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.

Chuck Mauro at UNC Hospitals in Chapel Hill, NC: Redefining the Reputation of Materials Management

Chuck Mauro first joined the hospital business as warehousing supervisor in a hospital in New Brunswick, NJ, moving from industry to the healthcare field primarily because he felt there was something noble about working for a hospital.

He kept that noble feeling as he worked his way through supply chain roles in three different hospitals in New Jersey and Massachusetts before taking the director of materials management position at UNC Hospitals in Chapel Hill, NC, in 1999.

Having been without leadership for two years, much of the service the materials management department provided to the hospital developed a reputation for being unreliable and inconsistent. Additionally, for clinical staff, materials managers were seen as single-minded cost cutters who plowed through their initiatives without regard to clinicians or patients. There was a clear need for changing the hospital's mindset on the supply chain and developing more effective service delivery programs.

We sat down with Chuck to learn how he dealt with these issues at UNCH, what were some strategies employed to help develop a more clinically integrated supply chain, and how the relationship between physicians and materials managers improved.

MediClick: How are you working with the UNCH patient care providers to achieve your supply chain goals?

Chuck Mauro: It's very much a partnership between the clinicians and supply chain. It wasn't always so. That was quite frankly due, at least in part, to mistakes made on our side. People in my position would just try to plow ahead thinking we could save a couple of bucks without necessarily considering the clinical end.

So when I joined UNC, I saw the need to demonstrate to clinicians the value in procuring and utilizing products more cost effectively. One of the first big things we did was to convert our contract for infusion pumps. We were with a particular manufacturer for 20 years, and nursing was very comfortable with the product. When we looked at the market we felt that there was significant opportunity to upgrade our technology and reduce our overall spend for this product group. We therefore went out to bid, and we ended up going with another manufacturer. I'm really glad to say that that award has proven to be very valuable to the hospital both financially and clinically over the past nine years or so.

But the equipment conversion was not without a number of difficulties. The nursing staff was very comfortable with the existing product. Many nurses found fault with the new equipment and resisted the conversion. One approach we took with them was "I want you to work with me on this, and I need you to play a key role in helping me move through and improve this process." Some of them wouldn't help me. But enough did.

No product conversion, regardless of the perceived superiority of the new product, will be successful without clinical staff buy-in. With the help of clinicians and administrators, we demonstrated that saving isn't necessarily painful, and something new and different isn't always worse than what you've got.

MediClick: How is it that you might take a savings initiative on a Physician Preference Item (PPI) from start to finish and how would you engage the physicians along the way?

Chuck: We start off by comparing what we're paying for a PPI product group against what other hospitals are paying in general and getting round figures that are not hospital specific. This gives us an idea of fair market price based on our volume, which isn't always the lowest price we see nationally. This research tells us if our pricing is good or if it needs to be 5 to 8 percent better. We then set a CAP price for each of the various component parts of that product group. In other words, that CAP price is the most we'll pay for each product in that group.

We don't release the CAP pricing to the manufacturers until we have buy-in from the physicians. We want the docs involved to understand the process we're employing and that we are not restricting their ability to select a specific manufacturer, as long as that manufacturer agrees to abide by the CAP.

We then send the manufacturers the CAP letter, which when executed by them, becomes our contract. For the most part, this process plays itself out without too much difficulty and is effective in driving down our costs. We did have one situation with total joints where we sent the CAP letter to four manufacturers and three of the four we sent it to refused to accept the CAP price. The fourth, which didn't have business here, agreed to it.

Our chief of orthopedics, who supported our plan, was not about to compromise. He told his staff that they'd be trained on the fourth manufacturer if their existing manufacturer didn't agree to the CAP. It was because of his belief and dedication to the process that the three holdouts did finally sign off on the CAP contract.

I always enjoy telling the story about one of the manufacturers who was particularly adamant that UNCH would never get the CAP price we were asking for. When we told them "Without your signature, your product will be removed from the shelf by midnight on Friday," they agreed to sign. Once he did so, I recall him saying to me "I hope that there are no hard feelings." I said "Well I never have hard feelings, but I have to tell you I'm a little surprised. You told me that there is no way we'd ever get this pricing." He just chuckled and he said "Well, you're UNC we can't afford to lose you." To me, that clearly demonstrates that good and amazing things can happen when clinicians and materials managers work together.

He didn't think we were in a strong enough position to enforce the CAP. But when he found out that the head of orthopedics was unrelenting in his support for the program, the landscape changed for him.

MediClick: What's the tenor of the relationship between the materials department and the clinicians and physicians today?

Chuck: When I first started in this business it wasn't unusual for a doctor or a nurse to insist that they needed to use one and only one specific product. Over the years that mentality has changed because clinicians now understand that if we can select a product that is clinically acceptable from a field of competitors then we can contribute to a healthy bottom line. As an old boss of mine used to say, "no margin, no mission." If we can't reduce expenses on an on-going basis, then that will adversely affect their ability to care for their patients. There's much more of a "let's work together attitude" now.

The key to any effective partnership is understanding that problems will occur and believing that you will be able to work through and resolve them. Once our internal customers saw that we held ourselves accountable for the level of service we were providing and that we were committed to process improvements, a greater willingness to work with us on cost reduction projects surfaced. Just as there is no such thing as the perfect contract, there is no such thing as a mistake-free service. Another boss I once had – and I've been fortunate to have had many truly excellent supervisors who acted as teachers and mentors to me – said, if you don't make any mistakes, you're not doing any work. We therefore always strive to remain transparent in our activities and foster a spirit of openness and cooperation between us, the financial end of health care, and the people who treat and care for the patient.

