal. - Purchaser
Because of this the purchaser cannot get motivated by a reward system. This also makes it hard to measure the performance of the purchaser. Next to that the physician mentions that the biggest part of the savings flow away to the central hospital board, because of this there is no reward system for the physician or the head of department.
Case 3, Hospital 2, neurosurgery
Alignment
All the actors almost mention the same interest that they believe that are important in the purchasing process. Examples of these interest are research funds, quality of the product, innovation and long term contract (because of the learning curve).
Although the actors understand the function and tasks of other actors, they often feel like they set up restrictions to one another.
The division is responsible for the budget and there is always a lack of funds within the division. For physician the purchasing of materials becomes more complex because of this financial restriction. –
Physician
Collaborative behavior is a subject that is currently being discussed within this department. It is recognized that the actors have different interest and because of this collaboration is found to be very important.
These subjects are really important to discuss together, sometimes just with the 3 of us(purchaser, physician and head of department) and sometimes we ask other professional opinions. The most important aspect is that we need to find balance in the different interests – Head of department
Communication seems an important factor in the alignment of the different actors in the purchasing process. The actors have scheduled meetings where they discuss the purchasing process and the strategy that is needed for every different purchasing procedure depending on the type of implant that is being purchased. A factor that also seem to have a certain impact in the communication is the external communication with the supplier. Suppliers contract employees who visit the physicians (representatives) and it is important that information about the internal purchasing process is not shared. It occurs that physicians already mention to the supplier that their contract will be extended, while the negotiation process for a good price were still an ongoing process.
Performance
The perceived quality of the products is sufficient. The physician mentions that the amount of
suppliers in this type of area (neurosurgery) is rather low. It occurs very often that after the purchasing demands are set up, only one supplier is left who can satisfy the demands. The physician describes the process as:
‘a highly labor intensive, tough and totally inefficient process ’– physician
The reason of the inefficiency is the fact that there are not enough suppliers to create a real competitive environment. No or minimal cost savings are being achieved and it is a bureaucratic approach with a lot of rules and procedures. Because of this the process takes a lot of time.
Testing is used as a way to ensure that the companies who state that their products meets certain features is being validated – Head of department
Incentives
The objectives of the actors in this department are al mentioned by their college’s. The head of department focuses on budget, the purchaser on commination and purchasing procedures and the physician on the treatment of patients.
Considering the reward system there are no rewards for physicians if savings are being achieved. It is something that is being discussed by the head of the purchasing department as a possibility to motivate physicians, but it is currently not used in this department. A possible explanation why there is no reward system is the lack of funds within the division.
Case 4, Hospital 3, Orthopedic
Alignment
The interest of the actors in the process are all known by one another, the same factors are mentioned so the consciousness of all the different interests is present.
Examining the understanding of each other’s functional area it becomes clear that the actors are aware of the tasks and responsibility of one another. The physician mentions that the current pressure in the healthcare sector makes it inevitable to cut costs.
Although collaborative behavior seems to be important to align the different actors, there are multiple reasons why collaborative behavior could be lacking. In this department time issues are an important reason why not every purchasing procedure is performed with excellent collaborative behavior. Although the actors recognize the need to communicate, not every process consist of communication. A factor is this department that enables good communication is the size of the hospital.
Besides the time issues communication is going well, we are a rather small hospital, which enables short communication lines, we all know each other on a personal level - Physician
Furthermore it is mentioned that the willingness to collaborative behavior by the physicians could have a relation with the age of the physician. The older physicians have more problems adjusting to the new area in which financial issues have an important role in purchasing and in healthcare in general.
‘They changed the way of talking with me (when they noticed I previously worked in the operating room) –
Purchaser
important to ‘speak the language of the physicians’ as they describe it. The medical background or knowledge strengthens the trust between physician and non-physician in the decision making process. Performance
The perceived quality of the products differs between the different actors. The physician and head of the department mention that the quality of products is sufficient. However, the physician feels that the cost aspect is getting to important in the purchasing procedure.
