Glancing back roughly a dozen years ago it seemed like such a natural, if not progressive, solution for hospitals to hook up with one another, rope in other non-acute medical facilities and then circle the wagons to ride out the blazing hot healthcare reform movement and the ensuing consolidation wave.

Arguably, the term "integrated delivery network" or the more colloquial "IDN" had a certain je ne sais quois about it, in terms of swankiness.

Unfortunately, many of the newly minted IDNs quickly began to realize that rearranging the herd in the name of clinical, financial and operational efficiencies without bridging corporate and personal cultural divisions complicated efforts and slowed, if not stifled, success. Vexingly. Swaggers abraded to trudging. Attitudes soured and eyes rolled at just another fad even as some explored new ventures and achieved triumphs in areas, such as product standardization and local and regional service centers.

Now more than a decade later little has changed. Fewer IDNs, depending on how loosely you define the term, have lived up to expectations and recorded the promised supply chain victories with or without group purchasing organizations (GPO) or distributors. Many continue to grapple with fundamental challenges that have existed since the inception of the model.

Square pegs, round holes

Believe it or not, the one-size-fits-all management approach still pervades the mindsets at many IDNs and multi-hospital systems – what works in acute care facilities satisfies the needs in ambulatory, long-term and primary care sites.

"The biggest misunderstanding is assuming each facility can be treated the same," said Dave Hunter, director of supply chain management at Providence Health System, Portland, OR. "Every facility is different, has different needs and competitive and financial pressures. Having made that statement, you must understand that providing basic supply chain management programs to each facility can be standardized and must meet basic needs. They need to be packaged differently for each facility to know its needs are being met." 

That requires taking time to observe, analyze and understand the positives and negatives of each site in the IDN, according to Tiffin Kaczkowski, corporate director of materials management at Oakwood Healthcare System, Dearborn, MI. Oakwood represents four acute care hospitals, two long-term skilled nursing facilities and 47 ambulatory clinics.

"Some have been developed with material flow in mind but most have not and may require some modification to the storerooms or site," Kaczkowski said. "Make sure you have a defined supply plan for each site that includes the how, where and why, and that it takes into consideration the sites’ unique needs." He also encouraged supply chain managers to get involved early in the planning of any new or remodeled facilities so that logistics issues can be addressed more quickly.

Presuming that the operation and culture of each facility in an IDN is the same because each is part of a single family is a big mistake, noted Mike Rudomin, vice president of supply chain consulting at Owens & Minor Inc., Glen Allen, VA.

For example, one facility may rely on stockless distribution, while others use a traditional warehouse or storeroom to hold or own inventory, Rudomin explained. Central sterile may report to materials management in one hospital and to nursing in another. Purchasing may be highly centralized in one facility while in another individual departments are used to being heavily involved in sourcing or negotiating department-specific supplies. When an IDN adds a hospital to its mix, that hospital may belong to a different GPO or use a different materials management information system (MMIS). The "supply attitudes" of both the medical staff as well as senior administration from one facility may differ significantly from another’s within the same system, he indicated. "In any of these scenarios it would be a mistake to ignore such differences when designing the optimum supply chain," he added.

Such hurdles shouldn’t sway materials managers from migrating the IDN’s operations toward a more standardized way of doing business, Rudomin said. "The optimum goal could very well be that all facilities within a system ‘act as one’ and therefore a standard supply management approach across the entire system is ideal," he said. "Except for the most highly integrated IDNs, this is often not the case and it can be a critical mistake for the materials manager to act as though it is. So rather than trying to force a square peg into a round hole, I’d recommend that the materials manager develop a reasoned, phased, strategic plan for the system-wide management of supplies and implement each phase to build upon previous successes. Make your business case, build your plan, implement your phases, adjust as necessary, document the outcomes and improvements, move on to the next phase.

"As I suggest to my clients," he added, "the goal should be to improve supply chain efficiency and effectiveness each and every year, not to reach some perceived definition of perfection."

One of Rudomin’s scenarios hit close to home for Hunter. "Our most difficult challenge has been converting over the past 24 months to a single database [supply chain management] information system. We had previously been on the same system, but with some 10 different databases. It was a well-established mature system that our folks had come to appreciate," he said. "The new system, as with any new system, is not as mature and requires tremendous standardization to be effective. When you implement new software systems, it compounds your problems internally, if your operational systems are not working properly. We have had some major difficulties in some areas, but will be a better organization with effective data once the installation is complete." 

