Supply

Beyond Purchasing/ Supply Chain Management

Jim Oliver
President& CEO, Yankee Alliance, Inc.

Utilization
NCHN Annual Meeting
Tuesday April 21, 2009
 What gives me the right to talk about this subject?

Yankee Alliance employee for 20 years – Dir. MM to CEO

Dir. MM at Miriam Hospital, Providence,
Supply RI
Dir. MM at University Hospital (now Boston Medical Center), Boston, Ma.

What is Yankee Alliance?

• 47 Acute Care
• 6 Long Term Acute Care
Yankee Alliance, Inc.
501(c)(3) • 42 Surgery/Ambulatory Sites
• 1,141 Senior Living Sites
YA Supply
• 2,116 Home Care Sites
Chain Yankee • 1,253 Physician Practices
Cooperative Alliance, LLC
501E • 3 Laboratory Sites
• 124 Institutional Sites
• 60 Imaging Sites
• 138 Outpatient Services Sites

$1.4 Billion in Contract Volume

 Key Findings

- Access to Capital is Constrained

Supply
- Margins are weakening
- Hospitals are cutting spending

Key Action Steps

- Create a “Sense of Urgency”, Understanding and Leadership

Utilization
- Be a low cost provider
- Preserve Cash

HFMA 2009 study- The Financial Health of US Hospitals and Healthcare Systems
 Staffing

Supply

Product
Price
15%

Utilization

Inventory & Logistics

45% of Hospitals budget is Supply Chain Cost

AHRMM/ HFMA
 Moving to ………. > 50%
Consumable Products Expense Increasing 64% Faster

Than

•Salary Expense
•Benefits Expense
•Total Operating Expense
The Advisory Board
 Supply Chain Management
What is the Hospital Supply Chain?
G
PO
or

Cl
in
Lo

ic i
ca

an
l

s?
Contract Receive Dispose or
Pick
& Pay Pick Reprocess

Inventory Deliver,
Evaluate Order
Ship & Store Use &
& Select
Charge
ia n
or C e,
linic

E x p i al or
ed
sing /Phon

ens
c
Of f i
x
Pur DI/Fa
cha
E

In your facility is one person responsible for these activities?

NO
 Supply Chain Management – Is new to Healthcare

Ford Motor CompanySupply

– Group VP Global Purchasing

Walmart – Executive VP Logistics and Supply Chain

Covidian – SR VP Global Supply Chain

Utilization
Purchasing Directors Material Managers

2-3 levels away from the CEO

 Health Leaders 2009 CEO Survey

Top 3 Priorities for the next 3 Years:

Supply
1.Quality/ Patient Safety 14 priorities
2.Construction/ Capital Improvement
3.New Clinical Products/Services
Cost Reduction #14

Top 3 Drivers of Healthcare Costs:

Utilization
1. Government Laws and Mandates
2. Medical Devices 11 Drivers
3. Clinical Technology
Pharmaceuticals #9
Projected Supply Chain Trends for the US Health Care Sector-2009
WP Carey School of Business, Arizona State University

1. Continued Growth in Overall

SupplySupply Chain Costs
2. Increasing focus on Supply Costs by Providers
3. Competition around services will increase between organizations
such as GPO’s and Distributors
4. Supply Chain Metrics will be refined

5. Price Transparency will Increase

6. Role conversion will continue

Utilization
within the supply chain department in
organizations from transactional to strategic

7. Executive Suite focus and involvement

8. Exposure of ethical dilemmas will provide opportunities for change

A commitment to make Supply Chain Management
as strategically important as Patient Safety
or Quality is required for Hospitals
and Health Systems to be successful.

Who is going to Lead this Change?

“ The Supply Chain Officer”

 Supply Chain Officer -2012?

