Left to Right: First Row: Managers and Directors,  James Newman, Barbara Klag, Alan Wilde Jr., Christine Foley, Dennis Mullen, Donald Diver, William Feran, Nancy Huber and the rest of the team.

Being one of the larger and more reputable integrated delivery networks may lead some to believe The Cleveland Clinic Health System possesses an unfair advantage when it comes to achieving clinical, financial and operational efficiencies. Nothing could be further from the truth.

Some organizations, whether large or small, employ deft strategic analyses and simply make astute tactical decisions for their facilities that position them on the pathway to prosperity. You don’t need to be highly regarded or sizeable to do that. You just need to be flexible and resilient. You try something. If it works, then great. If it doesn’t, reassemble the pieces and try something else. Occasionally, you’re ahead of available market developments and offerings and have to make do. Eventually, you achieve success.

That’s how The Cleveland Clinic Health System, an IDN comprising 11 hospitals and multiple non-acute care facilities in the Cleveland, OH, metropolitan area and south Florida, emerged victorious over a number of prominent hospitals and IDNs and earned the title of 2005 Materials Management Department of the Year by Healthcare Purchasing News.

Crile Building The Cleveland Clinic Foundation

During the last five years the materials management department at The Cleveland Clinic generated more than $66 million in cost reductions through various techniques and technologies that leveraged its considerable investments in people, innovation and technology.

Working to streamline processes for its customers, including clinical end users and administrative back office staff members, the department not only has embraced information systems to automate functions and improve productivity, but also has mastered the delicate balance between relying on internal expertise and external sources. While some organizations can attribute much of their success to the efforts and recommendations of a consulting firm,

The Directors of CCHS Materials Management Left to Right: Dennis Mullen, Donald Diver, Alan Wilde Jr., William Feran

GPO or supplier, if not a combination of all three, The Cleveland Clinic instead maintains more control over its destiny, tapping outside experts when it fulfills an internal purpose – essentially using them as a means to an end rather than the end itself.

The Clinic’s Fantastic Five
Led by Nancy Huber, a certified public accountant by training and senior director of materials management, The Cleveland Clinic’s materials management underwent a significant makeover about five years ago that continues to reap fiscal rewards for the organization today. Previously, each facility within the organization operated its own separate materials management department, which worked with one of four disparate materials management information systems, according to Huber. Although the organization was an active shareholder in Premier (by virtue of its shareholder status in the former American Healthcare Systems, one of three alliances that formed Premier Inc. nearly a decade ago) it wasn’t fully taking advantage of that relationship or even its own internal supply chain management potential. The solution, not surprisingly, was consolidation.

Winners of the Employees of the Quarter Competition Left to Right: Standing:  Jerome Harden, Niki Cromes, Marcia Miller, Mark Nussbaum, Kathi Scott, Laura Greguric, Rick Hokes. Left to Right: Sitting:  Patricia Zakrajsek, Patricia Beckner, Irene Stecker

"We consolidated our MMIS to one [Lawson] and brought all of the departments together, retaining a lot of experience in the process," Huber said. "Each area maintained a specific role that plays to each person’s expertise, giving us more recognition and authority. We designed this process to give us an effective check-and-balance situation."

The Clinic’s materials management department comprises five sections, each admittedly with some overlapping functions but more complementary to one another from a productivity standpoint. The bulk of The Clinic’s materials management staff work in the purchasing/vendor relations section under the directorship of Alan Wilde Jr.

Purchasing/Vendor Relations handles the transactional business, including contract management (including GPO and individual pacts), materials handling and purchasing. Staffers, which include analysts, are grouped by commodity and functional area. A senior buyer leads each one. Analysts within each group may represent multiple commodities and products. Each group offers Clinic customers one point of contact with commodity-specific expertise on the procedures to support the product acquisition process.

Finance and Compliance focuses on tracking and analyzing supply expenses for customer departments, including auditing the usage of GPO- and Clinic-negotiated contracts. Under the directorship of William Feran, this group also specializes in strategic sourcing initiatives, using the Internet and software to conduct reverse auctions and comprehensive supplier searches.

The Regional Hospital Logistics section, under the direction of Dennis Mullen, focuses on inventory management and control, as well as maintaining The Clinic’s item master file, which includes 85,000 items. Nearly 70 percent of the items purchased are from the database. Even with facilities in Ohio and Florida, Mullen, based in Cleveland, admitted that supply logistics within the organization works "very well" because the management staff in Florida supports organizational goals and objectives, as well as many contracts. "And it works very well because I get to go down there all the time," he added, laughing. "Even in the summer."

Materials Management Meeting Left to Right: Faye Ivory, Steve Miller, Kim Zaun, Niki Cromes, Kathi Scott

The major difference between the Ohio and smaller Florida operations involves medical/surgical supply distribution. Ironically, a regional distributor, Seneca Medical, handles the majority of The Cleveland Clinic’s facilities in Ohio while a national distributor, Cardinal Health Inc., handles the hospital and non-acute care facilities in Florida. And that’s just fine for The Clinic.

"We’ve had a long-term relationship with Seneca Medical that has worked very well for us," Huber said.