´Costs are normally secondary, unfortunately are the costs nowadays more important than the quality of a
product’ – Physician
In this case it seems that the physicians feels that the quality aspect is underrated. The physician in this case does not work for the hospital and are not in any way responsible for the financial aspects of the hospital. This could be a cause for the focus on cost of the purchaser and head of department or the disinterest on cost from the physician.
Incentives
As mentioned the actors in the purchasing process are all really aware of the objectives of one another. Since the physicians are self-employed it is hard for the hospital to set incentives to motivate
physicians in reducing costs. The only real incentive the physicians have is that they could lose the ability to work at the hospital when financial problems occur. Furthermore the relationship between the physician and the suppliers seems very strong. Physicians have contact with suppliers through collaboration in the operating room and contact with the sales representatives of the suppliers who will show new developments and products.
There are no real sources to act upon that behavior. That is the hard part, when a physician comes to me and asks if he can order a certain item and I would say no he will go to the director or the board of directors to get what he wants. Most of the time they will get the product they want. – Head of department
Support seems an important factor to motivate the purchaser and especially the head of department in reducing costs. The hospital board can deliver support by bolstering the decisions of the head of the department and by assigning a fair budget to the department.
Case 5, hospital 2, cardiovascular
Alignment
In general the physicians, from my perspective, have no real connection with costs, unless they are really aware of the cost pressure from the division. There are physicians who don’t even know what the costs are of certain items, while other physicians are really interested in the cost perspective - Head of department
A possible explanation for the difference between the physicians is the responsibility a certain physician gets within the department. Some physicians receive a responsibility for a part of the department.
The understanding of each other’s functional area is present in this case. All actors recognize the most important aspects that are part of the different functions. It is underlined that every actor contributes to the purchasing process. Evaluation of the different job objectives (like reducing costs, patient care and the internal customer satisfaction) are being performed by the involved actors together, this results in increased responsibility and involvement. In the end the actors are all mainly responsible for their own objective, but the aim is to pursue goals together.
The collaborative behavior in this case is in some way lacking because of the lack of involvement of the physician. A possible cause for the lack of involvement that is mentioned by the actors is the fact that one physician (Chef de Clinique) represents all the other physicians in the purchasing process. Although it would be ideal if the responsible physician would represent the opinion of all physicians it could be possible that the physician mainly brings in his own opinion. The possibility of this
restriction to involve all physicians is also underlined by the purchaser. Performance
The quality of the products is in general more than sufficient. All actors in the purchasing process feel that the quality of the products should be the most important factor in the decision making process.
If ICD x really provides the patient with extra value than it is worth the investment. It will cost some extra fund. But in the end serving patients in the best way is our goal – Head of the department
The way to ensure a certain quality in the purchasing process is by making use of a program of demands. Within this department the program of demands is usually influenced 70% on quality issues and for 30% on price issues. Because of the fact that cost savings have been managed, all the actors feel that the purchasing process is time effective. Although compared to other departments the time investments is higher in terms of scheduled meeting, the actors feel that in the end the time
Objectives of the different actors are part of the incentives set up by the hospital. Although the objectives are dedicated to a certain role they are important for the whole division. The members of the division try to support one another in managing their objectives.
Furthermore, we assign certain budget responsibilities of parts of the department to the physicians. They are also held responsible for their specialism. These physicians are very cooperative and are interested in cost savings – Head of the department
By giving the physicians shared responsibility the involvement seems to increase. Next to that this could be perceived as a way to manage better alignment between the physician and non-physician.
Certain savings could come to the benefit of the division. As a purchaser I have no influence on that decision, it is important that the head of the department and the physician have clear communication on that topic –
Purchaser
Cross case analysis
The cross case analysis will consist of generating patterns by looking at the cases and examining differences between the contextual influences of the cases. The cross case analysis will be structured in the same way as the theoretical background and the within case analysis. Next to the factors from the research model the contextual factors within this research will also be discussed.
