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MSHA’s Supply Chain Cost-Reduction Journey

prepared for

HFMA Tennessee Chapter Fall Institute Meeting October 22, 2015

W. Dale Claytore, FACHE, FHFMAVice President, Chief Supply Chain Officer

Mountain States Health Alliance

Mountain States Health Alliance (MSHA)

Information about MSHA

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Macro-Level Information about MSHA

● Integrated Delivery Network (IDN) – largest in the region.

● ~ $1.1B in net revenue.

● ~9,000 Team members; ~1,200 physician medical staff; ~1,200 volunteers; and ~3,000 students.

● 13 hospitals in upper E Tennessee and SW Virginia

● Corporate headquarters located in Johnson City, TN

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More High-Level Information about MSHA

● 1,669 licensed beds- 70% in Tennessee hospitals- 30% in Virginia hospital

● Licensed bed capacity by service line- 62% Medical / surgical- 12.1% Skilled Nursing- 8.1% Behavioral- 7.6% Critical care - 5.6% OBGYN- 3.1% Neonatal- 1.5% Rehab- 1,693,521 OP encounters

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MSHA Hospitals, etc.

Tennessee Hospitals• Johnson City Medical Center - Johnson City, TN • Niswonger Children’s Hospital - Johnson City, TN • Indian Path Medical Center - Kingsport, TN • Unicoi County Memorial Hospital, Erwin, TN• Franklin Woods Community Hospital - Johnson City, TN • Johnson County Community Hospital - Mountain City, TN• Sycamore Shoals Hospital - Elizabethton, TN • Woodridge Hospital - Johnson City, TN

Virginia Hospitals• Dickenson Community Hospital - Clintwood, VA • Norton Community Hospital - Norton, VA • Russell County Medical Center - Lebanon, VA • Smyth County Community Hospital - Marion, VA• Johnston Memorial Hospital – Abingdon, VA

Additional Services• ~ 400 employed physicians• Home health, hospice, DME• Ambulatory surgery centers

• Outpatient diagnostic centers• Occupational medicine centers• Urgent care centers

• Medical call center• Wellness centers

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High-Level Information about MSHA

● Annual patient encounters

- 57,040 IP admissions - 239,606 ER (Emergency Room) patient encounters- 1,693,521 OP encounters

● MSHA Strategic Pillars

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Service Area

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Four Regional Market

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• 548 Licensed Beds• A Level I Trauma Center (one of only six in the State of Tennessee)• The leading Heart Hospital by volume in East Tennessee (Top 100 in the nation) • The leading Cancer Center in the region, enjoying relationships with Harvard,

Duke and Vanderbilt• The region’s only State-designated Perinatal Center (one of only five in

Tennessee)

Johnson City Medical Center

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• The region’s first hospital-based air ambulance service (Wings Air Rescue) with four helicopters

• The region’s only Children’s Hospital (69 beds), one of only six NACHRI institutional members in Tennessee, and one of only six St. Jude affiliates in the U.S.

• A teaching hospital affiliated with Quillen College of Medicine at ETSU

• First Nurse Magnet Hospital in the State of Tennessee

Johnson City Medical Center

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● Supply management is important because it:

- Impacts clinical outcomes

- Impacts the organization’s financial viability

-- 2nd largest operational expense -- $1 saved = $1 “Bottom-line” impact-- $35 - $120 gross revenue = $1 bottom-line impact-- Supply chain management contributes to the goal of providinghealthcare at a cost that equates to the organization’s Medicare reimbursement.

The Importance of Supply Chain Management

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Goals for this Presentation

You will better understand:

● That genuine, enduring supply chain

transformation takes time.

● The importance of hiring quality team members.

● The importance of providing (on a regular basics) accurate, meaningful, objective, and timely supply chain data to C-Suite leaders.

● The importance of working with physicians -- gaining their trust and support in order to successfully contract for PPIs (physician preference items).

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MSHA’s Supply Chain Circa 2004

• Manual systems– Decentralized Purchasing (buyers at each hospital).

– Paper Non-Stock Requisitions (manual process).

– Faxing Purchase Orders (POs).

– Reactive business deals.

– Manual processes.

• Materials Management staff– Non-degreed staff.

– Little or no training.

• Operations– Decentralized operations.

– Little or no automation.

– Little or no data collection & analysis.

– Little or no “forward thinking.”13

MSHA’s Supply Chain Today (i.e., 2015)

● Process Improvements (i.e., Automation)

– GHX (Global Healthcare Exchange) – over 90% of all purchase orders transmitted via EDI.