Another change that makes the job easier today than it was 15 or 20 years ago is the creation of the clinical materials analyst position – a position within materials management staffed by a registered nurse who acts as a liaison between the business side and the clinical population. She speaks their language. She knows about patient care, but she's also an advocate for good business practice.

Before this position, I had to beg a nurse manager to give me a few minutes of her time; what I wanted was usually very low on her list because she had tons of other things to do. Now the clinical materials analyst is able to work directly with the staff and really move on things like product trials and contract conversions.

MediClick: What are your challenges for UNCH in 2010?

Chuck: It gets a little tougher every year to find savings and to make money; we spend more on indigent care every year. We're up to about $300 million a year just on uncompensated care. That figure is likely to keep growing too. All of the revenue and expense trends are unfavorable to us.

So if we're going to remain a viable institution with a healthy bottom line we have to be more creative, we have to work harder, we have to really push the envelope in order to remain healthy.

That's why when I saw C&A [MediClick for Contracts & Analysis], I knew I was really going need it because, although I'm doing ok now, I'm not always going to be able to rely on the tools that I have now to take me where I need to go. I need to get out of my Volkswagen and get into a starship, and I think C&A is that starship for us.

With the help of C&A, we as the buyers finally have our hands on tools and information that are as sophisticated as the sellers. I've always felt that the vendors have had a leg up on us because they were able to spit out information much more easily than we ever could. That information helped them with their negotiating strategy because they knew information that we didn't.

With the implementation of MediClick for Contracts & Analysis, I often feel like I'm creating a new religion. I'm not normally taken to hyperbole, but I truly believe that the C&A tool opens up a whole new dimension on how we can do our business. It gives us not just information we've never had before, but it adjusts the way that we work and negotiate significantly. It changes our whole buying strategy and the contract landscape to the point where we see things with new eyes now. It's like we have these supercharged glasses and our whole vision has been substantially improved.

For example, prior to implementing C&A, we thought our master files had been pretty clean. Boy did we find out otherwise. C&A showed us that there were all kinds of funky stuff going on in there. In my mind that was all good. Everything we discovered that we thought was not a problem, all of the sudden we're finding that it needs to be fixed. It was extremely valuable to be able to – during the implementation –uncover things that we really didn't even know were going on with our own databases.

Take Control: One Phrase. Two Meanings

If you know much about MediClick, you know that our company's slogan, Take Control, effectively represents what our products do for our customers. For me, on a personal level, Take Control also has another meaning.

Twelve years ago, at the age of 41, a routine physical revealed that I was diabetic. The diagnosis was, and still is, pretty simple: if your fasting blood glucose level is over 140, you're diabetic. In those days any adult (a category that I qualified for solely by virtue of my age) diagnosed with diabetes was automatically categorized as a Type II diabetic. Only later was my diagnosis correctly changed to Type I.

My experience with taking control of diabetes, while personal, does have a strong parallel with our use of the slogan in MediClick's software solutions. The parallel brings up some thought provoking points regarding healthcare supply management.

Before I go there, though, I hope you will indulge me in a brief story of my diabetes odyssey, at least the first leg of the trip. I also have found that many folks aren't very familiar with diabetes, even though it has become an epidemic in the US, and virtually everyone knows someone who has it. So I threw in a little education as well, which I hope you find interesting.

Unlike Type II, Type I diabetes is an auto-immune disease, which means that something, likely a genetic anomaly, mistakenly tells your immune system to kill off insulin-producing beta cells in the pancreas. Insulin, when secreted into the bloodstream, enables the body's cells to absorb glucose – the most basic form of the food we eat. Yes, think of glucose as "cell food." Without cell food your body begins to starve. Not good.

Early symptoms, sometimes realized only in retrospect, include weight loss (duh), energy loss, and frequent urination. Without insulin the glucose stays in your bloodstream until filtered out by the kidneys and sent downstream, so to speak.

Over time, the high levels of glucose in your blood cause the BIG problems, including blindness, kidney failure, and heart disease. When I learned I had diabetes, I felt like a "why me" victim. I didn't go into denial, but I certainly did not face up to my new reality and take control.

Even after tests indicated that my body was producing very little insulin, I tried to control my new illness by taking oral medications and lowering my carbohydrate intake. While this regimen often works for the Type II diabetic, it is completely ineffective for Type I. For Type I diabetes there is one treatment and only one: insulin injections. Even so, I persisted in avoiding or delaying the dreaded shots. I didn't take control.

Ultimately, I realized I needed to make a change. Although initially traumatic, it really only took a week or so of 6-8 finger pricks and 4-5 insulin shots per day to become fairly routine. And I felt better almost immediately, so I was rewarded for taking control. Good old immediate gratification. Today, healthy and happy at 54, I feel very fortunate that I made the decision to confront my disease and control it, rather than being a victim.

Seeing my diabetes saga as a supply chain allegory isn't so farfetched. Hospitals are facing financial crisis, in part due to causes beyond their control and in many cases due to forces unforeseen. It's unfortunate, even unfair; but the crisis has to be faced, analyzed, managed, and conquered.

Forgive the redundancy from previous blogs, but the healthcare supply chain is a hospital's second largest operational expense; the amount of inefficiency (more kindly put as "the opportunity for savings") is massive; attacking these inefficiencies, i.e. taking control, will put millions of dollars to the bottom line. No revenue strategy can have as profound an effect on profitability and do it so quickly.

After resolving to inject insulin, in two weeks my bench press went up 30% and I gained 15 pounds of good weight; I felt great! Not so different from the endorphins you'll enjoy when you help change your organization's bottom line from red to black.

I believe that taking control of your supply chain boils down to two things. The first is to establish and ensure continual pricing accuracy. The second, joined at the hip with the first, is to employ the processes and disciplines necessary to achieve pricing optimization.

