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Saving the ship during a fiscal storm
Baptist Health System’s supply chain team contributes to dramatic turnaround

by Rick Dana Barlow

Baptist Health System’s winning team

Employees and executives of the Baptist Health System Inc. approached the year 2004 with considerable trepidation, bordering on a crisis of confidence they hadn’t faced since the organization’s founding in 1922.

The Birmingham, AL-based multi-hospital system recorded $52 million in losses in fiscal 2004 that contributed to a complete C-suite deck-swabbing designed to steer the ship back on course.

Awash in red ink, Baptist Health stared at a fiscal black hole that threatened to consume the not-for-profit 501(c) organization that owns and manages hospitals and health-related facilities in central Alabama if panic set in and knee-jerk reactions ensued.

By August 2004 with a new management team fully in place, Baptist Health initiated a three-year strategic plan to deal with the system’s serious financial challenges and overall operational issues. Baptist Health’s new executive team, including President and CEO Beth O’Brien, Senior Vice President and COO Mark Bryan and Senior Vice President and CFO Doug Davenport, placed a "high priority" on the system’s materials management function, according to Michael Louviere, Baptist Health’s vice president of supply chain.

Michael Louviere and Kyle Collum
huddle over a supply chain game plan.

"Our CEO, COO and CFO were supporters and recognized the key role [materials management] could play in reducing supply costs," Louviere told Healthcare Purchasing News. "We were in a crisis and everyone was eager to turn the organization around. All of BHS was ready to work with us. Everybody knew we needed to change some things because $52 million in losses sent a message that we were in trouble. This message did open doors. Our corporate CFO, Doug Davenport, was very focused on making major improvements. He clearly knew that for us to survive we had to roll up our sleeves and tackle the important issues."

Louviere was one of the newest vice presidents in a major area to join Baptist Health. He recalled his initial interviews with the new executive team and how serious they were about the supply chain’s contribution to returning Baptist Health to the black side of the balance sheet. "My first interview for this job was with Beth O’Brien, the new CEO. She made it clear that the supply chain was an important area BHS needed to concentrate on if we were going to save the ship," he said. "My second interview was with Doug Davenport, our CFO. Having a background in materials management, Doug knew first hand how materials could support the BHS transformation."

In the first year of Baptist Health’s strategic plan, the system booked a solid $5 million net gain in fiscal 2005, courtesy of streamlining operations, including the divestiture of business ventures and facilities and "significant efforts" within the materials management department. Those efforts involved a thorough physical, mental and emotional reorganization that established and strengthened clinical bonds and generated renewed zeal for bottom line success. Louviere’s team helped to generate $9 million in actual savings during the first year of the strategic plan and already have booked $8.6 million in savings this year.

As a result of materials management’s noteworthy transformation and extensive contributions to the organization’s remarkable and resounding turnaround, HPN selected Baptist Health System’s supply chain team as its 2006 Materials Management Department of the Year.

Diet and discretion

For Baptist Health to heal so quickly the organization had to go on a crash diet of sorts, shedding a variety of business ventures and related facilities that no longer contributed to or supported the three-year strategic plan. Of course, that directly affected Louviere’s department, which slimmed down to a respectable 10 individuals (including himself) to support the supply chain needs of the system’s four acute care hospitals.

"We reorganized and refocused our department," noted Pat Klein, Baptist Health’s system contract director. "The focus changed to the point that more emphasis was placed on the individual hospitals that represent our core competencies. Previously, we were involved in a number of other ventures, including retirement centers, nursing homes, exercise facilities and so forth. Our reorganization returned us to our roots to focus on the four hospitals. We went from a 10-hospital multidisciplinary system with myriad product offerings down to four acute care hospitals. We used to serve all of those facilities. When Baptist became smaller, so did we. And our new focus helped us deliver better service because we no longer had the distractions of many other different facilities."

Staffers navigate through Baptist Health’s automated system.

Under the new direction and management contracting remained centralized while purchasing did not. Louviere’s team composition illustrates the straddle, which has proven successful so far. Working with Louviere at the corporate level are Pat Klein; Brandie Hahn, system director of clinical resources; Frank Scoggins, IT supply chain director; and Edna Higginbotham, PeopleSoft item master administrator; as well as Vanessa Chamblee, a buyer who dually supports the corporate office and one of the hospitals. Working with Louviere at the four hospitals are directors of materials management at each facility: Shane Atkins, Kyle Collum, Wayne Burns and David Howard.

Baptist Health’s supply chain team set three goals on which to focus their efforts: Improve service, improve quality and reduce supply cost via the product price, the supply chain process and efficient usage. While these may not be new concepts they certainly represented an established blueprint for Louviere’s team to follow. "This is really a compilation of many different things we try to do," he said. "Instead of trying to do everything, we needed to prioritize and focus. Our first responsibility is to provide service to our patients. Coming in a quick second is to provide service with quality products in a quality manner with an efficient process. That includes bringing in quality products at the right price. All three together are important." 

