Exercise and the Power of Behavioral Economics

For years it was "Reach the Summit." Then, at about 40, came "Hold the Line." Now, as I approach another post-50 birthday, I have my hands full with "Slow the Decline." It's getting tougher, folks!

Since my college years I have hit the gym several times a week. And there are always days when it is harder than usual to step on the stair climber or lift the bar bells. That's when a little friendly competition works miracles.

If you exercise with a partner you know that friendly workouts inevitably ratchet up to a contest of relative might and pain threshold, usually without either party even realizing it. When my friend finishes a set of bench presses, I'll casually add 5 pounds on either side before I lift. Likewise, when he sees me in a lather of sweat after 30 agonizing minutes on the treadmill, he'll run for 45.

This spirited game of one upmanship we play in the gym closely parallels the classic pattern of Behavioral Economics, i.e., using tools like simple reminders, social pressure, and rewards to gently nudge us to behave in desired ways.

I most recently read about the pattern in the Harvard Business Review Insight Center report (March 2010) entitled Health Care Innovations. The report highlights the impact that peer pressure played on a large practice in Boston.

A group of doctors were shown data revealing a large variation in how much each of them used certain radiology tests. It "called out" those who used radiology in excess and in turn empowered more moderate users to question these colleagues about their more indulgent diagnostic and treatment protocols. This peer-to-peer interaction led to a 15% decline in radiology use by this physician group.

We know of a similar example from a large, geographically dispersed hospital system where the price and lack of standardized physician preference items were a particular challenge. In an initial effort to rein in spending without resorting to strong arming physicians, the materials managers made a list of preference items for a particular procedure and then, each week, printed out usage and price by physician. They placed these charts above the scrub station for each surgeon to see.

The conclusions were obvious and significant. Physicians saw that, while most were using lower-cost items effectively, there was a subset using high-end (and high dollar) PPIs with no better outcomes. Over the next few weeks these high-end outliers began moving toward their lower-priced peers. And nobody had to say it! It just happened!

An additional benefit: physicians considering using a more expensive equivalent product offered by a competitor knew that that product's price and their name would soon appear above the scrub sink for all to see. A very effective counterbalance to the sales skills of the product company rep!

This subtle form of peer pressure has been around a long time and very few of us are immune to its power. Yet it is non-confrontational and instead leverages our common human nature. I highly recommend it to complement other methods you may use to convince surgeons to standardize. The same Behavioral Economics that drive me to match or exceed the performance of my workout buddy can be a major cost reducer in the OR.

Innovations in Healthcare Supply Chain Contracting: Part V

Judy Lipscomb at BayCare Health System
– Building a case for change

When Tampa-based BayCare Health System went searching for supply chain best practices, the materials managers and executives assumed they would eventually end up outsourcing most of their supply chain and distribution activities to gain efficiencies and save money.

Instead they found they were in a prime position for something quite opposite: full self contracting and self distribution.

Judy Lipscomb, BayCare's VP of Materials Management, and her team began implementing the new model – amounting to a full overhaul of the system's supply chain – in 2007.

As part of our series on innovative supply chain contracting, we asked Judy to share how BayCare has managed this change.

MediClick: What was BayCare's business case for going to self contracting and self distribution?

Judy Lipscomb: A few years ago, in researching best practices from other organizations, we realized that our centralized procurement and AP, one checkbook, and very tight geography could work to our advantage.

In writing our business case, we found that only 23% of our $200 million of supply chain spend was going through distribution. We managed the requisitioning, procurement, receipt, and delivery of everything else ourselves. Then, of the $200 million going through our GPO, we were re-contracting $80 million.

The whole question became, if it was financially viable, could we do these activities ourselves to the scale that we needed. At first we looked at just central distribution. The more that we talked to others, the more we heard that we really needed to get as close to manufacturers as possible. If we didn't do our own direct contracting, we'd be missing savings and efficiency opportunities that would lead to new revenues.

We created the structure for our own primary GPO to put us in a better position with the manufacturers so that we could address the full delivered cost of the supply chain. There's inherent value in owning that relationship ourselves. The value comes when we show our suppliers that we want to know how to do business with them in the most cost effective way.

MediClick: How did manufacturers first react when you brought the self-distribution and self-contracting models live?

Judy: There was considerable skepticism from some who had seen this model fail in other areas. On the other hand, there was enthusiasm from others who jumped at the chance to work with us.

Our only retort to the skeptics was "Look at that distribution center, do you think we would have made the investment if we didn't think it would work?" We told them this isn't just about us. It's about them, too. Our whole objective is to try to find new ways to work with manufacturers in the most efficient manner so they benefit also.

After a couple of fairly large conversions we were able to convince a number of people, internally and externally, that we were able to work in this market.

MediClick: What words of wisdom – or warning – would you share with other organizations that talk about emulating your model? What do they need to have in place to be successful?

Judy: There is no cookie-cutter model. There were challenges we were fortunate to not have to address. For example, although there are those that are very successful, the location of the hospitals can be a challenge. The more geographically spread out, especially if they cross state lines, the more logistical considerations and operating expenses they'll have. I also think their challenges are far greater if their hospitals are not on a common ERP system or if they don't have their item masters synchronized. If you create a GPO, you will need a decent contract management software system. You cannot manage a GPO by Excel spreadsheet for long if your contracted spend grows quickly.

Also, support from the highest levels of the organization is critical.

MediClick: How do you build credibility and support from within your organization?

Judy: Job one is listening to the physicians', clinicians' and executives' needs and concerns about supply chain operations. Be flexible and balanced. Respond by explaining what you can do to address what you've heard from them. It's critical for them to believe you're honestly, genuinely hearing their needs, trying to meet their needs when you can, compromising if necessary, and providing credible reasons when you can't.