Pricing accuracy establishes your organization as the consistent and reliable source of truth: you have the most current contract price as your item file price, and in turn as your purchase order price. Discrepancies are, by definition, errors of the other party.

Pricing optimization means that you have taken full advantage of every asset available to you – your GPO membership, your spend volumes, your market share commitments, your product standardization projects, your commitment to transparency / empathy with your suppliers, etc., to secure the very best pricing on the products you buy.

Simple to say, tough to do. But I strongly believe – and I have seen compelling evidence – that achieving pricing accuracy and pricing optimization is possible. If you determine to take control, if you allocate and, if necessary, supplement your people resources, and if you have the right software tools at your fingertips, you will do it. The good news is that the opportunities to save are virtually inexhaustible. The other good news is that the savings start quickly and will be augmented with each new step.

A colleague and former vice president of operations at a large IDN recently told me about jump starting his accuracy-optimization mission. He chose for his team a specific target for these new processes, biomedical equipment services, which had an annual spend of $8.4 million. To make a fascinating story very short, within 3 months, the new "take control" disciplines resulted in the reduction of overall annual spend by $1.2 million! Needless to say, the team got fired up, and the CFO and CEO were ardent fans. Your first victory doesn't have to be this dramatic to get the same results. And as recounted by my friend, the first victory leads to a succession of others.

Like beginning a lifelong regimen of insulin shots, taking control of your supply chain pricing is not easy. But it is doable. And increasingly, it is necessary.

Final word, don't forget that the rewards are great, not least among them a profound sense of personal achievement.

Bob Barbier at University Hospital in Louisville, Ky.: Advancing Medical Technology While Managing Costs

Working at an academic teaching hospital, Bob Barbier is dedicated to the facility's mission of helping advance the practice of medicine. An important job of the supply chain, he believes, is supporting that mission by making sure clinicians have the tools and equipment they need to develop and test new medical technologies.

Despite his passion for high-tech healthcare, Bob doesn't work on the clinical side of medicine; he's in charge of making sure the hospital can pay the bills for it. As Senior Vice President and CFO at University Hospital, part of University of Louisville Health Care in Louisville, Ky., it's Bob's job to keep the bottom line in check while making sure the hospital keeps up with the best medical advancements.

"There is some remarkable technology being used in medicine today," Bob explains. "It's the kind of industry this country needs to sustain. Our ability to do research and development needs to continue in order to improve the practice of medicine."

With dwindling hospital margins and an increasing indigent patient population, Bob admits it's a challenge. But he is determined to win that battle. We sat down with him to find out how he balances rising supply chain costs with those of the ever changing medical advances.

MediClick: How do you balance your mission as an academic teaching hospital with the need to control supply costs?

Bob Barbier: Technology will continue to change. In an academic environment you at least get to see some of those changes as they happen. Our ability to do research and development needs to continue because you don't want to be lagging in the market.

We take medical technology for granted now. Think back to medicine 20-30 years ago; we didn't even have MRI back then. And medicine will be much different in another 20 years.

The process of medicine will advance, too. Today, surgeons can perform hip replacements without cutting through the muscle. Through a laparoscopic approach, physicians make a tiny incision and work their way to the bone without damaging muscle. You can walk a whole lot faster because your muscles aren't being torn.

At University Hospital, we want our physicians to be aware of these new things. Some of our physicians actually work with companies around the world to develop new technologies and supplies. So they're going to use a bit of new stuff along the way, which kind of moves the whole practice forward. We recognize we're going to have to pay for some of that.

You have to be careful not to challenge the physicians on everything. Probably 89% of what they do is perfectly fine. Those are the times when we simply try to negotiate the best price for their supplies.

Other times, we explore the new technology. That's when we have to get the conversations going with physicians. We recognize there is a high level of sensitivity around the whole quality topic. So we need to ask a number of questions. What is the recovery period? How does the patient deal with this type of implant or process? Is it a week in the hospital or three days? What is the infection rate? Is there a recall?

MediClick: As CFO, what are some of the challenges you see University Hospital face as it provides quality care to its patients while you maintain the margins?

Bob: I think folks want what a good delivery system for the science that healthcare can provide. You want your family to have the best healthcare experience with a fast recovery and no infections.

But healthcare is more transactional rather than a cohesive system. If you're feeling bad you go see a doctor. He sends you to a specialist, who sends you to get an MRI and blood drawn. It's very transactional. If you're sick or injured, you come to the hospital; but if you're feeling fine, you don't think about us.

This thing people call a "system" is actually an amazing array of technology, education, science, art form, experience, preference, bias, competence, with an overlay of an administrative nightmare.

Our job is to provide quality healthcare that makes people healthy and productive. However, if we're not treating sick people, we're not bringing in any money. So it's a double-edged sword.

Plus we have a steady 30% indigent care patient population. Last year, that number rose slightly. An outside service reviews our uninsured patients and works to get them on Medicaid or disability. They have moved about 5% of that 30% to a government-based system, bringing in a little more than $20 million in collections on accounts.

MediClick: What role does the supply chain play in University Hospital?

Bob: At the University of Louisville, we created an executive level position for the supply chain because utilizing supplies is a big cost driver. Physically moving all of the supplies is difficult. Simply being able to get the appropriate pharmaceuticals in and distributed is a big trick. You have to order it, get it here and deploy it to nine floors of clinical space. That's in addition to all of the other non-clinical supplies we have throughout the house.

We've already moved to an inpatient robot in the pharmacy to perform unit dose distribution. A pneumatic tube system picks up the drugs and drops them off where they are needed. We also went to a low unit of measure format here recently so we could shut down our warehouse. Now supplies come in and move directly to the floors.