The research consist of two main research questions, part A researches the question: ‘How does the
alignment between the physicians and purchaser affect the performance of purchasing high clinical items?’. Part B of the research has a focus on incentives and started off with the following research
question: ‘How do the incentives of the actors in the purchasing process influence alignment ?’. Incentives and alignment
The interests that the different actors have in the purchasing process don’t seem to effect the
alignment. Although the actors recognize the different interests as a consequence of job descriptions it is mentioned that these interests are needed to ensure that all the goals are monitored. This is best described by the purchaser of case 1:
‘Of course every participants has his own main interest, but this is ensures that all the interest are
being monitored during the process’. Furthermore having someone who is responsible for the end result of their incentives increases responsibility’ – Purchaser
As mentioned some actors don’t feel that the interests effect the alignment, but there are departments where the alignment is worse, because actors focus on their own interests only.
Proposition 1.1: Different interests could influence alignment in a positive and negative way
Interests effect the alignment when there is no shared responsibility, but could positively affect alignment when all actors monitor their interests, but have concern for other interests.
The cases in which the objectives were experienced as a shared responsibility of the department the actors seemed to be better aligned. Looking at this statement it seems that hospital boards should encourage shared responsibility instead of setting single objectives for the actors.
Proposition 1.2: Shared responsibility contributes to alignment of the physician and non-physician (head of department and purchaser)
Next to incentives other factors seemed to influence the alignment. Several cases showed that there is a relation between the trust of the different actors and the way they are aligned. Physicians in some cases mention that communicating with a non-physician is hard, because the medical explanation to want a certain products is harder. Furthermore purchasers mention that it is hard to validate if the purchaser is just looking at quality of the products or is also having other interests. The purchasers sometimes feel that physicians could use the arguments in their favor because of the knowledge advantage.
Proposition 1.3: Increased trust in capabilities will increase the alignment of the physician and non-physician
The purchaser and physician from case 1 indicate that the quality of one another contributes to the alignment. When the physician trusts that the purchaser knows which features could be negotiated and which features are minimum required the contact between the actors is better. Furthermore the
purchaser mentions that the contact with physician is less complex and more in-depth when there is trust on the capabilities.
A factor that influences the alignment between the physician and the purchaser that was also not mentioned in the research model is the relationship with the supplier. Several cases indicated that suppliers try to influence physicians in several ways.
Proposition 1.4: suppliers influence on the physician effects the performance in a positive and negative way
Suppliers try to influence physicians because in general the physician is the most important decision maker. Especially the communication between the physician, purchaser and head of department on how to select which supplier (purchasing strategy) is important to generate a clear vision to the supplier. It is hard for hospitals to manage the contact between supplier and physician, because of multiple reasons. The supplier can contribute to innovation and support the usage of new materials in the operating room. Finally the hospitals are an open organization where suppliers can walk in without any control.
From the cases it appears that the incentives in terms of objectives have an influence on the alignment. But this differs between the different cases. The more the objectives are aligned with the hospital goal, the more the actors will be aligned.
Alignment and performance
contextual factors. What maintains is the fact that the departments with the same specialism still rated the performance better, if the department was more aligned.
Proposition 2.1: Alignment between physician and non-physician (purchaser and head of department) contributes to the purchasing performance
As already mentioned in the previous chapter the collaborative behavior is a strong way of alignment between physician and non-physician. Shared responsibility has a strong influence on the performance of the purchasing process. This is probably caused by the different functions participants have in the purchasing process. These roles have different responsibilities and alignment of these roles seems crucial for purchasing performance success.
The reward system of the different hospitals seems to differ. Several hospitals mention the potential of rewarding physicians for cooperating behavior. Although many actors mention the potential of this method there are no clear rules or policies set up by the hospitals. It depends on the results of the purchasing process and the need to save costs within the department if the savings could be reinvested. The cases support the reward system as an method to motivate the physician to strengthen the
objectives of the purchaser and the head of the department.
