How do you change the world?

My neighbor's son, a 28-year-old First Lieutenant in the Marines, recently returned from his second tour in Afghanistan. This handsome, unassuming young man, whom I've known since he was a toddler, wears the Bronze Star. Chris was honored for numerous acts of bravery during the 40 firefights his platoon engaged in over a single 30-day span. During one, Chris shielded his wounded sergeant with his own body as he called in close air support.

Chris' extraordinary courage reminded me that outcomes are more often determined by the acts of individuals than by the masses. On D-Day the landing on Omaha Beach was very much in doubt – the planned second landing was canceled because the situation onshore was so dire – until a few individuals began moving on their own initiative over the sea wall, through the mine fields, and up the hills. Those individuals became small groups; small groups merged until an entire invading army moved inland.

Indeed, we are often inspired by witnessing the initiative of another, because their simple act reveals a rightness that compels us to follow in step. And, sometimes, with that first step our attitude or sense of self or way of living changes forever.

When I was very young I took a road trip with my parents and two sisters into the Deep South to the historic town of Charleston, S.C. At a gas station stop on the way into town I had my first encounter with raw racism. To this day I remember the wave of fear, revulsion and vague guilt that hit me as I crawled out of the back seat and stared at the "Negro" and "White" labels over the bathroom doors. A "whites only" sign hung on the water fountain in the park across the street. I don't remember that I said or did anything – other than get a drink of water.

On December 1, 1955, in Montgomery, Ala., an African-American woman named Rosa Louise McCauley Parks, a 42-year-old seamstress and secretary of the local chapter of the NAACP, refused the driver's order to surrender her bus seat to a white passenger. Her simple, spontaneous act of civil disobedience sparked the Montgomery Bus Boycott, and eventually another piece of the Jim Crow "separate but equal" perversion ended. Years later Ms. Parks sought to clarify why she broke the law. "People always say that I didn't give up my seat because I was tired, but that isn't true. I was not tired physically, or no more tired than I usually was at the end of a working day. I was not old… No, the only tired I was, was tired of giving in (italics mine)." Not so different from the men who left the shelter of the sea wall and saved America from defeat on Omaha Beach.

Certainly, there is no direct transition to the healthcare supply chain from here. That would dishonor my neighbor Chris as well as those who suffered and died in World War II and America's Civil Rights Movement. But there is a legitimate point of comparison, I think, which is the extraordinary impact of the acts of a few. There are supply chain leaders – a handful spawned a growing consortium – who are rejecting long-accepted industry practices in their determined pursuit of efficiency and savings.

It has been (and probably still is in many organizations) a career-threatening act to propose consolidating control of all non-labor spend under a single leader, or to implement self contracting, or to build a self-distribution infrastructure. But a handful took the risk, and they marked the path up the hill for others. The rightness of these innovations has given impetus to a movement that has progressed well beyond the tipping point. And it is a movement that will transform our industry's best-practice standards.

Innovations in Healthcare Supply Chain Contracting: Part IV

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.

Innovations in Healthcare Supply Chain Contracting, Part I

Hallmarks of Innovative Contracting

The final throes of the healthcare reform legislative drama wasn't pretty; frankly, I wasn't sure if I was witnessing landmark policy change or unbridled political blood-sport. It was easy to get caught up in the seamy soap opera theatrics and lose sight of the implications the new legislation has for our nation, our system of providing care, and the life work of people like you and me. I confess to being unsure still about what it means for the healthcare supply chain. I have, however, run across an excellent resource put out by the Kaiser Family Foundation (http://healthreform.kff.org/) that's helping make some sense of it all. I encourage you to check it out. It's long on the info and very short on the bias.

Was I "for" or "against?" Well, within the limits of my understanding I guess you should put me down as a "for." Not because the legislation fixes health care – or our national debt – but because it starts the process. And a start is better than nothing. Yes, I am dismayed that there is an unhealthy skew toward the benefit/entitlement side of the ledger, but I also believe that increased focus on cost reduction and efficiency will follow. Because it must. The directive to do more with less (and to do it better) has only intensified. The supply chain executive has a huge role to play. If ever there was a time for innovation, for thinking outside the box, for responsible disruption, it is now! Which is why I am pleased to introduce our next series on the Take Control blog: Innovation in Healthcare Supply Chain Contracting.

Over the next few weeks we will feature interviews with supply chain leaders of several IDNs that have chosen to approach contracting in their own ways, disrupting the status quo in the process and attracting the attention of others with their positive financial results.

Several common themes have emerged in our interviews, themes that we are coming to recognize as hallmarks of the best supply chain leaders. Here are some of them:

They pay attention to the wants and needs of the clinicians but understand when to stand their ground.

They know that the supply chain is an integral part of providing quality patient care, and their stature and authority is commensurate with that role. They work hard to understand what clinicians need to do their jobs and how they think. In an atmosphere of mutual respect, the effective supply chain leader is the recognized point of convergence for patient care and fiscal efficiency. Though seldom needed, the effective supply chain leader retains the power of "no."

They have a willingness to partner with key suppliers, achieving optimal pricing and delivering on committed levels of volume and market share.

These innovators recognize the value of empathy and transparency as a prerequisite for win-win business relationships. Each of the people we interviewed talked about the need to make (and keep) a compliance commitment to supplier partners. In return they expect the best possible price, often achieved by frank discussions of manufacturer profit margins and procedure reimbursements.

They have earned and maintain the support of their executive teams.

Each of the supply chain leaders we interviewed brought up this point several times. Without executive support, they said, it's nearly impossible to introduce any meaningful innovation to the contracting process. They each worked hard to earn the support of their organization's C-suite, and they each have become quite skilled at communicating results in a way that helps maintain that support.

They invest in the infrastructure needed to manage contracts effectively.

Supply chain innovators know it is impossible to manage change without the right supporting infrastructure in place. To run an effective contracting organization – one that brings significant reductions in overall supply costs – they invest in the right people and put them in the right positions, and they enable maximum focus on achieving meaningful, measurable results by equipping their staff with the best technology tools.

 

Enjoy these interviews in the coming weeks. As always, I would love to hear your own thoughts on ways to foster greater innovation and responsible disruption in the world of healthcare supply chain contracting.