Tom Harkenrider is working with his team at The Children's Medical Center of Dayton to create a sustainable culture of savings. The Dayton area has seen its unemployment spike with the closing of major operating facilities for GM and its suppliers. While demand for Children's services hasn't decreased, the job losses mean many patients are making a permanent transition from private payor insurance to Medicaid. The hospital must absorb the loss in reimbursement.
As Director of Supply Chain Management, Tom has been given the task of eliminating more than $3 million from the hospital's supply budget. He shares with us his approach to the challenge of reducing expenses today and preparing his organization to remain lean for many years to come.
We hear Tom express a theme common among supply chain and finance leaders: they believe that supporting clinical care providers makes them part of a noble cause. Tom discusses how that guides his work to get clinical departments the supplies they need while he stays focused on getting the best price.
MediClick: What's your approach to working with clinical departments to reduce costs?
Tom Harkenrider: I'm married to a nurse, so I hear it 24-7. I know the importance of getting clinicians what they want. I see my role as understanding what they want and going to the market to get the best price we can for the items, leveraging whatever resources I can to get the best deal for the hospital.
In the military, I saw us say: this product is the best deal so this is what we're buying. But nobody would use it. The best deal in the world isn't worth much if your people refuse to use the product. And then people find ways around the system, so why not just be upfront?
We also go to the clinicians and say that we've found some market intelligence that shows they can replace an existing item. We think it's just as good, and we want you to try it. A lot of times they'll try it and find that it works. So we can save several thousand dollars here or there.
You don't strong arm, you try to build a vision with the people and stay focused on that vision. That's what I did with my buyers at St. Jude [Tom was with St. Jude Children's Research Hospital prior to joining Children's of Dayton], and that's what we're putting in place here at Children's.
You don't get everyone, and you don't get them all at once, but you eventually get most of them.
I also co-chair the clinical value analysis committee with a nurse from hospital operations. The committee gets together each month. Two days after our meeting, she meets with her unit clerks, the patient care givers – the people who are doing the real work – and she tells them about our plans.
They're the ones implementing the decisions we make, and they're also the ones that can see how it affects other things we're doing and give us ideas that might be useful as part of the initiative. They're on the floor seeing and hearing the hospital's clinical needs, and they've become a really good resource for the value analysis team.
Getting the information to the implementers quickly makes the process go so much faster.
MediClick: Are your clinicians responsive to being part of your culture of savings?
Tom: The clinicians here understand the financial issues affecting Children's. There's a lot of cooperation, so they're willing to look and listen to us more than they might be at other places. We've had luck with preference items where the physicians are willing to move to less expensive products.
Vendors have been more willing to participate in our savings initiatives, too. I tell every vendor that comes in here, hey, I need to save the money. And if I can't save the money than I won't be here tomorrow to do more business with you!
Our situation is not going to change. GM is gone, and so all the people that had company-provided healthcare benefits are now on Medicaid. It's not a short-term thing here.
We have to create a system that's going to endure.
MediClick: How has the economy affected Children's?
Tom: Last year my CFO came out and said our Medicaid patient population was up. We budgeted 44 percent and we were at 51 percent. Every 1 percent increase is a $1.2 million shortfall in our operating budget, so we were charged with taking nearly $10 million out of our expenses.
We had a reduction of force. We had to let 50 people go, and we're doing some things on the managed care side to help with the shortfall. But more than $3 million has to come out of supply chain costs. That's pretty big, especially considering that we don't have the kind of spend you would see in a large IDN.
Timing is everything. I'm not sure how we would have done it before putting in our current supply chain systems. But I've been able to spend the last few months getting all my contracts loaded and finding out that we weren't paying the correct contract price for a lot of purchases. So, I'm now using the tools to make sure we always buy at the right contract price.
Information is critical. Last year one of our departments signed a contract but didn't tell my group about it. Part of the deal was getting some of the items for free. Well, it turns out that the supplier was charging them for the free items and the department had no way of keeping track of that. We've since put in the MediClick Contracts & Analysis product which shows us anytime we're being charged a price different than our contract. By catching it in this specific case, we saved $140,000. We actually went and got our money back from the supplier.
Everybody was high-fiving and celebrating it. But finally my VP asked what we are doing to make sure it doesn't happen again. Well, because I have MediClick, I know I have the contract and know all the items on it. It's matched to my item master so anytime I get charged the wrong price, I know it. So I'm very confident, going forward, that we have a way to prevent this.
MediClick: You've only been at Children's about a year now. When coming into an organization, how do you get your new team behind you?
Tom: Focus. I learned this the hard way. My job has been about managing change, and to do that effectively you must build consensus. You have to paint a big picture of what you're trying to do, and that doesn't happen overnight. My message is to say, let's eat this foot-long sub-sandwich in little bites. Let's start with technology. Let's begin using EDI. Let's implement a stronger MMIS. Let's be sure we make good use of our contract portfolio.
You always have a carrot for them, but make sure they know there's a stick behind them, too.
MediClick: What lessons did you learn at St. Jude?
Tom: At St. Jude, we didn't have to worry much about money. The lesson I learned there was how to work with researchers who were awarded grant money and did not welcome much oversight of what they purchased. So it was critical to learn how to pick your battles. You needed to focus on what was truly important. I quickly learned to put my ego aside.
Having lots of money creates other problems. It can breed complacency. For example, when I got there in 2001, I managed a $1 million in-bound freight budget. Some of it was necessary (for example, the product was on dry ice, or it was radioactive, it had a half-life of 14 hours, etc.). But I used to stress to my buyers: if we can be more proactive, we can avoid a lot of these charges.
We ultimately got the freight bill below $800,000. I'll tell you, I'm not the smartest guy in the world, but I know how to work the system. Fred Smith was on our board at St. Jude's. He's the founder and CEO of FedEx, and so we got some really good FedEx rates. You've heard of programs like OptiFreight? We were doing that at St. Jude's in 2001. I was telling vendors that if they're charging me for freight, I'm going to reserve the right to determine how I'm going to pay it. And I paid it by using my FedEx account instead of their normal methods. We had great rates, so it reduced our costs quite a bit.
MediClick: I haven't heard you talk about methodologies. Do you subscribe to any of them?
Tom: I've dabbled in Lean a little bit. It looks really good in a text book. But it can get so academic because it tries to be the cure-all to everything.
To me, this is the perfect example of how Lean can work in a storehouse situation:
We looked at items that were on 80% of the orders to the nursing units. I asked why don't we put them together and put them in the front of the storehouse. Now someone can stand in a very small area and take 80% of the orders instead of walking all around the storehouse to collect items.
I don't subscribe to a single methodology. I take a more commonsense, pragmatic approach. Not everything in the world needs to be automated or have a label put on it. What we did in the storehouse was certainly Lean, but it was more about using commonsense.
MediClick: How is it you ended up at Children's Medical Center of Dayton?
Tom: I was a hospital administrator for 24 years in the Air Force. In my first supply chain job we were building a medical center at Wright-Patterson Air Force Base, and I managed all equipment requisitions. I liked it. You can see tangible outcomes for your work pretty quickly.
I was surprised to find that the skills I learned in the military applied very well to civilian healthcare. The only difference was this: no one worried about revenue at the Department of Defense. I can tell you in my first few months at St. Jude's Medical Center when they were talking about revenue I was wondering what I got into! So I was just quiet, did a lot of listening, and quickly came up to speed. Nobody ever knew the difference.
At St. Jude's, I discovered my passion was in pediatrics. Healthcare in itself is a very good mission, but pediatrics is just so noble. For me it's important to be part of something bigger than I am.
MediClick: Thanks Tom!
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