We try to be reasonably inclusive in decision making on our supply spend. We try to have fair system-side representation on our product selection teams. We also make sure that we alert the senior management team on the decisions and ask them to support us. And we communicate in every channel we can.

Some standardization opportunities seem simpler that they really are. One of BayCare's president's council members once asked me why I didn't standardize toilet paper. He figured we shouldn't have to get input from anybody on those items. But the fact is, converting toilet paper means converting toilet paper holders and that has impact on every bathroom across the system. So you can't arbitrarily say we will now use this. Some of the things that seem to be slam dunks aren't.

We look at standardizing not only on the commodities side, but on the physicians' side. We have checks and balances on new technology to make sure that just because it's the greatest thing since sliced bread that it has enough clinical efficacy and operational impact to bring it in. New technology is typically where you lose control of your supply chain because there isn't the breadth of timely information about how good something is or isn't. Much of the product analysis is funded by manufacturers. The new products need scrutiny.

In addition to the typical value analysis team, we have technical review teams to provide that scrutiny. Anything with an annual aggregate cost of $10,000 or more goes in front of physician committees. Then it goes in front of a multi-disciplinary technical review committee that researches the product and either challenges or supports its clinical use.

The product finally goes to an administrative committee which asks: Can we afford it? Can we afford it now? And are there limitations?

MediClick: It's often difficult to get people to change if you don't have a true burning platform that forces change. How do you get this on top of peoples' lists at BayCare?

Judy: If we could convert exam gloves and save $200,000, that's a slam dunk despite the fact that converting gloves involves a lot of people. Sometimes you can only save $80,000 on a conversion, which could be spread out as $10,000 at two hospitals, $20,000 at another hospital and $40,000 at a third. So then you're challenged with the individual hospitals asking, "what's in it for me? You want me to go through the pain of conversion for only $10,000 worth of savings?" Those giant, hundreds of thousands of dollars in savings are not always easy to find so you have to look at the sum of the parts.

We've fortunately had enough places where we've actually saved clinical folks money. They're now willing to look at things where, historically, it would not have been worth it for them.

If there's any opportunity for savings over $100,000 that our VAT teams ignore or turn down, they have to go and present it to the supply chain oversight committee and tell them why they don't think they can do it or why they don't want to do it. If it's between $50,000 and $100,000 worth of opportunity, we work with them to see what would make it palatable to switch.

MediClick: How has your clinical background informed your approach to the clinical elements of the supply chain and the relationship to the clinicians?

Judy: I was trained as a radiology tech and worked in the OR, the cath labs, radiation therapy and nuclear med. That experience actually helps me understand things from a clinician's perspective. When you singularly work in the supply chain you can forget it's all about the patient. And if you can meet the needs of the patient then you've met the needs of the clinicians.

Replenishing supplies is number 47 on the daily to-do list of a nurse who's dealing with a patient, a family, a doctor, and government regulations. If you can make the supply chain as low cal and invisible for them as possible, you will have made their day.

Our new electronic health record (EHR) is an example of us changing our practice to facilitate the system. We had a 40,000 item master file, but because the item master database is used to feed the EHR database for supplies, clinicians need to be able to go into that EHR and find that supply. We've ended up doubling the size of our item master file to make it easier for the clinicians to find the item in the EHR System. And it'll probably grow even more.

For instance, we need to have various screw sizes for spinal cases so nurses can find the right one and populate the implant log in the EHR during the case and simultaneously create the log for patient billing. They'll ultimately be creating the purchase order for those products.

We could look selfishly at those screws and say that, since they're not used more than once or twice a year, we're not putting them in the item master file because it requires additional steps. But when you're in an OR – and I used to work in an OR – you want things to work like clockwork. Exception and variation are not good things.

Finding Your Organization’s Secret Agents

In the last month I have attended two important industry events, the IDN Summit and Expo in Orlando and the annual MediClick User Conference in Raleigh. Both invigorated my long-held belief in the value of stepping beyond the walls of our comfort zones on a regular basis to spend time learning from our customers and colleagues.

Stepping out, so to speak, is without a doubt the best way to find out about new ways to solve common problems; and even better, to find out how to solve problems you didn't even know you had.

There is a concept called Positive Deviance, which Dr. Jon Lloyd, surgeon and senior clinical advisor with the Plexus Institute, discussed during a Summit session in Orlando. Positive Deviance teaches us how to identify individuals within our community, discover their uncommon practices that lead to success, and then use these practices to facilitate our own particular solutions and improvements.

Positive Deviance is all about "bottom up" problem solving. (I do like the term – it can be construed as an oxymoron in certain contexts or an apt description of the personality of a good friend!) Before I apply Positive Deviance to the healthcare supply chain, let me share one of Dr. Lloyd's examples of how well it can work.

Lloyd, a member of the Positive Deviance Initiative Advisory Board, used the epidemic of childhood malnutrition in 1990s Vietnam to describe the concept in action.

The Vietnamese government asked Jerry Sternin, Asian Director of Save the Children Federation, and his wife Monique, to find a solution to a major national crisis. An astounding 85% of children under the age of five were moderately to severely undernourished.

As experts sometimes do, the Sternins could have studied a subset of "representative" villages, formulated causes of childhood malnutrition and comprised a list of best practices to be implemented by the government nationwide. This, of course, would be the classic top-down approach.

Instead, the Sternins formed a team of individuals from four villages and worked closely with them "on the ground" to understand and solve the crisis from the bottom up.