To help facilitate communication between buyers and payers, we've combined our purchasing and accounts payable groups under one executive. Have you ever ordered something on one side of the building and paid for it on the other? Getting the two sides to communicate is a huge task.

Together, buyers and AP clerks have created efficiencies in invoice discrepancies, which has saved us a great deal of money. We don't want to pay the wrong price and have to go find it later.

MediClick: Is there anything University Hospital has done in the past 18 months to reduce costs or to tighten the belt in response to the economy?

Bob: We're an incredibly thin organization with a lean staff. Not only do we have the hospital with the emergency room, but we also have an outpatient cancer center, a world-renown radiation oncology department and an accredited stroke center.

In a new building on the University of Louisville campus, we installed an outpatient surgery area with a full array of radiology, pharmacy and lab in support of 8-9 floors of physician practices. Unfortunately the economy flipped when we had this big capital project and cash going to debt services. Demand fell off.

At that time the hospital execs went to the management to gather savings ideas. We stopped non-essential travel, eliminated unnecessary office expenses, cut back in some of our computer replacements. We adjusted our contracts where we could.

The hospital successfully created a nurse staffing model that eliminated the expense of our outside nurse staffing agency. We want to have nurses at the bedsides, we just don't want to have too many.

We picked targets, looked at them with the docs and did what was best for the care of the patients. We're not quite at a clinical utilization model where we can use statistical analysis to determine patient outcomes with each product, but we're getting there.

The bottom line is we want to make sure we're advancing the practice of medicine in the right way. So we're hoping to implement some type of medical supply committee to vet some of these new wonderful ideas. That way, we have enough useful information to work with the doctors to cut costs.

The Night I Became an “Expert” Negotiator While Stranded at an Airport

My frequent travel means I've seen my share of airport terminals – and airport conflicts.

Nothing compares, however, to my experience at a large Midwestern airport on my way home from a client visit last month. Snow was falling as a winter storm pelted half the country. Air traffic was grounded from the Midwest to the Northeast. Flights were delayed and passengers were stranded.

When it became clear I would be in that airport for the duration of the night, I molded myself into the permanent slouch of a vinyl chair, relaxed by repeating my travel mantra ("serenity now"), and plopped open my latest reading, Getting to Yes: Negotiating an Agreement Without Giving In.

As frustrated passengers lined up to barrage the lone airline agent with angry questions, I began applying the book's principles to each conversation. One woman in particular was a great subject for this musing. As her saga unfolded, it became – at least to me – a powerful allegory for our interactions with supply chain vendors.

Here's what happened.

Still bundled from the outside chill the young woman's gloved hands gripped the gate counter, vehemently demanding that the airline agent find a way to get her home. Immediately! As her threats mounted, the agent lapsed into party-line mode, calmly citing the weather conditions and safety issues that were "out of his control." His matter-of-fact, not-my-fault attitude only fueled her agitation. She wanted attention! She wanted solutions! She wanted it now!

While I realized a sort of negotiation was happening, the rising tension obscured what it was they were bargaining over. The woman was angry, but what specifically did she want the agent to do? The agent didn't want an unhappy flyer, but how could he satisfy an impossible request?

Clearly, both parties needed to step back and look at the conflict from another perspective.

My book provides some help with this. Getting to Yes authors Roger Fisher, director of the Harvard Negotiating Project, and William Ury, co-founder of Harvard's Program on Negotiating, encourage readers to use techniques where neither party loses and the relationship comes out intact. This should be familiar ground to supply chain folks. Look at the underlying interests in a negotiation, the authors suggest. Ask yourself what motivates you to take your position and consider what motivates the other party to take his.

As the economic downturn persisted this past year, the supply chain was under particularly high pressure to help hospitals reduce costs. The situation could have produced a lot of supplier arm twisting and other aggressive tactics as materials managers tried squeezing a penny of savings from a nickel of spend. But, not surprisingly, I saw a different approach. One that works.

Hospital supply chain managers invited their suppliers to the table and engaged them in very candid but civil discussions about their common interest: namely, making sure the hospital made enough margin to continue conducting procedures in which physicians used the supplier's devices. In many cases, hospital contract negotiators shared detailed financial data with the vendor reps. What were the reimbursements? How did that compare to the fully burdened costs? And when the margin was too low (or the procedure was losing money), what could be done about it?

I was heartened to hear that many suppliers were responsive to this approach. It makes sense, i.e. they should be responsive! A supplier's direct relationship with a physician can only take them so far. If the procedure loses money for the hospital – and if the supplier's product plays a primary role in that – something has to give. Once acknowledged and understood… we have common ground! And from this common ground can come a win-win negotiation. The hospital can continue conducting the procedures (but at a lower supply cost), and the supplier gets to keep the business (albeit at a lower price point).

Back at the airport, a similar resolution seemed to be unfolding. When the angry passenger finally took a breath, she began to realize she needed to compose herself before the agent could help her. At the same time, the agent knew other frustrated passengers were witnessing this scene spiraling out of control. They both had a vested interest in calming down the confrontation. In finding common ground.

When the would-be passenger shed her overcoat and began to relax, she was able to get to the real reason for her frustration. After a grueling two-day business trip, she needed to get home to her 11-month-old baby boy. It was the first time she'd been away from him.

The gate agent now had something to work with! Wanting to make the customer happy – only limited by his inability to magically put airplanes back in the air – he pulled up a weather report on his computer that showed the snow stopping, both at the departure and arrival airports, within the next two hours. He also gave the passenger a pass to the airline's luxury lounge where she could privately call the baby's caregiver to check on her son and make arrangements for the night.

Simply by offering comfort and reassurance (see "empathy"), the agent eased the frustrated passenger's anxiety. After confirming her baby was ok and arranging for his care overnight, she relaxed until the plane boarded. After witnessing what the agent did for this distraught mom, the other passengers stopped seeing him as the adversary and started treating him as a fellow victim of the wintry weather. My next few hours in the faux leather chair were very peaceful.