– MetaTrade – further automates purchasing process by directing faxed requisitions through the GHX portal.

– RSS (Requisition Self-Service) – Lawson Module that further automates supply requisitions and eliminates “paper” orders.

– JCMC OR supply automation – over 200 items now setup in Lawson and replenished by using Symbol handhelds.

– Capital Project Management – on-line, capital equipment software package.

– On-line electronic price activations through GPO.

– Lawson Mobile Supply Chain.

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MSHA’s Supply Chain Today (con’t)

• Materials Management staff:

– Updated / re-graded job descriptions

– Staff education and training.

• Value Analysis Teams (VATs).

• (Physician-Led) PPI Committee.

• Industry awareness (benchmarking).

• Supply chain strategic goals.

• Proactive communications:

– Developed meaningful metrics.

– Gathered / “mined” useful data.

– Critical analysis.

– Proactive reporting /

data sharing with C-Suite

(“Course-&-Speed” assessments).15

MSHA’s Supply Chain Cost-Reduction History

• MSHA has decreased its supply chain expense each year for the past seven consecutive years – when measured as:

– Actual cost per

adjusted discharge

- A percentage of net patient revenue.

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MSHA Supply Chain Expense: 7 Consecutive Years

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MSHA Supply Chain Expense: 7 Consecutive Years

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Supply Chain Metrics

FY16 (YTD/Aug)

Metric Actual Budget Variance Remarks

1 Comparison to Budget

$29,257,045 $30,370,806 $1,113,761(Favorable)

2 Supply expense per adjusted discharge

$1,331.75 $1,422.17 $90.42(Favorable)

The bar graph on next slide provides ~ 7 years trending data

3 Supply expense as a percentage of net patient revenue

16.89% 17.28% 0.39% (Favorable)

The line graph on the next slide provides ~ 10 years of data for trending

The supply chain leaders must (on a consistent basics) provide accurate, meaningful, objective, and timely supply chain data to C-Suite leaders!

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Hospital Specific Key Metrics Aug FY16(YTD/Aug)

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A B C D E F G H I J K L

Line #

Hospital

Pharmacy-Only Cost

Per Adj Patient Day

(Budget)

Pharmacy-Only Cost

Per Adj Patient Day

(Actual)

Supply Cost Average Per

Surgical

Case1

(Budget)

Supply Cost Average Per

Surgical

Case1

(Actual)

Supply Cost Per

Adj Discharge (Budget)

Supply Cost Per

Adj Discharge (Actual)

Supply Cost as a % of

Net Patient Revenue (Budget)

Supply Cost as a % of

Net Patient Revenue (Actual)

Supply Cost (Budget)

Supply Cost (Actual)

Supply Cost Variance

1 JCMC $131 $127 $2,038 $1,891 $2,361.52 $2,229.70 23.04% 21.92% $16,404,076 $15,824,077 $579,999

2 FWCH $45 $41 $995 $911 $872.99 $766.66 16.66% 14.83% $1,995,139 $1,888,784 $106,355

3 JMH $113 $110 $912 $816 $1,061.14 $957.32 15.54% 16.05% $3,929,048 $3,852,301 $76,747

4 SCCH $86 $74 $648 $525 $1,015.31 $939.46 13.63% 12.99% $963,374 $889,807 $73,567

5 RCMC $26 $27 $156 $140 $350.23 $358.49 9.29% 8.19% $293,548 $249,349 $44,199

6 IPMC $72 $73 $1,752 $1,676 $1,522.59 $1,351.88 18.32% 17.56% $2,712,181 $2,659,338 $52,843

7 NCH $55 $45 $467 $384 $777.22 $567.74 11.08% 9.40% $1,193,712 $993,184 $200,528

8 DCH #DIV/0! $23 $0 $0 $0.00 $0.00 8.18% 7.09% $75,963 $71,219 $4,744

9 SSH $44 $50 $758 $1,124 $692.48 $799.15 13.66% 15.85% $973,450 $1,189,351 ($215,901)

10 UCMH $41 $49 $680 $604 $945.90 $1,037.05 14.41% 17.37% $367,982 $310,575 $57,407

11 JCCH $16 $19 $0 $0 $148.32 $181.59 6.44% 6.67% $77,896 $77,984 ($87)

12 MSHA2 $90 $87 $1,364 $1,333 $1,422.17 $1,331.75 17.28% 16.89% $30,370,806 $29,257,045 $1,113,761

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Supply Expense as a Percentage of Net Patient Revenue

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MSHA IP & OP Net Patient Revenue Trending

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The Supply Chain Staff

● People – the most important ingredient for genuine supply chain transformation.