The team identified families whose children appeared better nourished than the general village populations. Through a series of interviews with these Positive Deviant families, the workers discovered a list of common practices: adding available sources of protein like shrimp or peanuts to the regular diet of rice, feeding the children more than the usual two meals per day, and feeding kids more – not less, as was the custom – during bouts of illness.

Then, instead of printing up a list of best practices, the Sternins helped organize several community dinners where the rice was provided. The price of admission: a protein source. This motivated villagers to get in the habit of gathering protein, an act that enabled them to quickly solve their own nutrition problems.

The Positive Deviance approach worked. Understatement! Malnutrition rates dropped from 85% to 15% in just three months!

Dr. Lloyd's story came to mind two weeks ago when our customers met in Raleigh for the MediClick User Conference. I must tell you I stand in awe of our customers and what was accomplished together in the three days they were with us. The one-on-one coffee break exchanges, the customer-taught classroom sessions, and the peer-to-peer interactions enriched everyone, and they revealed ways we could improve our products and our company. The power of Positive Deviance was bountiful.

Let me share one example, which I was witness to by virtue of buying the beers. A supply chain director at a large teaching hospital that had recently gone live on MediClick for the Supply Chain could not get his requisitioners – usually nurses with pressing clinical duties – to look at existing backorders before placing a requisition for out-of-stock items. The nurse on the 1^st shift sees an item is out of stock and orders it. The nurse on the 2^nd shift, seeing that the item is … yep … still out of stock, walks over to the computer, enters the same requisition again, and hurries back to his clinical duties WITHOUT glancing a couple of columns over on the order guide to see that the item is ALREADY backordered. Net result: they need 5 but end up with 10, creating yet another pocket of expensive inventory bloat.

Over our vintage IPAs the MediClick newbie shared his problem with another MediClick customer. This more seasoned veteran explained how she solved the very same dilemma by using a clever teaching approach to get the folks on the floors in the habit of checking for existing backorders before pushing the "finish" button. She also talked about her high-impact meetings with the departmental managers as she showed them the havoc that inventory bloat was wreaking on their monthly expense reports. Best of all, she exuded an empathy that made the new guy realize he wasn't the first one up this creek, and she gave him the paddle.

I spent three wonderful days with our customers, on the front line if you will, and it only strengthened my conviction that they are the ultimate source of uncommon solutions. I'm not sure that they would cotton to being considered Positive Deviants, but our customers are indeed consummate change agents.

Your Positive Deviants are out there, too, brimming with knowledge. They are patients, and they are also the nurses, techs, engineers, cleaning staff, even physicians from our own organizations or others. Seek them out, sit down for a chat, and be inspired by what you learn that can help you create a better supply chain.

Just as the villagers who were motivated by the improved health of their children, once you start, you won't stop – the successes and flow of ideas are addicting. And upon your next promotion, make sure to shout out a big thanks to your allies and enablers: those lovable Positive Deviants.

Innovations in Healthcare Supply Chain Contracting: Part IV

Nick Toscano – Considering Self Contracting? Some Advice

Nick Toscano has developed a reputation as the go-to guy for IDNs considering non-traditional options for their supply contracts. We saw him last week at the IDN Summit in Orlando where we heard other attendees address him as the "father of the integrated service model."

His consummate modesty makes him slow to embrace such a lofty title, but there's little doubt that Nick has parlayed his 30-year career with health systems in New Jersey to become a respected voice and trusted advisor to hospital executives looking for guidance on supply chain strategy.

As part of our series on innovative supply chain contracting, we asked Nick to share his thoughts on self contracting, the impact of committing volume to suppliers and the importance of clinical integration in the supply chain.

MediClick: Is there a provider profile you use to determine what IDNs would be good candidates for self contracting?

Nick Toscano: One of the main criteria is spend, which should be within the $150-200 million range at a minimum. But you need to determine what approach works best for your organization.

Some systems have implemented a hybrid self-contracting/GPO model. They use the GPO for commodities so they can focus on the physician preference items. There's nothing wrong with that. It's an issue of the level of investment and commitment you want to make. If you can go after 70% of your med-surg spend, that's a great start. It doesn't have to be $150 million.

But contracting is just a piece of clinical integration. It's an element of strategic sourcing, utilization management, patient demand factors and clinical outcomes — all things that drive to the value chain and total cost. You need a team of qualified folks to measure and monitor that because what is perceived as the lowest product costs can frequently drive high overall costs without the clinical oversight. Clinical Integration processes are about documenting the efficacy and overall effectiveness of products to the care delivery process and patient experience.

MediClick: How were you first exposed to the self contracting model?

Nick: I was with a large multi-hospital system in Atlantic City and was recruited to be COO of the New Jersey Hospital Association (NJHA) cooperative, the largest regional group purchasing system in the country at that time.

NJHA was different because it used a committed volume contracting process. Participating organizations had to commit their volume to RFPs and contracts up front. We had to qualify products, especially clinical products, so we started the value analysis and clinical integration process. We were one of the first organizations to do that.

We had teams of folks, including clinicians, who supported the process and pre-qualified products. We were able to commit an 80% of utilization rate to suppliers. We enjoyed participation and high compliance levels that were unheard of in the industry at that time. Other GPOs simply awarded multiple source contracts and didn't have the compliance levels that we did because they weren't committed volume organizations. They were trying to create critical mass and leverage their spend based on certain commodities to get a better price. At that time, they didn't have an integrated clinical process or clinicians who supported the effort.

MediClick: NJHA was ahead of its time in how it collaborated with clinicians. How did you accomplish that?