Conclusion: when you keep a cool and level head, and you make the effort to understand the underlying interests that motivate each party's position, a fair and amicable agreement is often within reach.

I bet you have similar stories. If so, please share.

Charlie Miceli at Fletcher Allen: Meaningful Informatics Leading the Way

Having worked for and with Airborne Rangers, an elite light infantry special operations force of the U.S. Army, Charlie Miceli learned the importance of performing recon before every mission. The motto "Rangers lead the way" became his battle cry.

That credo still guides him today as Vice President of Supply Chain for Fletcher Allen Health Care (FAHC) in Burlington, Vt.

Proactive by nature, Charlie is not one to wait for a savings mandate from the CEO or CFO before he leaps into action. Instead, he and his team build the supply chain goals and objectives for themselves upon four key pillars: customer service, cost management, enhancing business processes and meaningful informatics.

"We are constantly using meaningful informatics tools to monitor spending trends and to establish target opportunities for cost management. We're telling people what we're doing before they can bring it up to us."

We talked to Charlie recently about how this aggressive mentality has served him in the supply chain world at FAHC.

MediClick: As someone who always wants to set the goals rather than have them be set for you, what do you feel is the appropriate role of the supply chain at Fletcher Allen?

Charlie Miceli: Supply chain is resource management more than anything else. Rather than managing just supplies, we provide support in managing the entire spend—whether it's a bandage, capital equipment or business processes.

Fletcher Allen had this infrastructure in place before I got here. As a team we are just taking a good system and making it a great system. The executive support helps because our leaders have given the supply chain the ability to work as a team with departments to find opportunities for resource savings.

That means we need to keep our team multi-dimensional. So we're developing our next tier of leaders within our team. Our director of purchasing, contracting and value analysis is an example. She's a newbie in the supply chain business, but she's already been recognized by ERCI.org for using meaningful informatics to eliminate a pricing error that reduced our costs by over $177,000.

MediClick: What tools do you have that ensure that your supply chain team is being as effective as possible?

Charlie: The key to supply chain management is meaningful informatics: using the right tools to look at supply chain spending so we can identify clear savings opportunities.

I believe you should always have analytics tools that provide meaningful informatics. That's why we have as many tools working in synergy as we can. Even if the tools are sometimes redundant, something always differentiates one from another.

Using MediClick, for example, we have expanded the general ledger in the med-surg world from about seven or eight codes to about 19 or 20 using an UNSPSC-type mythology. The purpose is to get more stratified within the groups.

We used to look at our OR spend, which is almost $3 million a month, and see it broken up among only seven codes—two of them were over a million dollars each with a large number of transactions in them. There was no significance except that it's a considerable amount of money.

Now, we've become more granular, expanding to 19 codes. So we have better detail to start peeling apart layers using MediClick to differentiate what was spent on meshes, sutures, platforms and all types of stuff. So we can see exactly where the high supply chain expenses are.

When we put in MediClick, we ran it as a transactional system, which it does very well. But it's also very intuitive as a strategic tool. I set the strategy with it and then teach the supply chain staff how to break out the data and analyze it—from acquisition to getting money out the door.

MediClick: In the Culture of Savings Series, we're always interested in how supply chain executives leverage the power of the people to find savings opportunities. Have you found any interesting approaches to do this?

Charlie: Every member of the hospital staff can make a difference to the bottom line. I saw this first hand when I worked at Newton-Wellesly Hospital in Newton, Mass. We had a cost management/margin enhancement program that provided recognition bonuses for staff who provided effective cost-saving ideas.

Some members of our front-line staff who worked in linens were on a team that recommended and implemented the in-sourcing of our linen cart makeup. We examined their suggestion, implemented it and reduced our costs by more than $100,000 per year. These team members each received a one thousand dollar check right before Christmas as a reward for their efforts.

When we asked for their help, we let all ideas come in. You have to move fast and grab onto the great opportunities, but you also have to be able to know when to set aside the "parking lot" ideas that may be useful in the future.

That same philosophy holds true here at FAHC. We go out and engage folks as members of our team. We have active value analysis committees that cover the major supply expense areas of the hospital. Our mission is very collaborative. That's the kind of culture we have here.

MediClick: Is it an important part of your strategy to build relationships outside of the hospital staff?

Charlie: We maintain a strong relationship with our distributor because we do a large chunk of business with him. We try to be a good customer who tries to help him meet his goals, too. For example, our distributor has deliveries for us every day. We have given him the option to queue our orders so he can send less than five trucks up here per week. This action gives our supplier an opportunity to reduce costs; that has become as valuable as the transactional nature of the relationship.

If we are engaging a supplier to lower his unit costs, and we are not doing anything to help reduce his operating costs, then that's not fair. But if we can help by changing our operations to remove waste, redundancy in business processes, etc., without increasing our expense, that's reasonable.

We present an advocacy model where we strive to understand and accommodate the business requirements of our supplier so we can mutually take unnecessary costs out of the supply chain like rush deliveries, use of EDI transactions, managing pay terms, quarterly reviews, etc.

As we progress in this model, our goals are to use meaningful informatics and advocacy to maintain aggressive stewardship of our resources and ultimately reduce costs in our supply chain.

MediClick: Thanks Charlie!

Tony Johnson at Novant Health: Everyone Has a Seat at the Table

As a U.S. Army officer specializing in health care logistics for 20 years, Tony Johnson's discipline kept the military supply chain moving in health clinics, combat units and military hospitals in Europe, the United States and Africa.