Standardizing commodities, software and general product policies may be expected, "but due to geographic placement, size and local organizational expertise means you have to use different supply chain models and resources to meet each facilities needs," said Brett Still, regional director of materials management at Providence. "There are about 60 delivery locations in Oregon including an insurance company, medical groups and [long-term care]. Many places have no receiving facility or personnel. It’s a mistake to think, for example, that one medical distributor has the expertise or ability to be flexible enough to support a vertically integrated delivery and insurance organization and also support corporate procurement initiatives." That’s why Providence established a self-distribution model with a central service center in Portland that fortifies the IDN’s Oregon facilities. Providence operates 18 acute care hospitals, 12 freestanding long-term care facilities, 20 low-income and assisted living facilities in Alaska, Oregon, California and Washington, and works through GPO Novation and VHA Inc.

Providence isn’t alone with its service center operation. Such a strategy historically has stirred controversy because it can eliminate the need for or use of a GPO and/or a primary distributor. Similar models have sprouted at IDNs around the country, in such places as California, Florida, Iowa, Missouri, New Jersey, New York, Texas and Washington.

Overcoming the cultural divide

Balancing the diverse supply needs of all the members of an IDN with the financial and operational goals of the organization at large can erupt into the most painful of migraine headaches. After all, you’re dealing with standardizing operations, systems, suppliers, products, contracts and outcomes. "You’re balancing the quest to provide the ‘best’ patient care with the objective of maximizing margins, which secure ongoing survival and the ability to accommodate under- and uninsured/charity care," observed Jamie Kowalski, a prominent Milwaukee-based healthcare supply chain management consultant.

"Our toughest challenge is to get everyone on the same page and to work in unison toward common goals," said Nick Link, director of contracting at ProMedica Health System, Toledo, OH. "We came together from individual hospitals with different cultures and different ways of doing things. Once we all agreed on the plan and objectives, everything started to come together. The more we worked together, the more comfortable we felt with one another. One example is that our Lawson [ERP] system forces us to hold contracting at the system level with one item master and the same price for everyone." ProMedica manages Lake Erie Regional Cooperative (LERC), a purchasing cooperative that conducts some of its own contracting, as well as functions as marketing affiliate of GPO Amerinet Inc. It spans more than 23 counties in northwest Ohio and southeast Michigan. In 2005, Link’s organization documented close to $1 million in expense reduction, due to system-wide contracting and standardization efforts.

Kowalski called for "a vision of what the supply chain must and can be, based on an assessment of what is, and supported by first a strategic, then a tactical and operational, plan that achieves the balance between patient care and the bottom line."

Keeping all of Oakwood’s facilities aligned with standardized product use and making sure they all understand the continuing need to focus on lowering cost in the supply chain is an ongoing challenge for Kaczkowski. His group relies on a number of teams that focus on product trial and acceptance, as well as system-wide ad hoc teams across the system to review one-time needs. "VHA assists us with benchmarking information to identify areas that are inefficient in cost or practice, and we review this data with the hospital presidents and develop a plan of action to improve in cost and efficiency," he said.

Rudomin acknowledged how difficult it is to bridge cultures while moving an organization’s overall supply chain program forward. "On the one hand, you need to serve your customers as well as you reasonably can within their currently existing infrastructure and culture," he said. "On the other hand, a good IDN supply chain manager will always be trying to balance customized programs developed to accommodate the particular realities of a specific customer against that supply chain management philosophy which he or she believes is the most effective for the IDN as a whole."

One of Rudomin’s materials management clients assumed responsibility for supplying the operating room at the main hospital, but the O.R. at one of the other outlying facilities resists the help, despite the materials manager’s proven record of success and cost reduction. Unfortunately, the IDN’s senior management team declined to get involved so the materials manager has to service each O.R. in different ways and in some cases with different suppliers. Consequently, Rudomin recommended that the materials manager at least document the cost of the additional labor and supply expense required to support the outlying O.R. and to prepare and present a report of this information to her boss.

"A materials manager may not always be able to change things, but he or she can always document the costs of ‘non-compliance’ and share that information in an appropriate setting," he said. "As the budget gets tighter each year, it is likely that this ‘easy’ cost reduction opportunity will no longer be allowed to go unrealized. I think in scenarios like this, the best a materials manager can do is continue to move forward with as much of the overall supply chain management strategic plan as is possible," he continued. "There will never be perfection, but there will always be a need to improve and enhance the operation. So I recommend that materials managers stay focused and not let the inevitable occasional setback derail your overall efforts."