Responsible for the hospitals entire supply chain

Report to the: CEO/COO/CFO

Will have budget responsibility for all hospital supply cost

All hospital managers will be responsible to the Supply Chain

Officer with regard to their specific department

Manage all hospital value analysis activities

Will develop and manage all hospital supply chain metrics

 Purchasing

Manage all aspects of the hospitals contracting functions

to include:

Budgeting

Contract Administration

Purchasing
 Purchasing

•Manage the Item Master file

•Manage the Centralized Contract file
•Act as the signatory of all contracts
•Manage all GPO relationships
•Manage the Capital Acquisition Process
•Implement & Manage the processes and
Procedures for all buying operations
centralized & decentralized
 Supplier Relations

•Manage all policies and procedures related to

supplier access to the institutions general
office space, clinical and patient care areas
•Act as the principal liaison with all hospital suppliers
•Manage a centralized vendor registration system
and monitor compliance with that system by
all departments
•Develop and distribute a hospital wide vendor
relations policy
•Monitor staff compliance with the hospitals code
of conduct related to vendor interactions
 Inventory Management

•Develop, present and manage the physical

inventory policies and procedures for the
entire hospital
•Develop, implement and manage directly or through
departmental relationships processes
necessary to insure the smooth, efficient flow
of materials through the hospital
•Develop inventory benchmarks for all asset locations
official or unofficial
 Inventory Management

•Manage the processes necessary to control

all consignment programs in the institution
•Insure the hospital has an emergency plan in
place for supply management in the case
of an emergency or disaster
 Distribution

•Develop, implement and manage the systems

required to efficiently and effectively
deliver all supplies to all areas of the hospital
•Manage all electronic distribution systems required
to deliver supplies(Pyxis, Omnicell, Robots)
•Manage the receiving systems in place for all areas
of the hospital to insure appropriate controls
are in place
•Manage the facilities courier systems
•Insure the proper systems and controls are in place
regarding inbound and outbound freight
services and expenses
 Central Supply

Report to Surgical Services?

 Education

•Develop & Implement programs necessary to

educate all staff regarding the hospitals
supply chain
•Identify & develop key personnel that can be trained
to assume responsibility for aspects of the
management of the hospitals supply chain
 Supply Chain Information Technology

•Manage the day to day functions of the hospitals

MMIS
•Centralize the hospitals item database to include
all items purchased by the hospital
•Manage all aspects of the hospitals electronic
ordering systems
•Liaison with Accounts Payable to insure the 3
way match process is functioning effectively
•Incorporate GS1 standards: Including GLN-
Global Locator Number and GTIN- Global
Trade Identification Numbers
 Supply Metrics/Benchmarking

•Develop supply benchmarks and metrics for

each department of the hospital
•Implement systems to report on a consistent
basis these benchmarks to Department
managers, Sr. Management & the Board
•Champion the utilization of the benchmarks
•Manage the systems required to insure accurate
and timely reporting of the benchmarks
 Supply Expense as a Percent of Operating Expense

40.0%

35.0%

30.0%

25.0%
Supply Expense %

Average
20.0% 19%

15.0%

10.0%

5.0%

0.0%
M31 M29 M44 M34 M22 M88 L83 M61 L35 S57 M82 L81 S26 L78 L46 M59 M89 S72 M81 M27 S55 M37 M39
Hospital
 Supply Expense Per Adj. Discharge

6000

5000
Expense Per Adj Discharge

4000

Average
3000

2000
$ 1,429

1000

0
M31 M22 M29 M39 M44 L35 L78 S57 M61 L81 S26 M82 L83 M59 M88 S72 M27 L46 M34 M81 S55 M89 M37
Hospitals
 Supply Expense Per Surgical Procedure

$1,800

$1,600

$1,400

$1,200
Cost/Procedure

$1,000 Supply Cost Per Procedure

Avg
$800 Median

$600
$ 631

$400

$200
$ 481

$0
M 8

81

M 5

83

46
7

5
59

37
22

31
27

44
88
29

34
89

61
82

81
39
7

S5

S7

S2

S5
L

L
L

L
M

M
M

M
M

M
M

M
M
M

M
M Hospital
 Laboratory Suppply Expense Per Billable Test

$9.00

$8.00

$7.00

$6.00

$5.00
Expense

Expense
Avg
$4.00 Median

$3.00 $ 2.76
$2.00

$ 2.68
$1.00

$0.00
3

35

1
6

7
29

88

81

61

39

82

89

27

34

59

44

31

37

22
L8

L4

L7

L8
S2

S7

S5

S5
L
M

M
Hospital
 Diagnostic Radiology Cost Per Procedure

$40.00

$35.00

$30.00

$25.00

Expense
$20.00 Avg
Median

$15.00

$ 10.05
$10.00

$5.00 $ 8.26

$-
M31 L81 M88 M81 M59 M82 L46 M44 M34 M37 M29 L83 M89 S55 M22 S57 M27 L78 S72 M39 L35 S26 M61
 Linen Expense Per Clean Pound