Nick: Our supply chain officers as well as our board – which was made up of CEOs of New Jersey hospitals – recognized that in order to build a sustainable model we needed to engage clinicians in the process. We needed them to understand that we're not necessarily looking for just a low price product; we're looking for a product that they would utilize – one that offers value in patient care.

We also had a significant burning platform in NJHA. At that time New Jersey was the first state and pilot program for the Medicare DRG system. So needless to say, our CEOs were very motivated to get their cost structures in line with the new revenue stream.

In the past, clinicians had been made to feel that purchasing wanted to buy the lowest price product without consulting them or evaluating the quality. So we went through an extensive change management process to understand each other's roles and respect each other's needs while collaborating around the patient.

It took time to get clinicians to participate, especially the physicians. We had a group of nurses that were engaged but few physicians. But over time it grew.

MediClick: During your career, when did you break away from the normal mode of operations and start seeing self-contracting as a viable business model?

Nick: I went back to the provider side to work for one of the largest multi-hospital systems in the state, West Jersey Health System. Because they collaborated with NJHA, they were used to the committed volume process. As innovators, they wanted to expand it and get their arms around spend by integrating with their medical staff.

WJHS eventually merged with Memorial Health Alliance to form Virtua Health, an organization that had a more integrated supply chain and allowed us to leverage our spend across the network.

Because this new organization would bring about significant market share, the federal government required us to complete a Community Benefit Report to ensure the new organization would offer community benefits. We committed a large portion of our report to reducing overall supply chain and healthcare costs in the region.

We knew that our traditional business model wouldn't get us there, but it was a challenge to buck the industry trend and set up our self-contracting model. So we decided to work with manufacturers who saw us as early adopters. We got two of them to help us develop our integrated contracting approach. When the industry players saw two large manufacturers collaborating with us, they started paying attention to the model, understanding it, working within it and driving results.

We started self contracting and focusing on physician preference, more committed volume and more standardization. Then because we could offer market-share improvement, we were able to leverage our direct relationships with suppliers to support good utilization management. You become the customer to the supplier, whereas through the GPO you're just another hospital name on the contract.

MediClick: You learned at NJHA that to get committed volume and save costs you had to have clinician buy in. How did you build trust among clinicians at Virtua?

Nick: Our clinicians felt the national contracts rarely considered their real, local needs. They needed a voice to influence decisions. So at Virtua, we focused on the local needs of the physicians. It wasn't simply about reducing prices. It was about supporting patient care in a high-performing healthcare system.

Since we knew that anyone working with patients was busy, we committed to the clinicians that we were going to put the right people in the right place to give them a voice. We developed a supply chain clinical team, full-time clinicians with great clinical experience and a commitment to work with physicians.

Virtua became one of the first health systems to have full-time clinicians within the supply chain.

This accelerated our cause more than anything. Our infrastructure enabled us to monitor utilization and contract compliance. When we went off contract, it was for a clinical reason. That didn't happen often so we were able to stick to our 80% commitments.

I am proud to tell you that today Virtua Health remains an industry leading supply chain/shared services practice.

MediClick: What kind of advice do you have for anyone thinking about self contracting?

Nick: First, it's imperative to have the support and commitment from your senior leadership. And it's not just the CEO or CFO who need to support you, it's the other stakeholders who need to understand and support what you're trying to accomplish because they will drive success.

Then you must build the business case. Build the plan. Build the justification. Articulate the investment and the ROI in ways that will show financial and performance-level returns.

Your infrastructure must allow you to monitor your progress. You need to be able to see the spend analytics, measure compliance and track success.

Shape the vision so stakeholders understand how this model will build your relationship with physicians. Get the right people on the bus with you – qualified clinicians who have a commitment and a passion for this. Communicating this is extremely important. Don't make assumptions that people know the good work that your team is doing.

Innovations in Healthcare Supply Chain Contracting: Part III

Bob Simpson at LeeSar and Cooperative Services of Florida
– Replicating the Cooperative Services model

When Lee Memorial Health System and Sarasota Memorial Health Care System created their regional cooperative in 1997, they made a radical change to the status quo of the hospital supply chain. The move attracted the attention of other IDNs that recognize a need to disrupt the standard models of hospital contracting.

Most recently, Central Florida Health Alliance and Huntsville Hospital joined Cooperative Services of Florida (CSF), the contracting arm of the partnership. According to Bob Simpson, President and CEO, these additions will help his organization reach critical mass, giving it the volume to negotiate some of the lowest prices in the country.

Bob believes the model can be replicated around the country with large IDNs forming regional cooperatives, focusing on driving high compliance and producing significant savings in the process.

In Part III of our series on innovative contracting, we asked Bob about the future of the cooperative contracting model and what other IDNs might do to emulate it.

MediClick: You've clearly taken the co-op beyond just the initial vision of the CEOs of Lee and Sarasota, what do you think this thing ultimately can be?

Bob Simpson: We want it to be a model for the rest of the country to get ready to deal with the healthcare challenges today's hospitals face. Given the current structure of hospitals today, they're going to self destruct. So they have to reengineer.

CSF is Module A. It's a big circle of commitment. It's four IDNs that have come together. With the right mass and the right group to drive total compliance with our contracts and reengineer the way supply chain is done.

I'm now getting calls from other organizations who want me to start a Module B. I'm going to consult with other organizations who want to set up Module B, and I'll help them get it done. But it might just be, for example, Cooperative Services of Louisiana, Cooperative Services of the Carolinas.

Before you can create module B or C, you must have a commitment from the C-suites. If you don't, don't even start. If so, then the model can be duplicated without cloning a Bob Simpson. You have to put the right people in place. As a leader, I coach. I have 11 vice presidents who work their tails off for me.

