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Data revealed that Moses Cone was spending 22 percent of its net revenue and 23 percent of its operating expense on supplies. Prompted by these figures, Moses Cone began restructuring its entire supply chain system, a process that required enormous effort and collaboration from many individuals and departments.

"Everyone was frustrated with the existing supply chain process," said Ken Boggs, who became vice president of supply chain following Moses Cone’s epiphany. "There was little involvement by senior management and the medical staff – we knew we had to change."

Moses Cone turned to VHA, the national health care alliance, for help with the restructuring initiative. VHA has a long history of helping member hospitals improve clinical and economic performance. VHA recommended that the health system implement Value Analysis Teams, a supplies leadership structure and a consistent process for how it made decisions about medical products and technology within the context of safe, quality and cost-effective care.

"We showed them it didn’t have to be our way or no way," said Rande Medwed, the VHA project manager for Moses Cone. "We don’t do things in a cookie cutter fashion – we take culture into account and mold it. That way it becomes a true, collaborative effort."

Moses Cone formed the Value Analysis teams and related oversight structure in three layers. The first layer was comprised of the executive committee, which oversaw the process. The second layer was the operations committee, which ran the process. In February 2005, the value analysis teams – the third layer – were formed to evaluate and advise on product alternatives.

The value analysis teams linked patient care (i.e. physicians, specialists and surgeons) to supply chain management, financial and clinical activities. Working within this process, decisions are made that result in high-quality patient care at a cost effective price.

The value analysis teams were led by area-specific clinicians with the support of physician advisors and structures of the medical staff and program committees. This connected the staff groups within each specialty and created greater inclusiveness in the decision-making process. For example, the neurosurgery value analysis team included a service line vice president and a financial advisor. The vice president, the OR director and the supply chain leader served as the liaisons between the value analysis team and neurosurgeons.

Moses Cone Health System

The second step in addressing supply costs was creating a fixed-price strategy for joints and spine implants and later for CRM products. VHA recommended that Moses Cone consolidate its purchasing efforts, but Moses Cone knew its physicians wanted to keep working with a variety of vendors. Keeping everyone’s objectives in mind, Moses Cone decided to pursue a fixed-price strategy as a way to create a fair market.

"We used national benchmarks and VHA data to develop our price standards. We wanted to create a market where we knew we were purchasing high-quality products at a common, reasonable price," Boggs said. "Most of the vendors’ initial reactions to the fixed-pricing strategy were fine, and they lowered their prices. Of course, some vendors wanted to negotiate. We told them that if they couldn’t meet our prices, we wouldn’t purchase their products. They were either in or out."

Organizational alignment was instrumental in implementing the fixed-strategy initiative. Within each service line, members of the value analysis team held a meeting to explain new supply chain intentions. Physicians attending related meetings were able to ask questions and provide feedback, which was communicated to the executive and operations committees.

This communication process helped with group cohesiveness and organizational alignment when some vendors complained to their physician contacts. The physician contacts called hospital executives saying that the fixed-pricing strategy was hurting sales representatives.

"Some doctors were afraid that we’d lose deals with key vendors," said Boggs. "As a result, they expressed their concerns to our CEO, who suggested they ask suppliers why they wouldn’t agree to meet our standards. At this point, suppliers were hearing the same message from doctors, which was that we wanted a fair market. Finally, all four of our joints vendors signed."

The initiative gained more momentum when it was clear that everyone was committed to supply chain reorganization. However, Moses Cone leaders realized that the initial structure for the value analysis teams needed to be modified. At the beginning of the Value Analysis process, each group had an advisor, who was approachable and easy to talk to. As the restructuring process continued, it became clear that a formal link was needed between the value analysis team and the local physician structure.

Moses Cone Materials Management

Groups were re-linked with advisors who were more appropriate for the specific decision-making process. For example, the OB/GYN value analysis team leader attended OB/GYN service meetings and the chair of the endoscopy committee attended the GI value analysis team meetings.

"We concluded that we should follow the natural local political structure in each medical service because what works in orthopedics might work differently in the gastrointestinal department," Boggs said. "Recognizing the decision makers allowed us to accurately identify needs because of the structure that was already in place. We modified the value analysis teams to match this structure, and we made better use of everyone’s efforts and time."

VHA has subsequently refined the Value Analysis process to focus more concretely on the need for clinical quality and integration. They have renamed this process Clinical Quality Value Analysis (CQVA), which Moses Cone has then integrated into its process. Moses Cone has hired a nurse into a new position in contract administration to serve as liaison between the clinicians and contract administrators.

The VAT process helped drive the supply chain initiative and the results were far reaching. Savings in 2005 exceeded $4.25 million and 2006 boasted a $4.5 million savings. In 2006, the fixed-price strategy helped the organization save $900,000 on metal spine implants, $320,000 on joints and $1.7 million on cardiac rhythm devices. Nine months ago, Moses Cone had jumped 25 percentile points in its supply cost rankings among VHA members.

• The (Clinical Quality) Value Analysis process has real value in supply chain management by changing the way hospitals streamline operations and reduce expenses. Value analysis team members were the "staff on the street" that helped introduce the fixed-price strategy to physicians and coordinate the conversion process.

• The use of physician practice formal structure has to be at the specialty level. The people involved in the decision-making process have to be the people who use the products.

• Any savings accrued should be blessed by department directors who are directly responsible for the budget. You can save a lot of time and paperwork by having them sign off that they understand and confirm the amount of savings.