Tony's military-style command catapulted his career into supply chain roles in hospitals stateside. He quickly learned that the authoritative approach to materials management he used in the military was less effective in the traditional hospital setting.

But he's ok with that! In fact, he's adapted quite well to Novant Health System's collaborative philosophy. As Senior Vice President and Chief Supply Officer of the 13-hospital, Winston-Salem-based health network, Tony builds relationships that keep supply chain costs in check.

He says this teamwork—backed by the skills of his strategic sourcing group—has netted $65 million in cost reductions in fewer than two years. Tony believes that success breeds success. The more his team reduces costs, the more folks from all over the health system want to join him.

This collaborative environment is due in part to a model of cooperation that Novant uses during strategic sourcing events. ARCIE, as the model is called, ensures that everyone—from executives to physicians—is involved in finding the best solutions to the supply chain issues.

We sat down with Tony to talk about Novant's collaborative culture and how the company's commitment to the supply chain impacts savings.

MediClick: What is the role of the supply chain at Novant?

Tony Johnson: The supply chain is integrated across the entire Novant system and is completely accountable for all supply-related costs. That means we're moving the supply chain into all areas of the hospital.

Some time ago, the operating rooms had a spike in costs that no one could explain. When the CFO asked me why, I told him that supply chain doesn't control what they do with supplies inside the OR. He said, "You're the chief supply chain officer, I don't care where the supplies are, you are accountable for them."

That was our catalyst to move into the operating rooms in our smaller facilities. Today, we're moving into the OR in our larger facilities, too. We want an end-to-end visibility of what happens in the operating room: who's buying what supplies and what supplies are actually stored there. Our next target is the cath labs.

In addition to being accountable for supplies, any contract for goods or services also comes through supply chain—from the C-suite on down. That enables us to receive standard supply chain pricing across all of Novant's facilities.

In fact, the supply chain group actually sourced a general contractor along with engineering for three new hospital projects. Then the Novant Strategic Sourcing Group purchased materials that the contractor would have traditionally purchased and marked-up. And for supplies that the contractor did need to purchase, we looked at the market price and collaborated with the contractor to get a better one.

MediClick: Supply chain managers are good at the process sides of change, but there's also an enormous cultural side of creating a vision, communicating it and building support. How do you go about creating a vision and building support for it at Novant?

Tony: Nothing beats having a great vision from the beginning. You've got to get the blueprint right, it has to be viable, and it has to be something that will make a change. Before I even joined Novant, the supply chain executive was senior in the organization. This vision enables us to easily communicate with anyone, from the highest levels of the executive team all the way down to the operating room.

Novant's chief medical officer is an advisor for strategic sourcing. He's the one who recommends the experts who we should be using as a resource. It's like having a direct connection with all the physicians all of the time.

Now certainly you have to earn their trust, but you can build those relationships and put that vision out there and sell it.

But it's not the supply chain person out there preaching; the company believes in it so the executives at the highest level are stepping forward and being the voice. It makes our jobs a lot easier.

MediClick: One of the main issues that divides supply chain managers and care providers is physician preference items. What is Novant's philosophy on physician preference items and how does that impact the way supply chain earns the trust of physicians?

Tony: Novant's culture, at its core, is very collaborative. So instead of strong-arming physicians, we build relationships with them. We also let them know that our goal is to not limit their product choice in any way. Instead, we go after what we think is an aggressive best in class price in the market.

Our process is very structured. First we analyze the market and learn everything we can about the supplier. Next the staff in our contracting department spends time with physicians to evaluate products, look at the market and explain costs differences.

Then these physicians sit at the table with us to negotiate contracts. Most vendors market their product directly to the physicians. By bringing physicians into the negotiations on our side of the table, we effectively eliminate the vendor's divide and conquer techniques.

We recently had a vendor who stuck with a premium price after we told them the price we were willing to pay. So we put the vendor on notice that we won't pay them a premium just for the privilege of using their product, which is no different than the others. We told them to conform to our pricing requirements or they have to go.

The vendor saw this as a bluff because they had already developed a good relationship with the physicians. They waited until two weeks before the deadline to give us the prices we wanted.

That was a huge contract. It was about $30 million worth of purchases. Initially, the physicians were uncomfortable with this type of negotiating. But since we brought them to the table, they trusted us. They looked at us as partners.

MediClick: With your organization being so collaborative, what is your process for strategic sourcing?

Tony: I have a fairly robust staff in the strategic sourcing group. We made the decision to invest in recruiting team members from various industries because that's where we found the skills we needed. So we've got folks from Ford Motor Company, Ingersoll Rand, General Electric. The typical profile of our sourcing manager is an MBA who is Six Sigma and Lean certified.

The result has been phenomenal. We started recruiting these professionals in 2006 and from August 2006 to the end of 2008, the cost reduction that group has brought us was $65 million, but they haven't done it alone.

We involve all of the stake holders in each sourcing event using what we call an ARCIE model [Approve, Recommend, Consult, Inform and Execute]. That means for every project, an executive approves it, a group recommends the solution, a group consults the stakeholders, a group informs the audience and a group executes the solution.

When we put our projections out there, folks know they can trust our numbers and they see what's happening on their balance sheet. Success breeds success. The more successful we are with our numbers, the more people want to work with us as part of the process.

MediClick: Cost reduction is a very controversial term in that it can be measured in a variety of different ways. What do you mean by cost reduction?

Tony: When our accountants validate savings for supplies, they consider cost savings as the old price, minus the new price and only when it is purchased. We do not book things in advance.

When we wrote a contract for orthopedics, the estimate was initially $5.5 million below the old contract. We didn't take $5.5 million savings; we go implant by implant, screw by screw as they're purchased and we add them up every month. We only take them for one contract cycle.