I can have these people do things and not have to hover over them. You have to slowly but surely mentor, train and educate the next group. It needs to be done and it needs to be done at the CEO, CFO levels. We deliver great results.

MediClick: Will these separate modules work together?

Bob: There's nothing that says we can't get module A, B and C together once a year to buy commodity items, but the key to it is drive compliance – 90% commitment to the manufacturer, while at the same time getting value for doing it.

I tested that thesis about a year and a half ago with ROi, the supply chain management arm of Sisters of Mercy Health System in Chesterfield, Mo. We picked a basic commodity item, foamware, to buy together: The straws, cups, trays, silverware – all the stuff made out of plastic and foam.

We found a South Carolina manufacturer that makes foamware for every school system in the country, but sold nothing to hospitals. ROi and CSF flew their negotiators and food service personnel to this manufacturer. We sat in a room for one day, picked standard supplies that everyone could use across all of the facilities, and negotiated a price. In that one day we cut our total cost by 37%. I stock that stuff today.

MediClick: Is contracting, purchasing and the supply chain a core feature of what a hospital does?

Bob: Take a look at the people I've put together at the co-op: My head of pharmacy negotiations is a lion who knows pharmaceutical negotiations cold. My med-surg person has no formal education beyond high school, but can sit in a room with a spine surgeon and talk nuts and bolts like an expert. The woman is just a born negotiator.

Negotiation is an art. Something that you either have in your blood or you don't. I've gathered up some of the best negotiating talent in the country. That's why it works. Hospitals have no business being in this. They don't have experts in negotiations and supply chain in their business.

Now look at your materials managers. They'll all tell you that they can get another 3% off a product price. That is not what this is about. This is about going down the same logistical road together and getting compliance and commitment from organizations.

Innovations in Health Care Supply Chain Contracting, Part II

Bob Simpson at LeeSar and Cooperative Services of Florida
– Blazing a new path

Dissatisfied with their national GPO's inability to meet the needs of both suppliers and clinicians simultaneously, Lee Memorial Hospital and Sarasota Memorial Health Care System decided to disrupt the status quo of the supply chain world in 1997.

By joining forces to form a regional contracting and distribution cooperative called Cooperative Services of Florida (CSF) and LeeSar respectively, they were able to give doctors a greater voice in contract selection and provide supply chain savings to their owners by driving high compliance to suppliers that survive a rigorous selection process.

The lynchpin, according to President and CEO Bob Simpson, is the ability to drive 90%-plus contract compliance, making suppliers eager to do business with the regional cooperative.

"Any supplier out there wants one thing, and that's to control market share," Bob says. "Based on all of our healthcare systems we represent, we can look at a manufacturer and say that we can drive compliance. Because of this, we collect pricing and terms that are second to almost no one else in the country."

All of this while meeting the clinical requirements of their physicians.

As part of our series on innovating supply chain contracting, we sat down with Bob to find out how CSF has made a success out of the complex trade of supply chain contracting.

MediClick: What makes Cooperative Services of Florida different from the national GPO?

Bob Simpson: I used to chair the committee of a national GPO in New England, so I'm familiar with the model. Their challenge today is that they've gotten so big that they can't drive compliance with their portfolios.

It's frustrating to the suppliers who've worked hard, put in a bid with a GPO, receive an award and pay the administration fee. The next thing they have to do is go out and sell themselves to the clinicians. Although they're told that 200 hospitals could buy their product, they find they have nothing until they go out and sell themselves.

We drive compliance. That's why my board and I have always discussed not letting this get any bigger. With four IDNs, we're at the max that I can manage while still driving compliance to the manufacturers and keeping my promise to them.

Some of the national GPOs have started to break off and form these regional sections around the country to let them drive smaller portfolios while supporting the national agreements. Why have they done that? Because they know they can drive compliance on a smaller level. And they've gotten too big to drive compliance across the board.

MediClick: What approach does CSF take to driving compliance?

Bob: The CEOs of both Sarasota Memorial Health Systems and Lee Memorial Health Systems originally founded CSF after their physicians complained they didn't have enough input into supply selection. Our GPO at the time used advisory committees to put together product portfolios it sent to hospitals for compliance. Our physicians wanted more input into that process.

So the CEOs made CSF the full authority to negotiate their contracts. Our process goes in reverse. We go to the end users of the products to find out what is medically and clinically acceptable. Not what their preference is, not what they've been trained on in medical school. I need some options so I can drive the best deal possible. Then we only negotiate with manufacturers who have products that are medically and operationally acceptable.

Second, I need clinicians to agree to use it. Doctors and nurses are scientists; they deal in facts. We need to show them the savings and the value and promise them that we're not putting anything in their hands that can harm their patient. Whether it is nursing, department heads, or physicians, they all sign off ahead of time.

Physicians now have input into the process, and we've returned cost savings to the hospital. We can promise suppliers that we will drive 90% compliance to the contract. This is how we are able to collect pricing and terms that are probably second to none in the country. We benchmark our prices against the national GPOs annually and consistently come in the top 5% in the country.

And now that we've given value to the suppliers, we've started collecting fees from them.

In fact, a very interesting phone call took place last week. I got a call from the CFO of Lee Memorial Health Systems, who just had a bonding organization looking at their books to decide how to rate Lee Memorial. They found a revenue stream that they hadn't seen before, and it was growing substantially. The bonding organization wanted to know what that was. It was the revenue stream coming from CSF. Because of that, Lee got a higher bond rating. For the first time to my knowledge the buying coop had a major affect on the bond rating of a major healthcare system.

MediClick: How does driving this level of compliance affect your relationship with clinicians?