● Approach / goals: – Hire competent, self-starting,

critical-thinkers.• Integrity.

• Cooperative / non-contentious.

– Develop, support, reward staff

excellence.

– Moved to mostly degreed team-members.

– Graduate education encouraged.

– Cross-train / increase exposure.

– Encourage professional reading and

conferences.

– Reward excellence.

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Benchmarking / Analytics

• Benchmarking- The process of comparing like medical supplies and/or services to the best

in the industry (e.g. price, functionality, and safety)

• provides pricing transparency and applies all aspects of healthcare purchasing

• Analytics and PPI Assessment Tools- ECRI – a non-profit, third party, non-biased

benchmarking service

45 yr. history, robust data reservoir (>2,000 healthcare organizations) and provides

exact item cost comparison

- SYMMEDRx – a Premier company that reduces supply acquisition cost

- PACER (Partnership for the Advancement of Comparative Effectiveness Review)

• Improve patient outcomes and reduce cost of PPI’s, determine best practices and reduce unnecessary variation in PPI’s and engage physicians

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Who is ECRI and What do they do?• ECRI is an organization comprised of Physicians, Nurses, Lawyers,

Supply Chain Professionals and many other Healthcare Professionals.• ECRI has more than 40 years of applied research in healthcare. From

its research roots and early transition to an evaluator of medical technologies, ECRI Institute now plays a major role in the following:

• Technology planning • Procurement management• Patient safety, quality and risk management • Healthcare policy and research

• Healthcare environmental management

ECRI

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MSHA Supply Spend Benchmarked

This is a 30 day snap shot of MSHA spend, with some recent wins in the PPI arena being reflective.

• 61.70% of what we purchased was >= to the best price in the country

• 18.01% was >/= AVG and < PG LOW

• 20.29% showed areas of opportunity

61.70%18.01%

20.29%

MSHA Spend vs. PriceGuide Low and Average30 Day Spend Snap Shot

Sept. 15'

Spend = PG LOW

Spend <= PG AVG and> PG Low

Spend > PG AVG

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Long-Term Supply Cost-Reduction

• Contracts– Trade volume-for-price.

• ↓ Unit price : ↑ Volume.

– Drive standardization.

– Hedge against inflation.

– Protect against market fluctuations.

• Benchmarking -- Must have Accurate Data

• Use proven business templates– Request for Information (RfI).

– Request for Proposals (RfP).

– Organizational “Terms & Conditions” (T&Cs).

• Use Contacting Checklist– E.g., Warranties; replacement parts; shipping; technician training…

• Master agreements

• Negotiations– Education and training is absolutely essential.

– Create a pre-vendor meeting strategy. 27

Negotiations

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1. “You Can Negotiate Anything You Want” by Herb Cohn2. “Getting to Yes: Negotiating Agreement Without Giving In” by Roger Fisher and

Wm. L. Ury3. “Negotiation” (Harvard Business Essentials Series) by Michael Wheeler4. “Negotiation” by Roy Lewinski and David Saunders

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Primary Categories of Contracts

Local Contact Regional Buying Group GPO

Food Occasional (i.e., for local products)

Typically not. Yes

Commodities Typically not. To a small degree. Yes

Clinical Preference Items

Yes. To a small degree. No.

Physician PreferenceItems

Yes. Typically not. No.

Pharmacy Typically not. No. Yes.

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Physician Preference Items (PPI)

● PPIs -- High-dollar medical supplies thatphysicians traditionally have much selectionInfluence.

● MSHA Physician Preference Item (PPI) Committee

- Carefully selected.- Committee charter.- Paid attendance.- Injects objectivity in the process.- Physician education.- Disclosure required.

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SYMMEDRxSYMMEDRx

● 3rd party consultant / advisor● Powerful national data base ● Duty experts in 10 disease states● Inherently “creditable” ● MSHA successes

- Spine.- Orthopedic Joint.Arthroscopy.- Orthopedic trauma.

● Probable future engagements

- Perpherial Vascular.- EPs (Electro-physiology).

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Commonly Used Types of PPI Contracting Strategies

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• Healthcare Integrated Delivery Networks (IDN’s): ~ 1%

• Common Physician Preference Items (PPI) Vendors: 

Vendor/Net Profit Margins

Net Profit Margin and PPI Vendor Comparison

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All Vendors must swipe IN and OUT at the MaterialsManagement Vendor Kiosk located at the VendorEntrance. Sign in at the Materials Management office atall other MSHA facilities.

