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.