Proximity is key – if not physically, then electronically, provided you work with a reliable MMIS or ERP system, according to Link. "Being close to the customer is very important as you work with your clinicians and end-users to better understand their needs, help manage their supply budgets, and improve processes," he noted.

Tips and tools to succeed

Even though the ongoing struggles of many IDNs may be universal there are enough success stories from which to learn, apply and customize their methods and improve outcomes. Start with the basics, experts advised.

"Basic blocking and tackling is always the most successful," Hunter said. "Provide adequate inventory and high fill rates to secure your customers confidence. If you can’t succeed there, nothing else will be successful. If you have accomplished inventory and good fill rates, you can then provide your customers with new ideas in either services or products which they may find helpful and willing to try." In 2004 Providence documented $23 million in supply chain savings on more than $515 million in annual supply expenses. Hunter’s office primarily coordinates the IDN’s custom contract program through Novation called ProvSource. Some of these contributions included the first ProvSource agreements in addition to receiving a greater return on administrative fees. The IDN strives annually to save 5 percent to offset inflation and new technology costs, he noted.

From his extensive experience working in multiple IDNs, Fred Crans, director of materials management at The Finley Hospital, Dubuque, IA, offered a few specific suggestions. They include PAR leveling clinics with once-a-week deliveries, electronic order processing and desktop delivery of office supplies and setting up low-unit-of-measure distribution to the hospital docks or in "extremely well-developed IDNs, to the point of use," he said.

Focusing on customer service, which includes ongoing open communication, is a key strategy for successful supply management in IDNs.

"Build a system that is efficient for your customers to use and access and helps them to provide good quality care to the patients we all serve," Kaczkowski said. "Set up measurement systems to monitor and improve on an ongoing basis." That includes keeping your "COs" and service line leaders informed on product selection, trial progress and other issues, he added. Kaczkowski further advised reviewing accounts payable reports to pinpoint who is spending what with whom. "Comparing this report with a similar review of purchase orders will identify renegade spend and highlight common spends that you can use to maximize discounts or value-added items," he said.

Participation is vital. "Gain buy-in from staff and end-users," Link urged. "They’re more likely to support your initiatives if they have input."

Tom Golaszewski, vice president of materials management at Meridian Health System, Neptune, NJ, and executive director of The Coastal Cooperative of New Jersey, concurred.

"Keep as many stakeholders engaged in all phases of your supply chain decision processes," he said. "Although there will be challenges continuously – nothing is ever the ‘slam dunk’ it may first appear to be — perseverance is vital." Last year, Golaszewski’s group booked $4 million in annualized supply chain savings through such strategies and tactics as value analysis and building relationships between clinicians and the administrative operations staff.

Oakwood’s purchasing department tracks savings in a traditional way by documenting and recording supply item cost reductions, Kaczkowski said. "We set a specific goal for the entire department that is divided up by contract administrators and buyers so they all have saving targets based on the level of spend they manage," he continued. "We challenge the purchasing staff to continue to look for any type of cost savings even after they feel they have maximized on price reductions. Payment terms, free shipping or use of our freight agreements are opportunities to reduce cost. They are to challenge any clause that has inflationary increases."

The group also measures distribution turnaround time, inventory turnover, physical inventory accuracy and shrinkage and obsolesce as methods to measure efficiency. "We establish goals around each of these items, and the materials managers at the hospitals manage to those targets." Furthermore, Oakwood automated the supply chain process using electronic means for requesting, ordering, confirmations and receipt, documenting more than $100,000 per year in savings.

Oakwood factors in accountability, too. Materials management worked with the nursing staff to develop a written "service contract" with each of the nursing units the department handles, he noted. His group is responsible for monitoring, surveying and reporting performance with nursing and results are incorporated into yearly evaluations.

Effective and efficient IDNs consolidate and leverage economies of scale, according to Kowalski. He encouraged IDNs to use "standardized customization" to meet the needs of their diverse customers. "Start with the customer and work backward to the supply source, eliminating any and all unnecessary steps, participants, trading partners’ inventory, handling, labor and expense," he said. "Accurately identify and continually measure costs – per transaction and aggregate, performance and service. Develop and follow a strategic plan that moves the enterprise closer to the end-state vision for supply chain management.

"All easy to say, much more challenging to do," he added.

Such efforts involve maximizing the use of the expensive MMIS or ERP system in place, according to Rudomin, particularly in the area of mining the system for new contracting opportunities. Those opportunities typically stem from uncovering similar non-stock purchases made independently by various departments throughout the IDN that can be converted to cost-saving contracts.