If you need to reduce your inventory costs, instead of just negotiating a lower price – which BJC HealthCare has been doing for its 12 hospitals and additional healthcare facilities – it also helps to determine whether you even need the item in your inventory, or whether you can stock fewer varieties or a lower number of them.
All these options are being explored by the people who best know the effectiveness of inventory items – the medical professionals who use them. “We started a supply chain transformation journey, which we call SupplyPlus, in 2011,” emphasizes Nancy LeMaster, vice president of supply chain transformation. “We wanted to show the strategic potential of the supply chain, not only in terms of reducing cost but in making sure that we had high-quality products with proven patient outcomes. Our clinicians and physicians expected us to only talk dollars, but instead, we were talking in terms of total value with the focus on proven outcomes.”
Multi-disciplinary specialty teams, with supporting physician-based clinical expert councils, were created as part of SupplyPlus. The goal was to create an active partnership between the physician group and the supply chain, fostering open feedback and critical evaluation from both sides early on in the process.
“The first thing we did was build the infrastructure for the supply chain team,” LeMaster relates. “We created an entire analytics division that could produce cost-plus-quality data for our physicians and clinicians, and wrapped it in a project management/process improvement philosophy. The approach ensured that when we did make choices, they were end-to-end in establishing supply decisions and formulations. The internal infrastructure was designed to maintain system support so that savings didn’t leak out the back door.”
BJC HealthCare is one of the largest nonprofit healthcare organizations in the United States, delivering services to residents primarily in the greater St. Louis, southern Illinois and mid-Missouri regions. With reimbursements dropping, healthcare providers are faced with offering the best services for lower cost.
“We have to continuously focus on being more efficient,” LeMaster stresses. “Most healthcare providers struggle to make 3 to 4 percent margins. The big levers are labor – which is the largest expense – and then supplies. So we’ve got to find ways to really work with suppliers to achieve the best value.” She estimates that some medical device manufacturers are operating at five times the profit margin of an average healthcare system, providing the opportunity to create better efficiencies through expanded transparency and partnering.
Because of the size of the supply spend, administrators and the board of directors have been very supportive of the SupplyPlus transformation. “The board sees this as an opportunity,” LeMaster points out. “Everybody would rather reduce supply cost than touch labor. Our approach, processes and analytics have helped get support.”
As part of the SupplyPlus infrastructure, Dr. Bruce Hall, vice president of patient-centered outcomes, and Doug Pytlinski, vice president of supply chain management, formed multi-disciplinary specialty teams, such as operating rooms and nursing, for decision-making around formulary management.
Clinical expert councils – comprising physicians and clinicians from BJC’s academic hospitals and community-based private practices – provide recommendations to the specialty teams on specific products and topics. System collaboration of team and council activities is supported with the assistance of key individuals, such as Dr. David Jaques, vice president of surgical services at BJC’s largest hospital, Barnes-Jewish Hospital, and Dr. John Krettek, vice president of clinical operations.
“They really explore the products and supplies used, and how they influence outcomes,” LeMaster says.
An example of examining such medical devices is the number of anchors needed in shoulder surgery. In some cases, four were used, and in others two. The physicians studied the operation and determined that use of two anchors actually was more effective, and from a supply chain perspective, more efficient.
In other cases, two different brands of products were evaluated and determined to be clinically equivalent, so the less expensive one was selected. Efforts like these enabled BJC HealthCare to save $55 million in supplies during 2013 on a supply spend of approximately $890 million.
Another improvement to the supply chain organization has been evaluating the evolving roles and functions, better matching individuals and skillsets to the needs of the transformation. This included redefining positions, reassigning staff and, when necessary, adding talent to improve efficiency in the supply chain. For example, Steve Kiewiet was hired as vice president of supply chain distribution and logistics. “He came from a distribution background,” LeMaster points out.
Instead of having many people in charge of maintaining inventory at multiple locations, management and the location of the inventory itself is being centralized with a new system this year. Enhanced inventory planning is saving money on use of ground rather than overnight shipping.
BJC’s internal supply chain also is being streamlined using lean techniques. For example, the number of people with authority to request products has been reduced. “That’s how we put the pieces together,” LeMaster concludes. “We’ve seen great early progress, and will keep building on it for continued future success.”