"Our decision came down to service issues," Wilde added. "We’ve had excellent service [with Seneca] at a great price."

Specialty Services represents the fourth section in the materials management department, launched about a year ago. Under the direction of Donald Diver who is retiring at year’s end, the Specialty Services section coordinates its Minority Business Enterprise, an "ongoing, aggressive minority procurement program that is fair, competitive and effective," as well as managing materials management and procurement functions for the Lerner Research Institute and various construction and renovation management projects outside of The Cleveland Clinic Foundation. Contrary to popular belief, Diver’s section remains very busy. "We’re always active," he said. "All of our entities are in different phases of expansion and construction. It’s like we have a ‘building of the month club.’ Competition is phenomenal. We have to stay on pace." Diver works with Wilde’s section to ensure his customers access GPO and system contracts.

The fifth section represents the Lawson Application Team that reports directly to Huber. The Clinic uses Lawson for "requisition entry and purchase order creation on the front end, while accommodating receipt entry and payment on the back end of the procurement process," managing inventory and supplier information that is linked to the general ledger.

Pick and choose
One of the hallmarks of The Cleveland Clinic’s success-to-date is its ability to manage external operational support as part of its internal staff’s responsibilities. Aside from distribution, much of that external assistance centers on information technology. The Clinic’s external repertoire includes Premier, Global Healthcare Exchange (GHX), Ariba, Owens & Minor, Cardinal and DemanData Systems LLC, each of which contributes to the puzzle of IT capabilities.

If The Cleveland Clinic seems like a good candidate to function as an independent IDN it probably is but you’d be hard-pressed to convince the materials management department to sever any tethers to its GPO.

"Premier does a lot of good blocking and tackling for us in many of the commodity areas, such as sponges and gloves," Wilde said. "It gives us the ability to focus our efforts and energies on other things, like implants. We have the ability to pick and choose what we want to work on internally versus using the GPO so we don’t lose any value."

The Clinic also operates its own regional GPO, the Cleveland Health Network, that specializes in regional and local contracts in such areas as med/surg and pharmacy distribution and dietary. "We use CHN to leverage more local opportunities and fill the void where Premier may not have contracts," he added. The Clinic operates a number of multidisciplinary regional product evaluation committees that focus on such areas as infection control, nursing, surgical services, biomedical engineering and risk management.

Wilde is proud of the fact that The Clinic is "very compliant locally and nationally," and that it supports Premier, too, in the form of making sure the GPO collects the applicable administrative fees even as The Clinic qualifies for and receives the appropriate discounts and rebates. "We get the best of both worlds," he noted. "We can negotiate on our own but also maximize our opportunities with Premier."

Besides group purchasing contracts, The Clinic taps into Premier for its e-Sourcing technology to expedite contract activation and management. Essentially, the organization works with Premier to make sure it receives credit for and advantages from using Premier vendors, regardless of who negotiated the deal, according to Wilde. Previously, materials management staffers had to wade through reams of paperwork to ensure The Clinic’s facilities received the correct contract pricing and purchasing volume receipts – a labor-intensive and time-consuming manual process that now happens automatically.

The Clinic uses Cardinal’s Continuous Price Accuracy program to eliminate pricing discrepancies and invoicing errors, tying into the Lawson system and Premier. "Our [accounts payable] folks love us with this one," Wilde added. The Clinic’s invoice accuracy rate is 99.5 percent.

The organization relies on GHX for electronic commerce transactions to facilitate order processing. As of March 2005 The Clinic conducts electronic data interchange via GHX with 31 vendors.

Ariba supports The Clinic’s strategic sourcing initiative, helping Feran’s section to conduct electronic bidding and reverse auctions for a variety of product areas, including commodities and physician preference items. With more than a dozen online events under its belt to date, The Clinic has generated approximately $3.8 million in savings based on $23.8 million in expenses, or 16 percent annually. These efforts also facilitated product standardization efforts, improved customer and supplier relationships and sped up organizational decision-making. Among the product areas where The Clinic succeeded with reverse auctions: Linens (where they netted 25 percent savings), office supplies, personal computers, contrast media and perfusion packs, which was spearheaded by Delos "Toby" Cosgrove, M.D., who now serves as CEO and president of The Clinic, according to Feran.

The Clinic’s most successful reverse auction to date involved bariatric beds and accessories held back in October. Eight vendors participated, including two incumbents. Within 90 minutes of the auction’s start, The Clinic received 131 bids for four separate product lots. Participating vendors bid on two sets of lots – one at 100 percent commitment and the other at 70 percent. Total savings averaged 57 percent with three vendors offering final bids within five percent of each other, according to Feran.

Within the last year, the materials management department began working with several clinical areas to help them better manage their inventory, expenses and patient charges electronically. Huber’s team, along with nurses and technicians, Lawson group and Owens & Minor consultants, implemented Qsight software from Owens & Minor’s OMSolutions unit in the electrophysiology laboratory, cardiac catheterization lab, molecular imaging and interventional radiology. This Internet-based inventory control software uses hand-held bar code scanners to track products and provide reporting tools, such as item usage by procedure by patient. The group was able to create an automatic interface to tie Qsight into the Lawson MMIS and integrate it with the billing system.