Bob: Since we all have backgrounds in medicine, we can speak their language. Bill Tousey, a VP at CSF, is a former director of surgery and an OR nurse. I was a medic in Vietnam, and I still do surgery with my nonprofit. The doctors and nurses respect that.

Plus, they've all seen the program work. About two years ago, we did price benchmarking on orthopedic implants and found we weren't getting the value for our volume. The implant companies dealt directly with our clinicians, ignored us, and passed on increases.

Lee's CEO called a meeting one evening. He put on a nice buffet and invited the orthopedic surgeons, the implant companies, the board, and the press. He stood in front of the room and said "I have one question and one question only: Given our orthopedic implant volume, can anyone tell me why we're not getting the price we should for the amount of business that we do for you?"

You could have heard a pin drop.

We took a stance that night. The first three companies to come to us with the price we'd set would get our orthopedic contracts. The rest will hit the streets. The doctors were not pleased.

None of the orthopedic companies stepped forward so we had to delay surgeries because implants were not available at the price we wanted … for three days. Then there was a break: a small, unknown orthopedic implant company that had just 5% of our business said "we'll play." Then another company came forward. By the end of about two or three days, three unknown orthopedic companies came forward.

I told the surgeons they could start doing surgery, but they had to choose from three unknowns, not the big three. They doctors were still unhappy. Finally, they asked for a meeting with the CEO who asked me to come along. They asked what they had to do. We told them "we just need fair pricing. You can have choice, but we're not paying outrageous prices." And all the orthopedic companies came back in and played.

Thirty days later, it was time for spines. What did the neurologists say to us? "Give us the paperwork, we'll sign off, we'll do whatever you want us to do" because they saw what happened with orthopedics.

But that's the reputation we have. We drive compliance. And our medical staff knows that.

Next week, Bob talks with MediClick about replicating the Cooperative Services model.

Bob Simpson and Project Perfect World: Turning Heartbreak into Triumph

After suffering a devastating family tragedy, Bob Simpson, the president of LeeSar and Cooperative Services of Florida, and his wife decided to turn their grief into something constructive – a cause that takes medical teams around the world providing medical care to underprivileged children. Below is Bob's powerful story, in his own words.

In 1989 my wife and I had a disaster. My 18 year old son was killed by a drunk driver. You do one of two things when that happens. You either go off a bridge or you find a cause to get you through it.

Bobby was killed in August. The next major holiday was Thanksgiving. My wife, our two daughters and I were not looking forward to that.

I had done medical work in South America and other parts of the world with teams from Norwood Hospital in Massachusetts. During one of our trips to Guayaquil, Ecuador, I met a nun named Sister Ann who had introduced me to Suburbio, an area of 500,000 people with no running water, no electricity and open sewage. So my family and many of our friends made a decision to fly to Guayaquil over the Thanksgiving weekend and build a free clinic with family money in memory of my son.

So we did that. When we were there, we had dinner with a guy named Peppy, who is the godfather of my youngest daughter. Peppy's wife, Maria, kept looking at me over dinner.

I said "Maria what's wrong? The clinic is done, and we'll fund it. The kids'll get cared for: hygiene, shots, it'll be great."

She said, "There's something else I have to ask of you. But I don't dare ask you because you've done so much." I said, "Come on Maria just ask me." Then she said something that's really stuck with me. "Bob, it's as bad as the tip of the tale of a rat. That's how bad this request is going to be."

It turned out to be a leper colony, which Sister Ann lived and worked in after she moved out of Brooklyn. It had open sewage and people lying on cement floors, washing their clothes on stone rocks. It was filthy.

I wouldn't let me wife and children go over there, but my buddy George and I went over, spent the day and decided to take this on as a charity in memory of my son. So we rebuilt the entire leper colony. Screens, independent rooms, hospital beds, medical supplies, an actual working pharmacy, washing machines, closed in the sewage. You name it, we did it. And today it's fine.

After we rebuilt it, we came back to the States and set up a foundation. In 1995 I was fortunate enough to be president of AHRMM. I went to my board and I said, "listen, we do great education, great seminars, great publications, but the organization has no heart. I'd like to start a foundation to fund one medical team – that's all – just one, and send it around the world once a year and have the materials managers support it."

Well the next morning the board was going out for some team building in Scottsdale, AR. It was 4:30 in the morning and we were in the desert taking hot air balloons up. They blew up one of the hot air balloons and there was a picture of a globe. One of the board members said "there's the name of your foundation: Project Perfect World." So that's what we called it.

We started raising money to put a medical team together. The first medical team went down to Guayaquil, Ecuador, in 1996 and did cleft lips and palates. Nothing major but we did about 60 kids, and we went home feeling pretty darn good about it.

Since that time, the board has grown, we have a couple of hundred thousand dollars in the bank, and we fund at least three medical teams per year. We spend a lot of time in South America doing cleft lips and palates. We give these kids their dignity back. Our orthopedic teams have gotten to the point where knees and hips are done extremely well with the help of an orthopedic team out the University of Kansas Medical Center.

Then one of our doctors came to me and said, "Bob, we know how to do the knees and hips I really want to move on." I looked at him and said, "What do you want to do." He said, "Spines."

That's expensive and intense with instruments and implants. But he was determined. He went back and got a couple of small grants, five-ten thousand a piece. Got a couple of people funded and got the spine companies to travel with us and actually bring the product.

Three years ago we were back in Guayaquil waiting for our first case. A 14-year old girl came into the exam room on her hands and knees because she had spina bifida so bad that she couldn't stand up. Been like that all her life. This doctor said to me, "Bob, we're going to do this case." So she went into surgery for 6 ½ -7 hours. Last I saw her was post-op. She was still under sedation.