So if the contracts are written for three years, we count those reductions each month for three years. When those contracts run out we can't claim that anymore. We have to start over at that current price.

The reason we do this is because integrity in what we report is paramount. The CFO is looking for money that actually came out of the expense column.

I've been in this business a long time. Believe me, it's satisfying when you get a call from one of the hospital administrators and they say "Oh my gosh! I've been looking at my financials and the supply costs are really down."

MediClick: Thanks for the insights, Tony!

TXT Savvy Dad Applies Lessons from the Supply Chain

It may be poor form to strut my newfound text-savviness after so long a blog hiatus, but since leaving my youngest child at college in August (whose imminent departure was the reason for the hiatus in the first place), I have learned to thumb my way around a QWERTY keyboard pretty darned well.

Yes, this former texting phobe has learned that, like a Skinner rat pounding for food pellets, my persistent thumb jabs also are rewarded: my daughter "talks" to me! I live for the tinny buzz that signals a new message of abbreviated words and punctuation smiley faces.

How does this relate to the hospital supply chain? Give me some latitude, and I think you'll see where I'm going.

So my youngest daughter and I are texters. My oldest daughter, a bona fide Facebook fanatic, uses the browser function of her cell phone to provide status updates to all her cyber-friends. And then there's my wife…she actually believes cell phones are meant for talking. Strange concept, I know.

Here's my dirty confession: since we each got cell phones at different times, our accounts were with different vendors. Yep. A brief lapse in paternal oversight, and they had effectively divided and conquered the family cell phone dollars! Not only did we use all these different features (billed for individually I might add), but we let the cellular carriers charge us top rate because I didn't bother to pool our accounts to get some purchasing power.

A colleague showed me this article about a poor dad whose teenage daughter was apparently trying to set the world record for number of texts sent in a month. She beat 10,000! The phone bill was $4,756.25!

My family never did that kind of damage, but you can be sure it snapped me to attention. I decided to take control by borrowing a page from the value analysis play book.

I brought together all the various bills from the phone carriers to analyze the expense. As expected, it was a lot!

Next, I sat down with my family to determine what everyone really needed to stay in the communication loop. Unlimited texting was a given. But my oldest daughter took one for the team, offering to give up the phone-based internet access and foregoing the real-time Facebook updates. Finally, it was clear that – with my wife as the only "talker" – we didn't need quite as many minutes as our plans allowed.

I had buy-in from my "users", I had the information I needed to shop around for a better deal, and so I started calling the cellular carriers to find the best price.

Cutting to the chase, we ended up with a family plan (one consolidated bill) where we could share voice minutes and take advantage of unlimited text messaging. Best yet, I got rid of the variable components of my monthly bills (mainly overage charges), and we're saving over 30 percent a month!

What's the moral here? For one, sometimes what we learn at work can help in our personal finances, too. More importantly, even though I let multiple vendors take advantage of my inattention to this expense for a brief period of time, it's never too late to take control.

The same basic rules apply in the hospital supply chain. To take control you need to be able to aggregate your spend data, analyze exactly where your dollars are going, sit down with your users to understand their needs (separating "nice to haves" from true needs), identify where you can standardize, and take this new purchasing power to market to negotiate the best price possible.

It works for a family with out of control phone bills, and I see it work every day for hospitals that decide to take control of their supply expenses.

Postscript: Last week, my younger daughter told me that she wanted a webcam for her laptop so she could Skype with her friends. It doesn't end, does it?

Summer Break & Empty-Nester Syndrome

My wife and I will soon be joining the empty-nester's club. Though she has a few weeks to go, our youngest daughter has already begun the countdown, eager (too eager I might say) to join the ranks of college freshmen.

Before she heads off, we're taking a brief vacation for some quality family time. And since I'm doing my best to pry my daughters from Facebook for a couple weeks, I should probably refrain from blogging. So, we're going to take a brief summer hiatus from the Culture of Savings Project before getting right back into the stories next month.

But first, a few comments…

The Culture of Savings Project has generated a lot of interest, and we're condensing the accumulated practical wisdom into a whitepaper that we'll make available (free, of course) in September. But we're not done collecting stories yet. If you know of people with ideas to contribute, just reply to this email and make the suggestion.

Next, take a moment to read this interesting article in the latest issue of Materials Management in Health Care about ways supply chain executives are working their way into the hospital C-suite. Yes, they quote me a couple times in it, but I think you'll find it worth your while anyway.

If you're going to be in Tampa next week for AHRMM's Annual Conference, be sure to stop by booth #308 and visit with us. We'll be talking a lot about what your organization can do to strengthen its culture of savings.

Finally, we look forward to bringing you more stories from the interviews we've conducted over the past few weeks. Next month you'll hear from Tony Johnson, Senior VP and Chief Supply Chain Officer at Novant Health in Winston-Salem; Bob Barbier, CFO at University of Louisville Health Care in Kentucky; Charlie Miceli, VP of Supply Chain at Fletcher Allen Health Care in Burlington, VT; and more.

In the meantime, keep enjoying these humid, bug infested, but glorious dog days of summer.

Sincerely,

Mike

Kerry Gillespie at Ardent Health: It All Starts With Quality

MediClick met with Kerry Gillespie a few weeks ago at HFMA's ANI Conference in Seattle. Kerry is CFO at Ardent Health, a for-profit network with 11 acute care hospitals in Oklahoma and New Mexico.

For Ardent, establishing a culture of savings starts with a focus on quality. Ardent always talks with its clinicians about how to improve quality and patient outcomes before discussing cost reductions. Kerry says this shows his clinicians that Ardent shares their priorities, and it helps align the interests of the clinical staff with the teams responsible for driving costs out of the supply chain.