Proposition 2.2: Having a clear reward system could motivate physicians in the purchasing process
Important in the usage of this method is that there is clear communication between the head of department and the physician about how the savings are going to be used. Physicians underlined the importance of keeping quality of the implants the number one objective of the purchasing process. Contextual factors
Proposition 3.1: The physician can be influenced less to act in interest of the hospital if the physician is self employed
The different cases consist of three different departments: orthopaedic, neurosurgery and
cardiovascular surgery. The biggest differences between these departments are the size and the number of suppliers. The number of suppliers and the size at the neurosurgery department are low compared to orthopaedic and cardiovascular department. As a consequence of the number of suppliers the
competitiveness between suppliers at the neurosurgery department seems to be lower and so the performance of the process is rather low.
Proposition 3.2: The purchasing process is less effective if the department is smaller and there are less suppliers
DISCUSSION
The aim of the paper is examining the effect of alignment between the physician and non-physician on the purchasing process. Furthermore the effect of the incentives on alignment between physician and non-physician has been researched. In the discussion section the results will be discussed and
interpreted with what has already been researched. Furthermore the limitations of the research will be discussed.
Proposition 1.1: Different interest could influence alignment in a positive and negative way
In general shared interests results in better alignment between actors. Research has shown that aligned interest could lead to competitive advantage with firms (Gottschalg and Zollo, 2007). Furthermore Colvin and Boswell (2007) mention that shared interests could lead to improved aligment and this could ultimately lead to organizational value creation.
Although most researchers found a positive effect between interests and alignment the data also found negative impact of shared interests. An explanation for the proposition that mentions positive and negative effects of different incentives could lie in the cooperation of the actors. Although some actors don’t mention certain goals as their own first interest it could be that they want to cooperate to a higher purpose in terms of hospital wide goals. Furthermore Gottschalg and Zollo (2007) found that environmental dynamics are an explanation why the same interests don’t always lead to a better alignment.
Proposition 1.2: Shared responsibility contributes to alignment of the physician and non-physician (head of department and purchaser)
Proposition 1.2 is broadly supported in literature. Thongpapanl (2012) researched shared responsibility in a research with over 200 firms involved. Results showed that shared responsibility contributes to eventual performance. When there is shared responsibility for performance actors will be better aligned to perceive a better outcome. Hosler and Nadle (2000) even found the same conclusion within a hospital setting.
Although all literature agrees on the positive effect of shared responsibility on the alignment of actors it is not used in all hospitals. A reason why hospitals don’t use the shared responsibility could be the big difference in knowledge background that there is between the actors. The head of department often has an economic background while the physician has a medical background. Since the main
Proposition 1.3: Increased trust in capabilities will increase the alignment of the physician and non-physician
Examining this statement in literature there are different forms of trust that could be recognized; internal trust and inter-organizational trust (Zaheer and Harris, 2005). In the cases that were researched the unit of analysis consisted of the relationship between purchaser and physician, but
inter-organizational trust does occur between physician and suppliers. Internal trust leads to better
alignment of employees which eventually leads to better organizational performance (Moorman et al., 1992). This hasn’t been researched with respect to the performance measurement. It has been
researched by Jirotka et al. (2005) but this research is focused on innovation in healthcare. Next to inter-organizational and internal trust, Nooteboom (1996) recognized personal trust as a factor that could influence performance and found that trust based upon personal bonding could lead to problems in terms of the fulfillment of the organizational role. This could occur between physician and
purchaser, but also between physician and supplier.
Altogether research support proposition 1.3 and there are even more positive effects of trust. Jap and Anderson (2003) found that trust has a positive effect on performance measurement within
organizations. This paper already stated in the theoretical background that performance measurement is a crucial, but time consuming and complex process. Trust could be an important factor in improving performance measurement.
Proposition 1.4: suppliers influence on the physician effects the performance in a positive and negative way
negative impact, the contextual factors have an influence on the relationship and the way the relationship is being managed.
Proposition 2.1: Alignment between physician and non-physician (purchaser and head of department) contributes to the purchasing performance
As expected from other industries alignment between physician and non-physician contribute to the purchasing performance. The previous propositions already mentioned some ways in which alignment could improve the purchasing performance. Maheskumar (2012) already found in an industrial context that alignment leads to improved organizational performance. It is hard to indicate the strength of this relationship since a qualitative study has been conducted.