Vendor Management

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Sales Representative: Vendor sales representatives’ roles are to sell,detail, and provide in-service training…

Technical Advisor: Vendor technical advisors’ role includes providingsupport on a specific product. Technical advisor are present during thetime period in which their product is being used. Technical Advisors maynot participate in patient care for any reason.

Vendor Management (Con’t)

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General guidelines that vendors are expected tofollow:

● There will be no unscheduled visits to MSHA facilities.

- Appointments should be scheduled between8:00 a.m. and 4:30 p.m., Monday through Friday.

● If scrub clothing are appropriate for vendor’s visit, MSHA will provide scrubs.

● Roaming prohibited.

Vendor Conduct

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● 1 hour on-sight orientation

- Expectations

- Gifts and gratuities

- Introduction of new products

- Penalty for Non-compliance

-- Warning.

-- Restriction of privileges in varying degrees.

-- Termination.

● Photo badge

- 2 years / $150

- Currently: 1,859 registered companies with 1,029 active reps.

Vendor Orientation

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Decision-Making Algorithm for Pricy Supplies & Implants

• This process is continually being refined as appropriate

• Step 1 – Identification of new request

– “Business owner” identifies / presents new process, new implant, or new pricy supply to committee.

• Step 2 – Financial analysis

– Profitable or money-loser.

– What is the financial break-even point.

– What is maximum the organization is willing to pay.

– Any upstream or down stream

additional revenue.

– Capital considerations.

– Hospital staff (FTE) considerations.

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• Step 3 – Other considerations

– Elective or emergent procedure?

– Consistent with organization’s mission, vision, & values?

– Consistent with organization’s core & support strategies?

– Political implications / considerations?

– “Lost leader” – is it okay to lose money on this procedure in order to strengthen the entire portfolio of business?

– Can hospital and / or physician meet patient need by using another technique, procedure, or implant?

• Step 4 – Assessment

– Hospital CEO(s), CFO(s), CMO(s), “business owner(s),” and other leaders consider the information above.

– The aforementioned leaders discuss the pros & cons with the requesting physician(s).

Decision-Making Algorithm for Pricy Supplies & Implants

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• Step 5 – Final Decision

– Hospital CEO(s), CFO(s), CMO(s), “business owner(s),” and other leaders make final decision.

– CMO, medical directors, et al, share final decision with requesting physician.

Decision-Making Algorithm for Pricy Supplies & Implants

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Standardizing Commodity Supplies

• ASCEND (Accelerated Supply Chain

Endeavor).

• Business success based upon deeper

Price points via standardization; e.g., it is

a committed volume program.

• Contracts are awarded using Premier’s

standard “bid calendar”, and are typically

3-year agreements.

• Program launched 4/1/2009.

• Over 200 hospitals in the U.S. are now

participating in the program.

• MSHA is currently taking advantage of over

121 ASCEND contracts generating an annual savings

impact of $1.1MM.41

Premier ASCEND Program

Line # General Category Vendor Name MSHA Annual 3 YR Extended Savings

1 Contrast Media Bracco $626,768 $1,880,304

2 Safety Phlebotomy Greiner $28,082 $84,245

3 Blood Specimen Collection Greiner $27,554 $82,663

4 Oral Care Kimberly-Clark $24,500 $73,500

5 Topical Skin Adhesives Ethicon $7,734 $23,201

6 Patient Warming- Blankets 3M $5,216 $15,649

7 Surgical Hand Peps Carefusion $3,671 $11,012

8 Wound Drainage Products Cardinal Health $3,230 $9,691

9 OR Accessories Covidien $2,669 $8,007

10 Specialty Urological Products Cook Medical $2,200 $6,600

11-121 (Total of Multiple Contracts) (Various) $1,116,351 $3,349,054

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Value Analysis Teams (VATs)

● Six teams meet monthly or quarterly– Perioperative VAT

– Clinical VAT

– Lab VAT

– Respiratory Therapy

– EVS VAT

– S.W.O.T. (Skin Care, Wound, Ostomy)

– VAT leadership also works closely with Sharps

Safety and Nursing Practice Council

● Items are submitted by– MSHA Team Members - New Product Request Form

– Supply Chain (Contracts, Standardization Opportunities)

– Vendor Partners

● VAT Coordinator and Standardization Manager– Collect, analyze and report data on requested products at VAT meetings

