Mayo retools medical
equipment procurement strategies, tactics
by Joseph M.
Mayo Clinic Supply Chain supports a three-region Integrated Delivery Network
(IDN) with an annual expense stream of approximately $3 billion. While
approximately 20 percent of that total is focused on the acquisition and
servicing of equipment, it is only recently that Mayo Clinic decided to take
a step back and self-assess this area of the supply chain.
The team has accomplished a
lot over the years and successfully negotiated purchases with exceptional
value as well as some of the largest purchases in the industry. For example,
the total capital expenditures for a four-room treatment facility in
Rochester will be approximately $188 million and a similar four-room
treatment center in Arizona will be $182 million1. However, what Mayo Clinic
Supply Chain found was that the information technology, processes and human
resources did not reflect a vision appropriately aligned to that of category
management nor the institution it supported.
It made sense then to start
with a newly stated vision: "The acquisition of capital medical equipment,
service and maintenance must contribute to the provision of safe,
high-quality, and cost-effective healthcare, while providing access to new
and innovative technologies. Given the realities of a post-reform
environment achieving an appropriate balance between the financial and
operational needs of Mayo Clinic will be required."
This refreshed vision
obviously focuses not just on buying equipment at great prices but looks
longer term by focusing strategically over the life of any asset purchased.
Along with this vision, the team proceeded with the category management
methods, information systems and organization changes required to manage
life cycle opportunities.
It so happened that while
taking this broader look at the enterprise needs, one of the larger master
agreements was scheduled to expire. Rather than renewing the agreement, the
team decided to take a fresh look at this opportunity. Mayo’s traditional
master agreements were really designed to make the procurement process
easier by eliminating the need to redundantly negotiate basic terms and
conditions. In the past, this made sense, but given Mayo’s objectives to
manage their assets strategically as well as improve the operations, the
need for a fresh approach was obvious.
Instead of renewing the
agreement, the Mayo team took the opportunity to contract for all the
service and maintenance needed to cover the asset base, negotiate upfront
discounts for routine purchases, establish defined group buy periods as well
as significantly streamline the entire procure to pay process with a single
monthly invoice and payment. The result was an estimated $1 million in
annual incremental value.
Like many, Mayo also struggled
to execute group buys that met the expectations of the buyers and sellers.
Group buys at Mayo Clinic had traditionally been tied to the annual budget
cycle where they would look at anticipated demand and plan buying based on
best available information. While this seemed like a logical approach, the
reality is that budgets are established and prioritized based on business
needs and organizational constraints that do not align well to an optimal
purchase. Departments were asking when the group buy would be, and Supply
Chain was asking them when they would like it. When Supply Chain took a
fresh look they realized that it was really the business cycle (repetitive
annual events) that drive an optimal group buy calendar and that they could
easily create a calendar to which the budgeting cycle could align. As a
result, Mayo now pre-establishes their group buys and gives all parties
ample time to organize demand and supply. As a result, they feel they can
deliver maximum value.
The Mayo Clinic category
management methodology was utilized to codify and communicate the process
for running both master agreement and group buy initiatives. There are five
primary steps in the process:
1. Initiation, where the team
is assembled and schedule established
2. Insight, where data is
collected and analyzed
3. Innovation, where the
business requirements are developed
4. Implementation, where the
contract is negotiated
5. Improvement, where the
contract is executed and managed
IT, Analytics loop
Mayo Clinic’s information
pertaining to this expense category was especially immature and inadequate.
There was very little meaningful information available as to what was
purchased, what was owned, what the ongoing service, maintenance and supply
costs were and what future expenditures might be.
To address the information
void Mayo started by assessing the data it had. There was no naming standard
in use as to what departments called an item, there were multiple
identifiers (asset numbers) and there was no way to group or categorize the
expense. In fact, it was not uncommon to see multiple asset tags/bar codes
affixed to a single asset, which surely confused many. The team quickly
evaluated options, convened and established the ECRI Institute standard (UMDNS)
at the item level, and as in other supply chain areas, decided on the
market-facing contracting categories established by Novation (Mayo’s GPO) as
the internal standard.
With data standards
established Mayo could create the needed connectivity within its systems,
such as the asset management system (Four Rivers), budget system (custom)
and ERP (Infor). Mayo also could envision a data warehouse and reporting
system that would adequately provide the information described prior
(scheduled to come online within the next 18 months).