The different cases indicate that the alignment leads to improved performance. Especially the performance in terms of time effectiveness improves when actors are more aligned.
Proposition 2.2: Having a clear reward system could motivate physicians in the purchasing process
In practice some hospitals already use a sort of reward system that could motivate physicians to act in favor of the hospital in the purchasing process. The interviews showed that the head of department of multiple hospitals are aware of the conflicts of interests that could occur, because of contact between supplier and physician. Rewarding employees leads to improved motivation, but it depends on the context of the organization (Hicks and Adams, 2003). Furthermore incentives try to change a certain behavior of an employee.
In this specific case physicians get rewarded by investments of the hospitals in the department when certain savings are being achieved. What makes the process hard is the fact that suppliers also try to influence physicians in the purchasing process. One of the purchasers already mentioned that it is important to ensure that the physician acts in favor of the hospital by giving him a reason to do so. It is important that the reward system is clear so physicians feel that they are threated in a fair way. Next to that it is important that they really get involved in the purchasing process, because personal control on performance lead to increased motivation (Fisher, 1978).
Proposition 3.1: The physician can be influenced less to act in interest of the hospital if the physician is self employed
The head of department mentioned that if he restrains a self-employed physician to purchase a certain implant, this physician will go to the board to overrule this decision. This indicates that the influence of the actors that are directly related to the purchasing process is low.
Proposition 3.2: The purchasing process is less effective if the department is smaller and there are less suppliers
There is no clear indication in literature that less suppliers lead to decreased performance of the purchasing process. Some studies mention that having only one or a few suppliers could lead to an improved relation between organization and supplier, because of supplier development (Spekman, 1988).
The reason why the size of the department and the number of suppliers seem to influence the
purchasing process is because of regulations within the healthcare industry. Selection of suppliers is a bureaucratic process and because of legislation hospitals are obliged to contract the company that turns out to be the most suited partner. It could happen that this contract is not what the hospital expected, but it has to purchase from this supplier.
Limitations and further research
The multiple case study approach provides rich information to enlarge the knowledge on the topic of purchasing in healthcare. Nevertheless, this study consists of some limitations. First of all the
performance of the purchasing process is hard to measure. In this research perceived quality and time effectiveness have been researched. Although these topics are underlined in literature they are subjective ways to measure performance. Furthermore the research consists of a case study method which recognizes factors, but is not capable of measuring the strength between factors. Finally the research sample consists of four university medical centers and one non-university medical center. Because of this the validity of comparing these two is rather low.
Further research could aim to find a way to measure performance in a less subjective way. The
Figure 3: Adapted research model
CONCLUSION
Discussing the first research question that has been set up it comes forward that better alignment between physician and purchaser does lead to an improved purchasing performance. An important factor that influence the purchasing performance is alignment through collaborative behavior, which contains of helping other actors pursue their goals. Alignment by interests gets influenced by the different interests of the actors in two ways, a positive way in terms of responsibility for all factors and negative, in terms of conflicting interests. Furthermore shared responsibility leads to an increased alignment. An example of shared responsibility is a physician who is held responsible for a certain part of the budget. Finally trust between physician and purchasers leads to better alignment between these actors, because there is no need to check every statement of one another and communication remains internal. An example is the trust between the actors within case 1 where there was no communication during the purchasing process between the suppliers and physicians, because the physician trusts the goodwill of the purchaser and the head of department. Furthermore the head of department and the purchaser trust the judgement of the physician on certain implants.
The second research question consist of the question if and how incentives influence the alignment between physician and purchaser. A factor that influence the purchasing performance in a direct way are the incentives by a reward system set up by the hospitals. An example of a reward system for physicians could be a set percentage of the savings that get reinvested in the department to finance for example operating room investments or employing staff. Next to that incentives in the form of objectives influence the alignment in a positive way, but this differs between the several cases. Finally two contextual factors have been discussed. One contextual factor is the difference between non-university medical center and university medical center. The biggest difference is that physicians at non-umc hospitals are self-employed which makes it harder to influence the decision making. Furthermore there is a difference between the several departments. The biggest cause for this difference are the regulations of European purchasing.
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