As a board-certified physician in internal and emergency medicine and a veteran healthcare executive with a master’s degree in business administration, Salluzzo moved over to the five-hospital Wellmont Health System a little more than a year ago from serving as CEO and chief medical officer of a Pennsylvania health system. Prior to that he developed clinical and executive experience at a New York hospital and medical university.

Most intriguing was one of the tasks occupying a prominent space on his to-do list. Early on COO Blaine Douglas recognized that the new man-in-charge would balance the clinical with the financial and operational, as well as link materials management professionals with key physicians in supply chain discussions.

"We had begun corresponding around 30 days prior to his arrival, and he was constantly challenging me on our benchmarks and supply chain operations and he had yet to step foot on our campus," Douglas noted. "Needless to say, Dr. Salluzzo is extremely metric-driven and believes you improve what you measure. He also is a strong proponent of process improvement and has challenged us in the supply chain world to not only understand our own processes but to understand how all customers see our processes. With that in mind, we have really turned the heat up on supply chain and I do not believe there is a stone or component left unturned. I have spent several Saturday mornings with Dr. Salluzzo lecturing me at the white board with him flowcharting and detailing to me what our supply chain should look like with the detail of a 30-year seasoned materials manager!

"Any CEO can demand stronger performance, support projects, etc. but very few really roll up their sleeves and help dig into the inner workings like Dr. Salluzzo will," Douglas continued. "He also has a unique understanding due to the fact he is a practicing ED physician as well, so he sees the effect of the supply chain from both the CEO and end user perspective."

Ramsey joined Charleston Area Medical Center (CAMC) and its parent corporation as president and CEO in September 2000, punctuating a career of senior executive experience that spanned six hospitals and health systems in three states, in addition to healthcare service in Louisiana state politics where he was secretary of the Louisiana Department of Health and Hospitals.

Besides small group meetings throughout the healthcare facilities, Ramsey also visited every department to familiarize himself with the various workplace settings and daily tasks.

He demonstrated specific support for materials management from the start, blocking vendor end runs around the department and back door access to get products and services into the facility. "Mr. Ramsey provided many opportunities to meet and work with vendors as needed – but he never usurped the powers inherent in our departments," noted David Spence, material data manager at the hospital. "If the vendor tried to get a commitment without involving us it just didn’t happen. He either referred them to us or scheduled meetings to include us."

Ramsey also supported local in-state companies when feasible, particularly for an exclusive office supplies contract, eschewing the high-volume national supplier, in order to boost the value that additional tax dollars and employment brings to a state economy.

Despite CAMC’s status as a charter member of a prominent international group purchasing organization, Ramsey led the charge to upend tradition and switch to another GPO, netting the organization a seven-figure savings and more flexibility in contract negotiations. Ramsey also helped to spearhead implementation of software to monitor, forecast and control spending of capital dollars, which are now funneled through a central location and require numerous reviews and approvals before any cash outlay. The effort to date has generated six-figure savings, including cost avoidance.

Roughly, four years into his CEO post at the 40-bed Nason, which is located in middle Pennsylvania near Altoona, in 2003, Hoover faced quite the fiscal crisis. After many years of profitability, the hospital projected a loss of nearly $1.4 million, unprecedented in its history, which dates back to 1900. But he and his team gained control over the top two line items on Nason’s budget and turned the facility’s financial future around.

SALLUZZO: In the range of $5 million to $7 million. I have pushed for appropriate [information system] infrastructure to support supply charge capture, perpetual inventories and just-in-time practice. I have asked we create supply chain metrics, which exquisitely define each step of the supply chain process. We are in the process of completing that report.

RAMSEY: We are currently tracking $2.8 million in savings this year. It would be presumptuous of me to say that I have contributed directly to any of this savings. The materials folks would tell you that this savings would not have been possible had we not made the move from our previous GPO. I suppose that is how I contributed?

HOOVER: Since we started the program, we have saved $1.025 million hospital-wide, and we continue to look for ideas in each department — be it process- or product-related. We have an excellent team in place and they have responded well to the challenge. From a personal standpoint, I have become deeply involved in this project. In order to jump-start the program, I personally gave back an estimated $20,000 in value from my three-year employment agreement – I believe that action demonstrated my personal commitment to the program, as well as emphasized the severity of the situation to all stakeholders. Fortunately, it has worked. Secondly, I became directly involved in the negotiation process with some of our major vendors. As a result, I believe my actions contributed nearly $525,000 toward the overall savings.

SALLUZZO: The entire management team. Supply management is a core responsibility of all managers at all levels of the organization – otherwise it cannot be done well. From a pragmatic point of view the key decisions should be made by the VP for material management but always in consultation with the CEO.

RAMSEY: My [management] style is ‘let the experts be the experts.’ Products, usage, contracts, vendors – these are all things our material management staff deal with daily, and we should be able to best handle these.

HOOVER: Clearly, all stakeholders in the organization need to feel a sense of ownership in the supply chain management process since it is such an important part of an organization’s financial viability. Obviously they are the internal customers that need to endorse and use particular products/equipment or services. Ultimately, our collective goal is to obtain the best possible price for the desired supplies/equipment. This does not mean acceptance of a lower quality product! As for key decision making, both the CEO and director of materials management need to be able to work closely together in order to lead the supply chain and value analysis initiative. At Nason Hospital we take pride in the results we achieve and we frequently report these accomplishments to our board of directors.

SALLUZZO: I think these observations are sometimes true. I also believe many CEOs do not actually understand the real value that the GPO is or is not bringing to the table. An effective CEO needs to partner with his/her GPO and in a measurable way to understand the value the GPO brings to the health system and how it can be enhanced.