While a lot of work remains,
Mayo is confident that in the near future internal analytics will be on par
with that of other supply chain categories, such as medical/surgical,
medical devices and pharmacy. That leaves them with only the need of a
robust benchmarking system. Supply Chain currently uses a few of the more
popular databases but feel there is a lot of room for improvement. They
turned to Novation for help in this area because Mayo is a VHA Lynx user
today and would really like a standard set of category management tools that
work seamlessly across expense categories. Mayo started their efforts by
asking suppliers for standardized quotes, and Novation for a tool where they
could retain and reference them. Novation has asked that other VHA and UHC
members to do the same, and eventually feel that a transparent understanding
of the market will result.
All the tools and process in
the world will not help without people using them. Mayo Clinic is blessed
with smart dedicated staff, but without clarity of roles, responsibilities
and expectations as well as adequate resourcing, the results will not
As a result, Mayo shifted
resources within their procurement team as well as realigned their
contracting staff to related portfolios of categories (hospital, surgery and
imaging for example). Mayo also established a closer working relationship
with its GPO where they share staff and objectives.
The remaining task was to
create an enterprise wide committee that could oversee and support the staff
which is called the Capital Equipment Integrated Team (CEIT). Mayo Clinic is
a physician-led organization and for that reason this is a physician-staffed
and led team. While administrators support and execute the day-to-day
activities associated with procurement, they look to their physician
partners to establish the overall strategies that drive process improvements
as well as initiatives. Confidence has grown and as a result clinical
leadership has now empowered this team by authorizing them to allocate much
of the capital budgeted set aside for equipment expenditures.
Mayo has established what is
believed to be a solid strategy but this represents only the first phase and
a solid infrastructure. In the future collaboration and higher levels of
innovation will be possible. Mayo hopes that by sharing what has been done
others might do the same and together move this part of our supply chain
forward as an industry.
Mayo Supply Chain Before-and-After
Local agreements focused mainly on the acquisition of
capital with limited value or flexibility pertaining to service and
total cost of ownership (TCO).
Master Agreement strategy, process and toolset that aligns
to the Mayo Clinic category management methodology. Leverage
relationships to extend group buys to the UMCSC as well as Mayo. Employ
a consultant to jump start efforts with our largest suppliers. UMCSC is
the Upper Midwest Consolidated Service Center, a group of like-minded
IDNs committed to work together to drive Supply Chain advancement.
Back-end accounting for value that is labor intensive and
does not accurately depict savings and cost avoidance.
Redesign of the value capture process so that it is
effective, efficient and timely.
Poor data integrity within the contracting system. The
system is managed as an electronic filing cabinet for thousands of
enterprise and local agreements instead of a source of business
Establishment of contracting categories that are aligned to
SCM standards as well as the BioMed Asset naming standard (ECRI).
Implementation in BioMed, Accounting and Purchasing systems.
Contracting staff that are aligned to site needs and
focused mainly on transacting as opposed to strategic cost reduction.
Redesign of the procurement process and clear alignment of
roles and responsibility that focus the contract portfolio managers (CPM)
on enterprise contracting as opposed to transaction processing. CPMs are
responsible for the sourcing and contracting function.
Poor visibility into the budgeting process due to lack of
coordination, standards and reporting capability.
Alignment of budget and allocation responsibility as well
as consistent data capture and reporting that supports contracting
No comprehensive enterprise strategy or leadership support
across the institution.
Establishment of a physician led committee that oversees
and coordinates the capital equipment procurement process (including
capital allocation authority in support of convergence).
Little to no support or leverage of resources outside of
Supply Chain Management (particularly our GPO and UMCSC).
Establishment of a Novation partnership with shared
objectives, business intelligence, technology and resources.
Quotes that provide insufficient and free form data that
require significant effort to understand and little value if retained.
Standardized quote receipt process and template that
provides consistent detail, savings and any add-on costs such as
freight. The creation of a data base to store all historic quotations
for reference and benchmarking.
Group buys that are difficult to execute and rarely
leveraged the full buying power of Mayo Clinic and the UMCSC.
Redesign and standardize group buy strategy, process and
tools to precede the budget cycle as opposed to follow it. Leverage the
UMCSC and Mayo buying power to maximize value.
1 See http://www.mayoclinic.org/news2010/6056.html
Dudas serves as Vice Chair, Supply Chain Management Division, Mayo Clinic,