At a recent retreat, the four IDNs and their top supply chain management teams met to discuss strategies. They plan to meet four times a year and benchmark their progress from reports on all cost savings and revenue generated.

LeeSar/Cooperative Services of Florida (CSF) was originally established in 1998 as a regional healthcare supply chain management company, the result of a cooperative effort by the CEOs of two major southwest Florida hospital systems. The visionaries were Jim Nathan, president of Lee Memorial Healthcare system, and Dr. Duncan Finlay, former president of Sarasota Memorial. At a time when integrated delivery network formations and development was hot they believed that through: vertical integration, self-distribution (LeeSar), and self-contracting (CSF) they could save millions of dollars per year in the acquisition of medical supplies, capital equipment and service contracts. LeeSar/CSF has been the contracting arm and distributor for the Lee Memorial and Sarasota Memorial systems for 12 years. Simpson came to LeeSar in 2002, when the operation was floundering. Today under his stewardship, the group is flourishing and creating a new model in healthcare supply chain management.

The heads of supply chain management for the four groups include: Hedy Tomlin, R.N., director of supply chain management, Sarasota Memorial Health System; Amy Newman, purchasing director, Huntsville Hospital System; Terry Murphy, director of supply chain, Lee Memorial Health System; and Marc Westerman, vice president of support services, Central Florida Health Alliance. Additional supply chain support management includes Bill Tousey, vice president of CSF, and Dan Fitzgerald, executive director of distribution purchasing at LeeSar. Simpson leads the efforts by fostering education, communication and with large doses of encouragement. In addition there are core teams at LeeSar/CSF that oversee the day to day information technology, contracting, sterile processing, pharmaceutical repackaging, distribution and surgical pack assembly.

The IDN alliance has been created to unify the groups’ collective supply needs and leverage those needs for the purpose of reducing member costs. These gains will then be managed to assure their consistency and sustainability thereby justifying the new alliance.

In addition to product standardization and contracting – the group is expanding their custom tray and instrument repair operations as well as the expansion of their sterile processing operations.

The current model already includes self-distribution that prepares supply carts at low unit of measure and then delivers them to the individual health systems just-in-time. This is accomplished using software that tracks the supplies pulled at nursing stations and transmits the data to the LeeSar automated carousel picking system.

They have identified the top 40 vendors in their existing combined contract portfolio by spend and the plan is to negotiate at least an additional 3 percent off the lowest member’s current contract pricing on those vendor products. The top 40 vendor med/surg product spend is currently $361,836,553, not including pharmaceuticals. The conservative 3 percentprojected savings estimate is based on an analysis done by an independent auditing firm that compared their spend figures to other similar sized IDNs.

The goal of the alliance is to develop product standardization among the products used and to drive contract usage among those products to 90 percent. The next step is to quantify individual and collective spend within a division and the collective group. They will then determine what levels are acceptable within the three primary categories of clinical, physician preference items and support services.

The group has identified four major opportunity categories within supply chain:

• Standardization – Actively reduce SKUs in circulation.

• Consolidation – Reduce the number of vendors they buy the same /similar supplies from.

• Utilization – Through staff education, assure competency and confidence in products to minimize waste and variation in product and procedure.

• Optimization – Exposing and incorporating multi-dimensional savings and supply chain efficiencies from raw materials to the point of use.

They anticipate that supply cost savings opportunities are going to present themselves faster than the current model is able to "traditionally" respond. An alternative option, mutually acceptable to all members, will be adopted and implemented over the near future. This alternative model intentionally transfers front-end energies to an education and implementation phase.

They have developed a consolidated master item file. The individual hospitals are reporting their purchases so they will be able to evaluate contract compliance and utilization as well as evaluate the best pricing currently achieved. This has been no small feat considering that each hospital is using a different materials management information system that includes GEAC, McKesson, Lawson and Peoplesoft.

They have also developed an education plan to share pricing information with their physicians to help in the standardization of physician preference items and hope to encourage physician support by reporting cost savings.

The group also works cooperatively with Kimberly-Clark Health Care, to create their own custom surgical packs from materials that Kimberly-Clark delivers in bulk. They plan on achieving additional cost savings by self-contracting products with other various manufacturing companies. Based on some feedback, the group is expecting some push back from vendors but they plan to revisit and revise management performance standards as needed and as they relate to their supply metrics. However, they have been successful in engaging a number of vendors already.

A clinical product review committee is in development that will help them evaluate technology. They intend to incorporate evidence-based practices and develop relationships with vendors that will manage product.

Huntsville’s Newman talked about how the Huntsville Hospital systems are gearing up to review their current service line as far as product selection. She said that considerations include the item’s purpose, whether it was expected to improve clinical outcomes, total cost of ownership and an evaluation of the cost of service with the particular item. Other considerations include safety, and whether it was standards compliant (OSHA, UL, AORN, AAMI, etc.). Newman was adamant that the C-Suite at her organization is behind the plan and supportive of her role. All of the heads of supply chain agreed that top executive support was imperative to their future success.

Other advantages of the alliance were voiced by Tomlin at Sarasota Memorial, who anticipated additional years of high bond ratings due to savings and debt reduction as well as becoming LEED certified in Sarasota’s green efforts and maintaining their MAGNET status. Murphy said he looks forward to growth in efficiencies at Lee Memorial and better support for multiple sites since they took on a number of new hospitals a few years ago. Westerman from Central Florida, looks forward to better cash flows in his hospital’s currently suffering deficits due to their high Medicare reimbursed patient mix.

In addition to contracting efficiencies and cost savings, the group expects to increase their member bond ratings enabling them to fund future expansions. They expect to save millions with their own biomedical engineering department that will maintain 99 percent of their medical equipment. In the future they expect to offer these services to other regional healthcare facilities as well, creating another revenue generation center.

Other benefits include freight savings with deliveries to centralized warehouses, early payment term discounts, and improvements in their ability to forecast levels of product needed by evaluating the consolidated product usage of the group, which will also help in vendor negotiations.

Asked whether they would add any additional health system partners, the answer was a resolute "No."Although others have shown an interest in joining, according to Simpson, extending the group beyond its current size and geographic area would compromise their ability to maintain exceptional customer service.

They are however, enthusiastic about sharing their model. They are willing and ready to help other healthcare systems start their own Circles of Commitment, as they have dubbed their plan. They are certain there is a Circle ‘B’ that will be developed - following what Simpson calls their Circle ‘A’ example. The ‘A’ group got together only after they identified similar cultures and goals in their four systems. Other systems could begin there. It’s all about a willingness to collaborate and regionalize services to become an efficient integrated healthcare provider.