In fact, Louviere couldn’t emphasize enough the need for materials management to have staffers with clinical experience and expertise. "It helps to have that clinical experience to relate to all our clinicians. I still utilize what I learned as a pediatric pharmacist, as well as what I learned at U.S. Oncology [his former employer]," he said. "It’s all about developing relationships and strategic concepts. But it’s based on being concerned for patients and demonstrating that to our clinicians. We’re not just running a business and cutting expenses. We are managing healthcare. The bottom line is we still have to reduce costs and standardize on products to pave the way for quality healthcare."

Once the new leadership arrived at Baptist Health and unveiled the strategic plan, Louviere’s team reached out to the clinicians, developing eight clinically oriented groups that help analyze projects and implement new contracts or procedures with active clinician participation and support. These aptly named "Clinical Councils" specialize in the areas of O.R., wound care, pharmacy, obstetrics, cath lab, gastrointestinal (GI) lab, infection control and radiology. They led off with what they identified as the high-dollar areas: The O.R., pharmacy, cath lab and wound care.

Wayne Burns makes it happen
in the storeroom.

"Our feeling was that the end users of these products should participate in the decisions of what products we should buy," Louviere said. "Of all the teams, the O.R. team has especially made progress toward standardization and contract compliance. One of the first things they always ask when reviewing new products is if the product is on contract."

Brandie Hahn, system director of clinical resources, concurred. "What really helped the O.R. team was the fact that one of the O.R. directors actually served on the [HealthTrust Purchasing Group] HPG Surgical Advisory Board so that person knew how the process works and what’s behind making the right decisions," she said. Until this month, HPG served as Baptist Health’s group purchasing organization. On August 1, Baptist Health’s leaders opted to sign with MedAssets Inc. to take the organization to the next level of supply chain automation and integration, despite being pleased with HPG’s performance.

Establishing a game plan

Four guiding principles drive how Baptist Health’s supply chain team operates. First, teamwork weds clinical, financial and operational experience to benefit patients and the system as a whole. Second, system thinking dominates decision making.

"Keeping the end in mind especially when it affects several departments is crucial to making the right decision," Louviere noted. "System thinking allows us to see the whole process, including the outcomes and consequences, before we finalize projects and initiatives. It inspires us to be more efficient by making the right decisions the first time."

Third, speed dictates the urgency needed to survive and thrive in the marketplace. "In today’s fast moving healthcare environment, we must move quickly to keep pace with technology and reimbursement changes," he said. "We cannot wait for the storm to blow over – we have to learn to work in the rain."

Louviere’s weather metaphor hearkened back to his first appearance before Baptist Health’s management team and board. "Before I started at BHS I had an opportunity to go before the administrative team to give a presentation that demonstrated the potential of materials management in crisis," he recalled. "My approach was simple. I covered our key strategies and our guiding principles. We discussed how we were going to move forward after having lost money for many years. BHS experienced some significant losses and there was turmoil, but that turmoil is also happening in all of healthcare – reimbursement is going down, vendors are getting stronger and physicians are more frustrated. Let’s just acknowledge that it’s raining, and that we may be in a storm, but let’s figure out that we can open our umbrella for protection so that we can move forward and still get things done."

Fourth, "real work" differentiated between the minimal steps necessary in a perfect process and the additional steps required in an imperfect world. "It’s all about an efficient process," he said. "If our value analysis teams are making headway then they’re picking the right products. But if there’s a lot of head butting and confusion [then] that static is not real work. Everybody has to understand the process and the motivations behind the process in order to buy in. It’s determining the right way of doing things vs. the shortest way of doing things.

Louviere cited an example at a previous job where he helped trace the steps of a doctor from the time he ordered a radiology exam to the time he actually received the final film. The process took more than 200 steps, which his team narrowed down to 100, eliminating all the "non-work." Louviere’s team completed a similar project for the supply chain in one of Baptist Health’s four hospitals.

Five strategies define Baptist Health’s agenda in achieving its supply chain goals. They are reducing costs from volume contracting through its GPO or locally negotiated contracts; standardizing products to reduce waste and cost; working with physicians, clinicians and suppliers to identify and implement best practices; measure and improve product usage and move market share where possible. The last one involves moving product through Baptist Health’s standardization process. "If you really want to get the best price you can’t work with 10 suppliers for the same items," Louviere said. "You need clinical input to reduce that number and give you the chance to get the best product at the best price. Moving market share is the best way to get a vendor’s attention and the best price. The winning vendor then has a vested interest in you."