Kerry also argues that medical device suppliers need to hold themselves to a higher quality standard: If they're increasing prices 20, 30, 40 percent and justifying it with claims that their new technology is generating better patient outcomes, give us the proof. Show us how quality outcomes have improved at least as much as you've increased the costs to our hospitals.

Below, we talk with Kerry about how his organization fosters and benefits from a culture of savings.

MediClick: How do you involve your clinicians with Ardent's culture of savings activities?

Kerry Gillespie: We rarely talk with clinicians about cost without talking first about quality. That resonates with them. If all they hear is "cost, cost, cost", they think all you care about is process and money. But if they hear "quality and cost; quality and cost", then they know this is an organization that cares about me and cares about my obligations to the patient. They know we're focused on doing the right things.

Managing costs in a quality organization is easier than managing costs in an organization where your nurses and other clinical staff don't think you care about quality. It affects their willingness to participate in your savings initiatives.

There's a business purpose to quality, too. At Ardent, we know we have to stay healthy from a patient volume perspective. It's really easy to manage out your costs when your volumes are there, but it's tougher to manage costs out as volume drops. There's a circular nature to it: we believe that in driving quality up, we'll keep the volumes coming in. If the volume comes in, we're more confident we can manage the costs.

MediClick: Physician preference items present an ongoing struggle for hospitals trying to rein in costs. What is Ardent's approach to the challenge, and what results have you seen?

Kerry: We've come to realize that vendors try to sell us a lot of extraneous supplies, especially for total knees, total hips, and cardiac services. For example, they insist on selling us high-end catheters even when a lower cost product would produce the same quality outcomes.

These vendors are driving the cost factors through our physicians and taking control away from the hospitals. The medical device companies put their reps on aggressive commissions, so they go out and build these great relationships with the doctors. Before you know it, you're using stuff in your operating rooms you didn't have a clue were being used. It's a ton of money, and it's driving up the costs of your services.

So, we're working hard to address this.

We're part of the Acute Care Episode [ACE] Demonstration project through CMS which allows us to work with our physicians to reduce costs. It lets them participate in the up-side of cost reductions through gainsharing. We're able to substantially improve their payments on individual cases.

In terms of engaging physicians, if you can give them an appropriate economic incentive that includes an enhancement to the quality of care delivered, they will work with you every time. We're exploring this through the ACE Demonstration project. 

We also stay very focused on the top 20 most expensive med/surg items in all of our facilities. The individual hospital's CFO, materials manager and department heads have conversations with the physicians about utilization and alternative items they might use. Our regional materials managers are ultimately responsible for reducing costs on these items and they report monthly to the corporate office. It's part of our ongoing supply chain operational review.

This process has been very successful. In 2008 alone we took almost $4 million out of supply costs.

MediClick: Does Ardent blaze its own trail, or do you subscribe to a particular process improvement methodology?

Kerry: We recently introduced Lean to our revenue cycle management and realized we had significant waste in our upfront registration processes. We're going to take out 60 percent of the steps and 30 to 40 percent of the costs associated with registration.

We're beginning to bring Lean into our clinical departments, too. Right now we're building a value stream map of the emergency room of one of our biggest facilities, and we'll implement Lean processes there soon.

For people who say Lean works well in manufacturing but not in the patient care setting, I see that as an excuse. It's true that every patient is different, and we're not making simple widgets. But you can use the same principles: pull out the steps that don't add value, reduce the variability, etc. All those things make complete sense in any environment, not just manufacturing.

As I've mentioned, quality is a critical part of the equation. The interesting thing is that when you reduce cost and reduce variability, you improve quality. It's a Six-Sigma concept, and while we haven't implemented that specific methodology, we're borrowing heavily from its ideas. It's making us considerably better and improving our quality metrics.

MediClick: There's been a lot of talk lately about Harvard Business School Professor Clayton Christensen's The Innovator's Prescription. It has renewed dialogue about the true definition of "integrated delivery network." Tell us about Ardent's approach to providing integrated healthcare.

Kerry: I'm familiar with Dr. Christensen and his works, and we're trying to follow a true integration model.

For example, Ardent has a pretty good-sized health plan in our Albuquerque market with about 40 percent market share. We've developed the program so we can sell insurance to organizations at a significantly reduced cost. We pass that cost down to the hospitals, so they're motivated to reduce their costs in order to continue to maintain their budgets.

Albuquerque represents a single market inside of Ardent. It includes the hospitals, the health plan, and all the other services we provide. These are all rolled up into an overall market budget with an earnings target. A significant portion of compensation for the managers is tied to the success of the entire market as well as their individual business units. So it creates aligned incentives. They're motivated to make the health plan successful by containing costs, and they're also responsible that the hospitals keep costs in check.

We don't own physician practices, so the doctor side of it can be a challenge. But everything else is integrated very well.

MediClick: What challenges do you see for the future of the healthcare supply chain? 

Kerry: If the industry is really going to reform itself, the suppliers have to come along. They have to participate and sacrifice, too, or reforms are going to be real problematic and put too heavy a burden on the hospitals.

There's something wrong with a medical device company making a 40 percent gross margin on their business and we're doing well to be at seven percent. What's wrong with that picture?

Every time I turn around there's a new pacemaker or new defibrillator. I can't keep a lid on hips and knees because all these joints are always getting a new tweak and being marked up more each time. The device manufacturers are pushing them on the doctors saying they provide better care for their patients. So the doctors are bringing the new products into the hospitals, and we don't have a say in the matter.

The hospitals have to ask: do the innovations improve outcomes at the same rate their prices increase? I'm not seeing new devices producing 20, 30, 40 percent better outcomes. Then how can we justify their prices going up at that rate? We must look at effectiveness when addressing rising costs.

MediClick: Thanks for sharing, Kerry!