I went back last year. I'm in the exam room looking at a couple of patients. Now 16-years old, this girl comes running into the room and jumps into my arms crying and thanking me for giving her dignity back.

How do you put a number on that? And that's what gets Linda and me by. You never get over the death of a child, but it helps us get through day by day.

To learn more about the foundation, visit projectperfectworld.org.

Innovations in Healthcare Supply Chain Contracting, Part I

Hallmarks of Innovative Contracting

The final throes of the healthcare reform legislative drama wasn't pretty; frankly, I wasn't sure if I was witnessing landmark policy change or unbridled political blood-sport. It was easy to get caught up in the seamy soap opera theatrics and lose sight of the implications the new legislation has for our nation, our system of providing care, and the life work of people like you and me. I confess to being unsure still about what it means for the healthcare supply chain. I have, however, run across an excellent resource put out by the Kaiser Family Foundation (http://healthreform.kff.org/) that's helping make some sense of it all. I encourage you to check it out. It's long on the info and very short on the bias.

Was I "for" or "against?" Well, within the limits of my understanding I guess you should put me down as a "for." Not because the legislation fixes health care – or our national debt – but because it starts the process. And a start is better than nothing. Yes, I am dismayed that there is an unhealthy skew toward the benefit/entitlement side of the ledger, but I also believe that increased focus on cost reduction and efficiency will follow. Because it must. The directive to do more with less (and to do it better) has only intensified. The supply chain executive has a huge role to play. If ever there was a time for innovation, for thinking outside the box, for responsible disruption, it is now! Which is why I am pleased to introduce our next series on the Take Control blog: Innovation in Healthcare Supply Chain Contracting.

Over the next few weeks we will feature interviews with supply chain leaders of several IDNs that have chosen to approach contracting in their own ways, disrupting the status quo in the process and attracting the attention of others with their positive financial results.

Several common themes have emerged in our interviews, themes that we are coming to recognize as hallmarks of the best supply chain leaders. Here are some of them:

They pay attention to the wants and needs of the clinicians but understand when to stand their ground.

They know that the supply chain is an integral part of providing quality patient care, and their stature and authority is commensurate with that role. They work hard to understand what clinicians need to do their jobs and how they think. In an atmosphere of mutual respect, the effective supply chain leader is the recognized point of convergence for patient care and fiscal efficiency. Though seldom needed, the effective supply chain leader retains the power of "no."

They have a willingness to partner with key suppliers, achieving optimal pricing and delivering on committed levels of volume and market share.

These innovators recognize the value of empathy and transparency as a prerequisite for win-win business relationships. Each of the people we interviewed talked about the need to make (and keep) a compliance commitment to supplier partners. In return they expect the best possible price, often achieved by frank discussions of manufacturer profit margins and procedure reimbursements.

They have earned and maintain the support of their executive teams.

Each of the supply chain leaders we interviewed brought up this point several times. Without executive support, they said, it's nearly impossible to introduce any meaningful innovation to the contracting process. They each worked hard to earn the support of their organization's C-suite, and they each have become quite skilled at communicating results in a way that helps maintain that support.

They invest in the infrastructure needed to manage contracts effectively.

Supply chain innovators know it is impossible to manage change without the right supporting infrastructure in place. To run an effective contracting organization – one that brings significant reductions in overall supply costs – they invest in the right people and put them in the right positions, and they enable maximum focus on achieving meaningful, measurable results by equipping their staff with the best technology tools.

 

Enjoy these interviews in the coming weeks. As always, I would love to hear your own thoughts on ways to foster greater innovation and responsible disruption in the world of healthcare supply chain contracting.

Something as simple as a checklist …

When US Airways Flight 1549 lost both engines after striking a flock of Canadian geese, crash landed in New York's Hudson River and all 155 passengers and crew survived, America hailed Captain Chesley B. Sullenberger III as a hero. Humble Captain Sully – as he came to be known – insisted that the successful crash landing, the Miracle on the Hudson, was a team effort by the entire crew.

As Harvard surgeon, journalist, and bestselling author Atul Gawande points out in his book The Checklist Manifesto, the captain's modest claims may be grounded in truth. But in addition to the heroic efforts of the cabin and passenger crews, another unlikely hero seems to have emerged. The checklist.

In his latest work, Gawande – who made tsunami-size waves last year with his New Yorker Magazine article on healthcare spending in McAllen, Texas (an amazing expose that I strongly suggest you read) – shows how adding a simple checklist to a standard process can save you from calamity by helping you make sound judgments and reduce the likelihood of errors. I admit that I am no list maker, never have been. But the results cited by Gawande are so powerful and unexpected that I am rethinking my approach!

Just like his piece about McAllen, Texas, Gawande's checklist idea raises eyebrows, and not just mine. As seasoned professionals with deep experience and understanding of our specialty, we can lay legitimate claim to our multitasking and performance-under-stress skill sets.

But Gawande's research proves that a simple checklist can benefit the most seasoned professionals. He recounts how a checklist has saved lives, even within his own operating room. In fact, in eight test hospitals around the world, a ninety-second checklist before surgery reduced deaths and complications by more than one-third!

Interestingly, the research shows that much of the success isn't so much the checklists themselves, but rather the teamwork that the checklists help to instill in the individuals working together on a particular task. Before I bring this teamwork idea to the supply chain, let me continue to illustrate this point with the checklists used on Sullenberger's flight.