The Clinic chose Qsight for these clinical areas because it is so user-friendly for clinicians, Mullen indicated.

The materials management department uses DemanData Systems for data cleansing of The Clinic’s item master file. "This is a function we had been doing on our own but by putting this tool in place we took our analysis piece down from weeks and days to hours," Wilde said. "We can see the financial impact of a new contract within hours." New item files are built only if something has been purchased twice in a three-month period. Staff members can submit request for new item files via electronic forms on the World Wide Web, along with an Excel template for multiple items.

The Clinic uses an internal automated contract analysis tool, created in Microsoft Excel using a Visual Basic Macro program to bridge the DemanData data-cleansing tool with Premier’s e-Sourcing contract activation tool.

One obvious question is why The Clinic doesn’t use a single software vendor to handle all of these different functions. The answer’s simple enough. A single vendor either didn’t offer all of these different functions when The Clinic needed them or all those functions in a single package weren’t comprehensive enough for The Clinic, according to Wilde and Mullen.

The materials management department has developed internal custom catalogs for requesting departments in order to reduce special item ordering and make sure contracts are used for inventory and non-stock purchases. Wilde’s group also uses Pitney Bowes’ Arrival Package Tracking System to monitor via bar coding all non-purchase-order packages arriving at the receiving dock, averaging 600 packages daily.

After receiving frank and honest feedback solicited from vendors, materials management used FormFast to redesign its purchase order layout to make it as simple as possible, but customizable, too, Wilde said.

Through its automation efforts, clear reporting of product purchase history and improved data quality materials management has reduced the amount of time it takes to initiate, process and receive orders by 25 days over a five-year period. "These are some of the reasons why we’re successful," Wilde noted. "We look for things to make ourselves better and take advantage of them."

Numbers game
Aside from automation and technology and talented staff members, benchmarking plays an important role in the success of The Clinic’s materials management department. Huber’s team tracks a slew of statistics that it compares with national averages, as well as internal productivity measurements.

The Clinic tracks supply cost per adjusted patient day and discharge and supply cost as a percent of net revenue, comparing those figures to American Hospital Association data with the knowledge that a variety of factors, such as case mix, complicate reliability. "We struggle with determining who our competitors may be," Wilde said. "It’s really tough. But we provide this data to administration just to show how we stack up."

Added Mullen: "There’s no perfect way to do it."

However, materials management works with patient financial services to benchmark employee productivity based on dollars processed or cash collected per full-time equivalent. "By changing our FTEs from process to analytical roles we’re trying to show we’re getting more productivity out of them," Wilde said.

The department produces monthly cross-tabbed reports for each facility that examines expenses by supply category and department, comparing actual expenses to budget and prior-year figures. Administration also receives a monthly report that compares supply expenses to revenue and the flex budget that factors in procedure volume.

Mullen’s section keeps close tabs on fill rates, stock-on-hand, inventory turns, maintaining a frequency of 12 to 18 turns per year, depending on the product and area. The group meets monthly with end user departments to go over any issues, including major changes in turns. Potential obsolete inventory, defined as stock items that have not been issued for 12 months, is tabulated in a report and distributed to all facilities. "Personnel are able to transfer the inventory to a facility where it will be used, lowering the value of obsolete items and increasing net profit through efficiency," stated The Clinic’s nominating petition. In fact, one of the surgical areas lowered its obsolete inventory value within one year to $59,000 from $150,000.

Online and live recognition
The Cleveland Clinic is one of the few organizations that actively highlights and promotes materials management’s operations and achievements on the Web with any significant depth. The "View on Materials" Web site on The Cleveland Clinic Health System intranet site has been a collaborative effort between the materials management department, Lawson and The Clinic’s IT department, according to Mullen, but materials management is in the process of taking it over. The intranet site also serves as an online communications tool for end users to reach materials management professionals for services as well as an operations tool for end users to place orders and swap usable business-related products and equipment.

Soon the general public may be able to learn more about materials management at The Clinic, too. "We talked about expanding it out," Mullen said, "but we’re still trying to decide what to make accessible to the outside world." Mullen added that the department will have a link on The Clinic’s publicly accessible Web site.

Diver’s section also manages employee recognition and satisfaction and patient satisfaction efforts. Starring many materials management employees, one video addressed how to "create a warm welcome, a magic moment and a fond farewell." Another emphasized how to deliver "World Class Service" in difficult, non-routine, but real-world situations.

Diver’s team recognizes employees on a quarterly basis that deliver exceptional service and excellence through the "Smiles R Us" campaign. The more frequent "On The Spot" awards are presented to employees who perform well beyond the scope of their routine tasks. Recipients can win materials management-branded items. "This is a way for us to reward employees on a long-term basis," Diver said. "If someone sees something it can be recognized right away." It’s akin to a "silent shopper" program, he acknowledged.

Finally, the department conducts routine employee surveys to measure attitudes about materials management service. Two surveys completed last year showed an 8 percent improvement in overall employee satisfaction.

"It’s important for us to promote ourselves – what we do and how we do it," Wilde noted. HPN