1.000

0.900

0.800

0.700

0.600
Expense
0.500 $ 0.466 Avg
Median
0.400

$ 0.453
0.300

0.200

0.100

0.000
8

81

3
5

7
82

27

34

31

29

39

59

61

44

37

81

88

89

22
L7

L4

L3

L8
S5

S2

S7

S5
L
M

M
Hospital
 Dietary Supply Expense Per Adjusted Patient Day

$18.00

$16.00

$14.00

$12.00

$10.00 Expense
$ 9.74 Average
Expense

Median
$8.00
$ 9.56
$6.00

$4.00

$2.00

$0.00
M22 M31 L78 M89 S72 M81 S57 M39 M61 M27 M29 L83 S55 M44 M82 M34 L35 M88 M59 M37 L81 L46 S26

Hospital
 Maintenance Expense Per Patient Day

$50.00

$45.00

$40.00

$35.00
Expense Per Day

$30.00

Average
$25.00

$20.00

$15.00

$10.00
$ 10.63
$5.00

$-
5

8
6

57
55

72

26
82

81

31

61

37

88

29

59

22
34

89

39

27

44

L7
L3

L4

L8

L8
S

S
M

M
Hospital
 Supply Analytics

Proactively cleansing supply purchase and

usage data and utilizing that data to manage
supply cost.
 Strategic Supply Chain:
Strategic Supply Chain Driving savings with data analytics

Clinical
Product
Product Utilization
Physician Standardization
Preference
Commodity Strategy:
Contracts Benchmarking

Business Intelligence: Data requirements

Multiple
Multiple Manufacturer
Manufacturer Names
Names Difficulty in ordering

Multiple
Multiple Product
Product Numbers
Numbers What is it?

What you “see” may not be

Inconsistent
Inconsistent Item
Item Descriptions
Descriptions what you want or get

Order 50 receive 500

Packaging
Packaging Issues
Issues or
Order 20 cases, receive 20 boxes

Attempting to order
Old
Old product
product data
data obsolete products
SUPPLYview:
Areas of Focus
• Opportunities: Generally deal with improving price points via contract price tiers.
– Contract available to sign,
– Enhanced price tier is available

• Degree of difficulty: Fairly easy (with good data)

• Validate data
• Sign contracts
• Yankee Alliance staff does research and analysis

• Savings opportunities identified to date:

10 hospitals = $2,254,625
Teleflex endo
savings
Line item
detail
 • Opportunities: Are you using different manufacturers in Interventional Radiology
vs. Operating Room?
– Can you standardize to one vendor to maximize your contract tier position?
– Would conversion to a new contract offer savings?

• Degree of difficulty: Moderate to Difficult

• Requires really good data
• Value analysis process required
• Often clinical preference

• Savings opportunities identified to date:

10 Hospitals: $2,656,505
Peripheral & Biliary Stents
1/1/2009-1/31/2010

• Abbott PP-CA-137 No Aggregation

• Boston Scientific PP-CA-138 No Aggregation
• EV3 PP-CA-139 Tier 4
Peripheral & Biliary Stents
1/1/2009-1/31/2010

SUPPLYview® ev3 peripheral and biliary stent conversion:

Manufacturer Current EV3 Total EV3 $ Savings EV3 %
Total Spend Conversion Savings
Spend

EV3 $101,356.50 $76,050.00 $25,306.50 24.97%

Abbott $338,155.00 $228,850.00 $109,305.00 32.32%
Boston $435,921.10 $302,250.00 $133,671.10 30.66%
Scientific

Cook $6,710.00 $4,250.00 $2,460.00 36.66%

Bard $263,269.00 $186,350.00 $76,919.00 29.22%
J&J $761,184.45 $482,250.00 $278,934.45 36.64%
Medtronic $19,060.00 $11,150.00 $7,910.00 41.50%
Grand Total $1,925,656. $1,291,150.00 $634,506.05 32.95%
05
 • Opportunities: There is a significant spend
for products that are not on any Premier, Yankee
or hospital contract
• Yankee can provide price benchmarks
• Can hospital negotiate contract for these items?
• Can hospital convert to a contracted product to save?

