Nick Toscano dropped by the MediClick offices the other week to discuss the future of the healthcare supply chain. Much of that conversation circled around how we create and sustain cultures of savings in our hospitals and health systems.
Nick has walked the walk. He helped facilitate the 1999 merger of the largest health systems in Southern New Jersey and became vice president for strategic support services for the combined entity. Nick instituted a model (some might say a philosophy) that has come to be known as the "Clinically Integrated Supply Chain." This collaborative model is now considered an industry best practice for high performance and cost efficiency.
Today, Nick works as a strategic advisor to the C-suite and senior supply chain officers of some of the largest IDNs in the country, helping them implement key tenets of the Clinically Integrated Supply Chain. This week and next, Nick shares with us his thoughts on cultures of savings.
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This economy has provided a real wake-up call to our providers' C-suite. Endowment portfolios have taken a major hit, and charitable contributions are down dramatically. This means that, for the first time in many years, our hospitals must cover their costs with revenue generated from patient services. We're forced to put our operating costs under a microscope and scrutinize our expenses for every opportunity to reduce costs.
We must bring non-labor expenses into focus. These supplies and purchased services can represent up to 45 percent of all hospital operating costs, and they're inflating faster than four times the rate of our labor expenses.
That's not a sustainable trend. But if we allow it to become a catalyst for elevating our approach to the healthcare supply chain, it can become a real opportunity to establish the cultures of savings that MediClick talks about.
Cultures of savings must start at the top. When I led an IDN's shared service organization, the role was one of a single executive-level position that had full responsibility for all non-labor expenses. You might call it the Chief Resource Officer (CRO). For CEOs and CFOs, it meant one source of accountability when non-labor costs are challenged. But more importantly, it forces an integrated approach to managing your cost structure, supplier agreements, and optimization opportunities. It provides a leader who is part of the C-suite and in whom the senior executives have vested their trust and authority to make the changes needed to move the organization toward a Clinically Integrated Supply Chain.
What do I mean by Clinically Integrated Supply Chain? Generally speaking, it's a model that is strategically and operationally aligned with the clinical and business goals of the IDN. It makes the supply chain a partner in the clinical process; not simply a series of transactional processes. It means reducing costs through standardizing and rationalizing expensive preference items and services but avoiding the rules and bureaucracy that can create antagonism between physicians and the supply chain staff. These goals might sound divergent (can you really reduce costs and keep physicians happy?), but I can tell you they're not contradictory. It just takes passionate leaders, a complete commitment to enhancing the patient experience, full multi-disciplinary teamwork and hard work from all to get there.
At our IDN, for example, we created Clinical Resource Teams. They were led by clinicians that reported into the supply chain organization. It was their full time job to find enough savings each year to justify the costs of funding the group five times over. Not cost avoidance. They had to produce actual budget reductions that our CFO could document. It was a lofty goal, but one that has been working for years now. Why?
First, we put the Clinical Resource team members into the departments and service lines to work side-by-side with the clinicians. This allowed them to identify savings opportunities, recognize how any initiative might affect the ultimate goal of maintaining a high level of patient care, and develop relationships with the clinicians upon whom they would later ask for support in additional initiatives.
Second, during clinical integration projects, we assigned the Clinical Resource team members to physicians to engage them on both cost and clinical outcomes. I recognized early in my supply chain career that doctors don't particularly enjoy hearing from materials managers and hospital finance staff about what products they should consider using in their procedures. Properly trained clinicians, however, have credibility when approaching physicians with evidence-based data about which items can produce the right outcomes at a more effective cost to the hospital.
Third, we made sure the clinicians participated in the benefits of their work. For each project, we earmarked a portion of the savings to go back to the departments or services lines in the form of capital for equipment improvements or funding for continuing education for the staff. This helped align the physicians' and clinicians' interests with the success of the projects.
Establishing a Clinically Integrated Supply Chain is no easy task. To succeed at it, an organization must make a top-to-bottom commitment. In my recent work with IDN executives, I'm seeing that this economic environment can be a catalyst to induce our hospitals to get more innovative about controlling non-labor costs. It just might be the right opportunity to focus on creating cultures of savings.
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