RAMSEY: Since supply expense is second only to [full-time equivalents] as a cost of doing business, a prudent CEO would certainly want to be ‘in touch’ with all facets of supplies. In today’s healthcare environment where we are constantly looking for opportunities to reduce cost without sacrificing quality or patient care it is important for all CEOs to be aware and involved in the supply chain. There are precious few places in most organizations budgets left were non-salary expenses can be reduced, and supply chain is important in this equation.

HOOVER: The stereotype has some truisms in some organizations – perhaps larger health systems. But, in smaller organizations, you have to wear many hats and one of them is being a champion for the supply chain process. For the process to work effectively and be sustainable, the CEO must not only establish the direction, but also be intimately involved. And I don’t mean being a micro-manager. We have a monthly Value Analysis Team (VAT) meeting where the standing agenda includes savings report, new equipment or supply requests for evaluation, and brain-storming new ideas. All members of the organization must hear the message – but more importantly – see the results.

SALLUZZO: First and foremost, a leader who communicates well – particularly with physicians. We can hire messengers and negotiators, but this person is responsible for a large number of employees, usually has limited resources, but has control of 25 percent of an organization’s expense budget. Given these considerations it requires real leadership skills to keep an organization in the top 20 percent of supply cost.

RAMSEY: I personally would select a communicator, negotiator and leader. Each side of an issue needs to be able to clearly understand all other views, and once that is done, work toward a solution that works for everyone. A messenger can too easily get lost in the details, and a facilitator can lose sight of the goal while working toward a ‘solution.’ A good leader is necessary to keep the department focused, to bring the various aspects of materials department together as a team, and to look ahead for opportunities.

HOOVER: All of the above. Each issue presents unique challenges so an effective material management director must possess a strong set of skills and characteristics that include: analytical, communication, negotiation, leadership, facilitation, presentation.

SALLUZZO: Obviously a drop in the supply expense rate from 21 percent to 18 percent will have profound impact on a $600 million organization. Supply management is crucial in serving the physician needs, and if they are not satisfied market share will suffer. The ability to create an effective strategic capital plan is very much dependent upon successful management of the supply chain. Upward volatility in supply costs can force a CEO to retrench on some of his strategic projects, due to lack of funds.

RAMSEY: By working with clinicians to get the best products available at the best price possible. By insuring that all patients are charged appropriately, according to federal/state/local guidelines so that [Charleston Area Medical Center] has revenue to operate. By NEVER compromising a patient’s care due to supply related problems – no matter the work involved.

HOOVER: For a hospital to have solid financial performance in today’s competitive healthcare environment, it requires a ‘value-driven’ supply chain process. Generally speaking, 50 percent of a hospital’s expenses are wages and benefits. An additional 30 percent is supplies and equipment. It becomes abundantly clear that the greatest opportunity for improving financial performance must focus on these two areas. From a market position standpoint, we want to be able to demonstrate to our payers (and the general public), that we are a high-quality, value-driven organization. It is one of our strategic initiatives.

SALLUZZO: Some CEO’s expect ‘magic’ from materials management and put undo emphasis on negotiations. They tend to focus on price instead of value creation. They tend to be top line oriented about supply costs without understanding in a measurable way the positive and negative implications of increased supply costs. One remedy is to have the material management department create a supply chain cycle report which lays out all cost in trended fashion to the DRG level. Materials managers need to realize a CEO has to be able to digest information quickly so they should present great data in an understandable way with succinct recommendations.

RAMSEY: Executives deal more in the big picture and long-term vision, while material managers deal in the here and now – how many catheters, syringes and bandages are available for patient care. This includes how many are currently available and how many will be needed in February or July, and what the price of these items are. I am not sure I can recommend how to improve this communication because I am blessed with a materials department who understands my issues and the issues of providing uncompromised patient care. There could be situations in other organizations where the materials function is not ‘in tune’ with the management of the hospital, which has the potential of creating conflict with the nursing staff and the physicians and thus compromise patient care.

HOOVER: Misunderstandings can occur over a variety of issues, but some of the most common disconnects include expectations in negotiating/dealing with GPOs/vendors and price. Staff members often perceive the administration caring only about price, but that’s not true in our organization. We care about the 4 R’s that I mentioned earlier and we are unwilling to accept an inferior product – it ends up costing you more in the long run.

SALLUZZO: A hospital is a ‘process rich’ environment. Whether defining a patient journey through an emergency department, a bill through the revenue cycle, or a supply through the supply chain, these are all processes. Therefore, they can all be measured and improved in a measurable way against best-of-breed benchmarks. As a systems thinker I am interested in process change because it can have significant positive impact on healthcare. As a physician CEO I am interested in all processes – clinical and non-clinical.

SALLUZZO: There have been several. But the inventory control plan they implemented was particularly effective. We changed to a perpetual inventory system and brought our overall inventory down from $17 million to $11 million over the past 18 months.

RAMSEY: CAMC’s material managers should be commended for making sure that CAMC’s almost 5,000 employees have the right tools to perform their daily jobs. Without their diligence and expertise our operations would falter. Specifically, the material managers did an outstanding job of going through a thoughtful bid process to select a new GPO. They performed the transition to the new GPO in a flawless fashion as well. They have also implemented two new software programs to improve our efficiency. The first was our core material management and ordering program and the second was our new capital asset tracking software. Anyone reading this who has gone through a software conversion knows how difficult it can be. Our folks made the two conversions look like child’s play!

HOOVER: When we started our Value Analysis Team, the materials management staff really embraced the initiative. They rallied to the cause and exceeded my expectations with the types and volume of ideas that were brought for discussion to our VAT meetings. It’s been contagious and has been a critical factor in establishing our organization’s value-driven culture. It continues to this day as we look for new value for the organization.