Nick Toscano – Considering Self Contracting? Some Advice
Nick Toscano has developed a reputation as the go-to guy for IDNs considering non-traditional options for their supply contracts. We saw him last week at the IDN Summit in Orlando where we heard other attendees address him as the "father of the integrated service model."
His consummate modesty makes him slow to embrace such a lofty title, but there's little doubt that Nick has parlayed his 30-year career with health systems in New Jersey to become a respected voice and trusted advisor to hospital executives looking for guidance on supply chain strategy.
As part of our series on innovative supply chain contracting, we asked Nick to share his thoughts on self contracting, the impact of committing volume to suppliers and the importance of clinical integration in the supply chain.
MediClick: Is there a provider profile you use to determine what IDNs would be good candidates for self contracting?
Nick Toscano: One of the main criteria is spend, which should be within the $150-200 million range at a minimum. But you need to determine what approach works best for your organization.
Some systems have implemented a hybrid self-contracting/GPO model. They use the GPO for commodities so they can focus on the physician preference items. There's nothing wrong with that. It's an issue of the level of investment and commitment you want to make. If you can go after 70% of your med-surg spend, that's a great start. It doesn't have to be $150 million.
But contracting is just a piece of clinical integration. It's an element of strategic sourcing, utilization management, patient demand factors and clinical outcomes — all things that drive to the value chain and total cost. You need a team of qualified folks to measure and monitor that because what is perceived as the lowest product costs can frequently drive high overall costs without the clinical oversight. Clinical Integration processes are about documenting the efficacy and overall effectiveness of products to the care delivery process and patient experience.
MediClick: How were you first exposed to the self contracting model?
Nick: I was with a large multi-hospital system in Atlantic City and was recruited to be COO of the New Jersey Hospital Association (NJHA) cooperative, the largest regional group purchasing system in the country at that time.
NJHA was different because it used a committed volume contracting process. Participating organizations had to commit their volume to RFPs and contracts up front. We had to qualify products, especially clinical products, so we started the value analysis and clinical integration process. We were one of the first organizations to do that.
We had teams of folks, including clinicians, who supported the process and pre-qualified products. We were able to commit an 80% of utilization rate to suppliers. We enjoyed participation and high compliance levels that were unheard of in the industry at that time. Other GPOs simply awarded multiple source contracts and didn't have the compliance levels that we did because they weren't committed volume organizations. They were trying to create critical mass and leverage their spend based on certain commodities to get a better price. At that time, they didn't have an integrated clinical process or clinicians who supported the effort.
MediClick: NJHA was ahead of its time in how it collaborated with clinicians. How did you accomplish that?
Nick: Our supply chain officers as well as our board – which was made up of CEOs of New Jersey hospitals – recognized that in order to build a sustainable model we needed to engage clinicians in the process. We needed them to understand that we're not necessarily looking for just a low price product; we're looking for a product that they would utilize – one that offers value in patient care.
We also had a significant burning platform in NJHA. At that time New Jersey was the first state and pilot program for the Medicare DRG system. So needless to say, our CEOs were very motivated to get their cost structures in line with the new revenue stream.
In the past, clinicians had been made to feel that purchasing wanted to buy the lowest price product without consulting them or evaluating the quality. So we went through an extensive change management process to understand each other's roles and respect each other's needs while collaborating around the patient.
It took time to get clinicians to participate, especially the physicians. We had a group of nurses that were engaged but few physicians. But over time it grew.
MediClick: During your career, when did you break away from the normal mode of operations and start seeing self-contracting as a viable business model?
Nick: I went back to the provider side to work for one of the largest multi-hospital systems in the state, West Jersey Health System. Because they collaborated with NJHA, they were used to the committed volume process. As innovators, they wanted to expand it and get their arms around spend by integrating with their medical staff.
WJHS eventually merged with Memorial Health Alliance to form Virtua Health, an organization that had a more integrated supply chain and allowed us to leverage our spend across the network.
Because this new organization would bring about significant market share, the federal government required us to complete a Community Benefit Report to ensure the new organization would offer community benefits. We committed a large portion of our report to reducing overall supply chain and healthcare costs in the region.
We knew that our traditional business model wouldn't get us there, but it was a challenge to buck the industry trend and set up our self-contracting model. So we decided to work with manufacturers who saw us as early adopters. We got two of them to help us develop our integrated contracting approach. When the industry players saw two large manufacturers collaborating with us, they started paying attention to the model, understanding it, working within it and driving results.
We started self contracting and focusing on physician preference, more committed volume and more standardization. Then because we could offer market-share improvement, we were able to leverage our direct relationships with suppliers to support good utilization management. You become the customer to the supplier, whereas through the GPO you're just another hospital name on the contract.
MediClick: You learned at NJHA that to get committed volume and save costs you had to have clinician buy in. How did you build trust among clinicians at Virtua?
Nick: Our clinicians felt the national contracts rarely considered their real, local needs. They needed a voice to influence decisions. So at Virtua, we focused on the local needs of the physicians. It wasn't simply about reducing prices. It was about supporting patient care in a high-performing healthcare system.
Since we knew that anyone working with patients was busy, we committed to the clinicians that we were going to put the right people in the right place to give them a voice. We developed a supply chain clinical team, full-time clinicians with great clinical experience and a commitment to work with physicians.
Virtua became one of the first health systems to have full-time clinicians within the supply chain.
This accelerated our cause more than anything. Our infrastructure enabled us to monitor utilization and contract compliance. When we went off contract, it was for a clinical reason. That didn't happen often so we were able to stick to our 80% commitments.
I am proud to tell you that today Virtua Health remains an industry leading supply chain/shared services practice.
MediClick: What kind of advice do you have for anyone thinking about self contracting?
Nick: First, it's imperative to have the support and commitment from your senior leadership. And it's not just the CEO or CFO who need to support you, it's the other stakeholders who need to understand and support what you're trying to accomplish because they will drive success.
Then you must build the business case. Build the plan. Build the justification. Articulate the investment and the ROI in ways that will show financial and performance-level returns.
Your infrastructure must allow you to monitor your progress. You need to be able to see the spend analytics, measure compliance and track success.
Shape the vision so stakeholders understand how this model will build your relationship with physicians. Get the right people on the bus with you – qualified clinicians who have a commitment and a passion for this. Communicating this is extremely important. Don't make assumptions that people know the good work that your team is doing.