– VA Coordinator acts as a facilitator for all product introductions and changes

– Team reports to and takes direction from Corporate Supply Chain Leadership 43

Project or ProgramAnnual Savings

Impact Contract Term Contract Type

CRM (Cardiac Rhythm Mgmt.) $1,426,000 3 years Dual Award

Covidien Endo-mech / Trocars / Energy $361,600 5 years Preferred Vendor

Spine $1,000,000 2 years All Play Capped

DES (Drug Eluting and Bare Metal Stents $723,000 18 month Preferred Vendor

Pain Mgmt. (Neuro-Stim) $150,000 1 year Dual award

Ortho Joint $385,000 2 year All Play Capped

Ortho Trauma $409,775 2 year All Play Capped

In Progress

Mesh TBD TBD TBD

EP TBD TBD TBD

Peripheral Vascular TBD TBD TBD

Totals

PPI Tracking Cost Savings Programs

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Facility Customer # Total Device Savings YTD

July 15’-Aug 15’

Waste Savings Avg. Waste Cost/lbs.

Total Weight (lbs.)

Franklin Woods Community Hosp 79648 $20,708 $330 $0.30 1,100

Indian Path Medical Center 79364 $13,828 $229 $0.30 766

Johnson City Med Center 79300 $87,706 $527 $0.30 7,759

Johnston Memorial Hospital 124905 $8,862 $202 $0.30 674

Unicoi County Memorial Hosp. 79658 $0 $35 $0.30 115

Norton Community Hospital 99278 $3,131 $56 $0.30 184

Smyth County Community Hosp 79708 $494 $62 $0.30 205

Sycamore Shoals Hospital 79631 $3,007 $97 $0.30 320

Combined Totals $137,736 $1,538 5,123

Reprocessing

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• RSS is a Lawson module that gives end-users the ability to order medical and other supply items electronically, eliminating paper requisitions.

• Benefits:

– Reduced errors.

– No lost requisitions.

– Faster order processing.

– Eliminates phone, fax, paper requisitions.

• As of 07/1/2015: 1,000 active team members

are trained to use RSS.

• Prior to RSS, only 10-15% of requisitions were submitted electronically.

• That number has now grown to over 90%.

• FY16 Strategic Goal = 95% system-wide compliance.

Requisition Self-Serve (RSS)

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Freight Management Challenges

• Freight is a cost that is out of sight out of mind

• Sometimes business owners do not inquire or attempt to negotiate freight

• Vendors are using freight charges as an additional revenue stream for their companies

• It’s hard to monitor vendor compliance on freight charges

• No reporting capabilities to assist business owners in making them more aware of the charges and opportunities to manage them

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Triose Freight Management

• Triose is a 3rd Party Freight Management Company that manages 3,000 vendors contracts on shipping for over 242 Health Systems across the country.

• Over our 3.5 year partnership MSHA has recognized freight savings of $1.341MM YTD

• Significant decreases in Next Day Air shipments for both Inbound and Outbound freight.

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Integrated Waste Stream Solutions Proposal

No single department is responsible for managing all hospital waste streams

STERICYCLE MANAGES THE MULTIPLE WASTE STREAMS FOR JMH & JCMC with

1 Point of Contact, 1 Invoice, and GUARANTEED SAVINGS (~$155K).

ER Med Surg

Pharmacy

DietaryLab

Iso Engineering AdministrationResearch

OR

MSW RMW RXSharps Trace Chemo

PathC&D Recycle HIPAA Universal E-wasteCompost Haz

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Preferred Vendor Contracts (PVC)

● Establish a “Corporate Standard”

for all major supply items

● The Premier ASCEND program

promotes the PVC concept.

● Once established, supply chain posts

all PVC contracts on the MSHA Intranet.

● Major departments targeted for PVC:

Surgery department, cath lab, laboratory, radiology, respiratory therapy,

biomedical engineering, environmental services, and facilities management / plant operations.

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Emergency Preparedness Plan

● Prepare for seasonal flu & / or large scale disaster.

● Create a very detailed, comprehensive plan.- Anticipate needs.

- Ensure adequate depth of supplies.

- Plan for distribution infrastructure.

- Practice for mass causalities.

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Utilization Reviews

● Utilization Reviews

- Next big frontier…

- Challenging

-- Clinical judgment

-- Expert witness

-- Objective data

- Standardization v. Customization

-- It is cheaper to standardize and subsequently not use certain items in surgical packs than to create more types of surgical packs.

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Let Review the Goals for this Presentation

You will better understand:

● That genuine, enduring supply chain

transformation takes time.

● The importance of hiring quality team members.

● The importance of providing (on a regular basics) accurate, meaningful, objective, and timely supply chain data to C-Suite leaders.

● The importance of working with physicians -- gaining their trust and support in order to successfully contract for PPIs (physician preference items).

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Comments, Questions, Ideas

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