Sullenberger and First Officer Jeffrey Skiles had never flown together before the January 15, 2009 trip. Upon starting the engines at the gate, the two ran methodically through their checklists, which included introducing themselves to each other and to the rest of the cabin crew. Then, also as dictated by the checklist, they discussed the plan for the flight, any concerns, and how to handle potential trouble.

In taking these list-mandated steps, Gawande writes, Sulley and Skiles transformed themselves from strangers into an effective team. When trouble struck 90 seconds after takeoff, each team member knew his role.

We know something about roles in the medical setting, don't we? Thousands of professionals go to work each day to concentrate on making the appropriate diagnoses, ordering the right products, prescribing and administering the right medications, and performing successful procedures. We focus so intently on our particular specialty that it can be easy to lose sight of the intricate interdependence of our roles in achieving the end game: the delivery of quality patient care.

The value analysis process provides a good case study in microcosm for this interdependence. The committed collaboration of supply chain professionals, clinicians, physicians, and financial analysts toward a common goal can produce dramatic breakthroughs in standardization and cost reduction. Many of us have seen this. We've also seen similar VA efforts end in failure.

So how does a checklist, which many of us consider as a way to get the "dumb stuff out of the way," help individuals expand their preoccupation with core competency and enable them to function as a cohesive unit? In many team situations, Gawande suggests that the first element be that of introductions: name, title, role. That's what the crew of Flight 1549 did.

Introductions are not perfunctory. Psychological studies have uncovered something profoundly simple: when individual members of a group don't know one another's names, they don't work together nearly as well as when they take the time for introductions. When you know someone else's name, you automatically establish a human connection, and the quality of your communication with that person increases significantly.

In a team setting, this goes a long way in coming together to carry out a common mission. Gawande has noted in his own practice that, when given a chance to introduce themselves and voice any concerns at the beginning of a case, the participants in a surgical procedure are more likely to note problems and offer solutions, and in real time. Much as a co-pilot is responsible – per the checklist – for verbally confirming changes in course, speed, and altitude made by the pilot, a checklist puts pointing out surgical errors squarely in the line of duty.

Consider the benefits of the checklist to value analysis teams: it establishes the category of product being evaluated – commodity or PPI – and what the requisite data is for each. It ensures that the whole team clearly understands the decision criteria. It establishes a time line. It identifies follow-up activities to measure time to conversion. And so on.

"Man is fallible," Gawande writes, "but maybe men are less so." Good stuff.

It was good stuff for Flight 1549, too. First Officer Skiles tried to restart both engines, as airline protocol (yes another checklist) dictated. But if Sully and Skiles didn't perform the pre-flight checklist in which they introduced themselves and became a team, then perhaps both men would have reacted by attempting to re-start the engines at the same time. No one would have been solely focused on gliding the plane safely into the Hudson.

Give a checklist a try, and please let me know how it works!

Campfires and Supply Chain Innovation

When I was a boy, our family did a lot of camping. Tent camping – the real thing. I loved it, not realizing it was the only type of vacation we could afford. My dad was a lowly resident at Duke, and money was carefully titrated. Our weekly dinner menu seldom changed: meatloaf Mondays, creamed chip beef Tuesdays, tuna casserole Wednesdays, and the dreaded fried liver Thursdays. No amount of ketchup could ever squelch my Thursday gag reflex. (To my mother's credit the "special nights" of fried chicken and spaghetti were rapturous.) Camping was different though. Anything cooked over an open fire in the great outdoors tastes good. Even beanie weenies in an iron skillet.

I loved camping. It taught me good lessons about being happy with simple things and about self-reliance. Take the ritual of starting the family campfire. It was a rite of passage ceded solemnly to me by my father when I turned 12. The pressure to perform was immense – success signified manhood, failure unleashed the merciless ridicule of my 2 younger sisters. The ritual began with the painstaking selection of kindling and the studied arranging of rocks for the fire pit. Then, at a moment when the air was still, I would ease a thumb-struck wooden match into the nest of dry leaves, nurture the frail glow breath by breath, twig by twig and stick by stick … until the flames finally danced hot. Only then would I step back and bestow on my family the gift of fire.

The memory of campfires came back to me last week at MediClick's first Strategic Partners Forum, an extraordinary gathering of innovators who are leading by example a mission to transform the healthcare supply chain. I watched as the group, initially tentative and polite, progressed into a candid and spirited exchange, demonstrating keen insight into the problems of the healthcare industry and accepting a shared recognition of their status as role models for change.

It is my experience that profound change often begins as a single spark, but it is fueled to critical mass by the unique power of peer-to-peer interaction. By collaboration.

This is true in many of history's most acclaimed developments. Rosa Parks' refusal to give up her bus seat is my own favorite. In healthcare, Scottish biologist Alexander Fleming's 1928 accidental discovery of the penicillin fungus was actually pretty inauspicious, until others revisited and expanded upon his work some time later. Ultimately, the deciphering of penicillin's chemical composition and refinement of its therapeutic action led to the age of antibiotics and launched an entire pharmaceutical industry. Experimentation, implementation, refinement, replication – all are fostered and accelerated by collaboration.

This is what I saw happening at the Strategic Partner Forum. Some of the members have implemented self-contracting and self-distribution models. Others are currently focused on bringing their market share clout to bear on preference items while relying on national GPO contracts for commodities. All are determined to improve their ability to prioritize opportunities, optimize pricing, measure savings, measure vendor performance, and calculate fees. All are interested in the impact of GS1 and government reforms. All have the courage and the vision and the commitment to lead the way.

MediClick may have supplied the spark, but the Leadership Forum quickly took on a character and durability of its own. I am confident that this forum – this Forum of Innovators – will become the recognized industry focal point for taking back control of the healthcare supply chain. Stay tuned for more.