Kyle Collum, Shane Atkins, David Howard,
Frank Scoggins, and Pat Klein

Once in play, Louviere’s "slimmed down" team focused 80 percent of its efforts on supply cost reductions and contracting with the remainder on operations improvement, logistics and service agreements. The team focused on "big impact" items and 10 key product areas, concentrating on the "A" items first before moving on to the "B" items and improving processes, according to Louviere. After generating nearly $18 million in cumulative savings during the first half of the three-year strategic plan, Louviere’s team changed directions and are now focusing on operations improvement and logistics, he said. "Quality without financial performance is not sustainable and financial performance without quality is irrelevant," he added.

The heart of the deal

Baptist Health’s new supply chain group achieved a number of significant milestones in its relatively short existence-to-date, bridging the gap between business and clinical concerns.

"Working closely with our cardiologists, our cath lab team succeeded in driving market share from 20 percent to 80 percent to one of our cardiovascular vendors with multiple products," Louviere said. "Instead of working solely on the price of the products, our partnership agreement focuses on the cost of the procedure, multiple products used in the procedure and on the average number of drug-eluting stents used per patient." This generated more than $750,000 in savings.

The cath lab team fostered trust with the frustrated physicians by not focusing on product price, he said. "We focused on doing the right things to help them take better care of patients. By working with them on choosing the right products they were willing to move to utilizing 80 percent of one vendor’s products. The physicians drove this." He declined to mention the vendor’s name on the record.

The wound care team focused on rewriting their policies and procedures, standardizing on product and increasing contract compliance, as well as standardizing wound care standing orders and developing a system policy for the Braden Scale, according to Louviere. They also moved to a new vendor that helped them with overlay and specialty bed usage. Because the team recognized that "true cost reduction comes from using the right product, the right nutrition for the patient and turning the patient according to protocol," they have generated more than $280,000 in savings, he indicated.

Changing GPOs to HPG from VHA several years ago drove contract compliance to 94 percent from 30 percent and promoted standardization. In fact, this year alone, the rebates and sharing of administrative fees will generate more than $2.9 million in savings, Louviere indicated.

The O.R. council evaluated selected surgical trays, implementing several new contracts that resulted in additional standardization, compliance and usage. At press time the team also was implementing a perpetual inventory system in all major clinical areas at each of the four hospitals.

The pharmacy council has been promoting the benefits of moving to generic products and therapeutic equivalent products, as well as studying the advantages that electronic medication administration and reporting (eMAR) software can offer.

The GI lab council helped generate 15 percent in savings by implementing a new contract for flexible scope repairs with Olympus Medical.

Edna Higginbotham, Louviere and Brandie Hahn discuss clinical, IT concerns.

The infection control council initiated a new contract for latex- and powder-free exam gloves for the entire system, helped to reduce nosocomial infections (which translated to $1.2 million in savings in six months at one hospital and $334,000 at another), and worked to improve environmental cleaning products and procedures with the system’s out-sourced housekeeping vendor.

Finally, Baptist Health relies on intelligence from MD Buyline and Mezzia to negotiate substantial savings on capital equipment and service contracts, according to Louviere.

Keeping IT real

Baptist Health’s supply chain team upgraded its information system to PeopleSoft Release 8.8 from the older version 7.5. "The new 8 series is a more advanced version with more features for hospitals," Louviere said. "The key for us is that we are finding efficiencies that are saving us significant hours each day."

For example, they eliminated the requisitioning process. "Users can directly enter their purchase orders, and monitor the orders’ progress," he added. "This has streamlined the purchasing process and shortened the time between the end user completing an order and the vendor receiving it. The upgrade has also eliminated many of the performance issues previously experienced in the purchasing module." They’ve also added an interface with the Pyxis automated supply management cabinets.

One component of the perpetual inventory system currently being implemented is "positioning the item master as the link between our clinical systems and the charge master, allowing us to keep our supply cost up-to-date at all times," Louviere said.

They’ve also rolled out a fully functional automatic replenishment capability for all established inventory locations designed to alleviate supply chain pressure during critical times, such as disasters. They’re working with selected vendors to automatically load inventory and usage data into their system, as well as with the Global Healthcare Exchange (GHX) to provide instant price verification on contracted items at the time of order and extend electronic data interchange capabilities with more vendors.

Baptist Health facilities share centralized item and vendor master files, which simplifies data processing for the system.

All in all, Louviere expressed the confidence his team has earned in promoting supply chain success and surpassing expectations. "The initiatives we have implemented, the positive changes we have achieved and the new procedures we have put into action will allow materials management to continue to be a driving force in the success of Baptist Health System and its hospitals," he concluded. HPN

See the Materials Management Honor Roll and 25 questions for the Best in Class.