• Degree of Difficulty: Difficult

• Suppliers do not want to contract for
these items
• Value analysis process will be required
to convert to another product
• Will require really good data

• Savings opportunities identified to date:

10 Hospitals: $6,089,797
Non-contract: Top 45
 $230
M93

L32 $185-
1 Product $206
$205
8 Hospitals L83
8 Different Price Points!! =

PRICELESS!!
M87

M37

$276
L46
L78
$279
M34
 • Opportunities: Utilization benchmarking studies
have demonstrated significant savings
• Studies focus on clinical utilization rather than
price points

• Degree of Difficulty: Difficult

• Requires change in behavior
• Value analysis process will be required
to present clinical utilization best practices
• Will require really good data

• Savings opportunities identified to date:

10 Hospitals: $8,234,633
 Bone Cement v.2
Product Utilization
Benchmarking
Comparing: Total spend per Joint Procedures

Findings:
Total category spend: $ 1,055,931
Potential savings opportunity: $ 169,807
 History
• 1958: First use bone cement (Femur) Germany
• 1960's: Illegal trade of bone cement in America
• 1969: FDA approved bone cement
• 1969: Antibiotic Loaded Bone Cement (ALBC) developed
• 2003: FDA approved commercial prepared ALBC
 Summary
• Limit use of antibiotic bone cement:
– Second stage revision
– High-risk patients primary
• Antibiotic coverage should treat specific pathogen
 FDA Approval
• May 2003, the FDA approved low-dose commercial pre-
mixed antibiotic-loaded cement (ALBC) for use in the
second stage of a two-stage total joint revision following
removal of the original prosthesis and elimination of
active periprosthetic infection

• Not approved for prophylaxis of primary or revision

• Should not be used and is not indicated for the treatment

of established infection.
 High Risk
Clinical evidence supports low-dose ALBC for
prophylaxis in revisions and high-risk primary joints

• Increased contamination
• Operative time > 150 min
• Prior joint infection
• Insulin-dependent diabetes mellitus
• Immune suppression (organ transplant)
• Steroid-dependent patients (asthma, Rheumatoid
arthritis)
 Revision
Remove old implants and replace with new components

Revision rate 10% (primarily hips)

• Infection < 2%
• Loosening prosthesis 73%
• Bone fractures during or after surgery
• Dislocation
• One leg shorter than the other
• Bone loss in the joint

Symptoms:
– increase in pain
– change in the position
– decrease function: limp stiffness, instability or dislocation
 Disadvantages of ALBC
1. Potential for allergic reactions
2. Antibiotic-resistant organisms: long-term exposure to low doses antibiotic
releasing bone

Study of infected hips found in previous arthroplasties

with gentamicin cement, 88% of bugs were resistant, while 16% of bugs were
resistant in arthroplasties with plain cement.

Journal of Bone & Joint Surgery Dec 2001

 Bone Cement All Cats Spend Benchmark v.2
Total Spend/Joint Procedures

< 20%
Antibiotic Bone
Cement

Current as of: 3/9/09 Proprietary and Confidential. © Copyright 2007. Yankee Alliance, Inc. All rights reserved. Data Date Range: 10/1/07 ~ 9/30/08
 Bone Cement Quantity % All Cats v.2

Current as of: 3/9/09 Proprietary and Confidential. © Copyright 2007. Yankee Alliance, Inc. All rights reserved. Data Date Range: 10/1/07 ~ 9/30/08
 Antibiotic Bone Cement Spend Benchmark v.2
Total Spend/Joint Revision Procedures

> 60%
Antibiotic Bone
Cement

Current as of: 3/9/09 Proprietary and Confidential. © Copyright 2007. Yankee Alliance, Inc. All rights reserved. Data Date Range: 10/1/07 ~ 9/30/08
 Value Analysis

•Develop, Implement a hospital wide value analysis

program for all supplies
•Start with Nursing, Operating Room, Cardiology
•Develop and manage the agendas, data analytics,
product trials, and implementation of new
products into the hospital
Good Luck implementing Supply Chain
Management in your Hospital!

Thank You