Banner Health’s award-winning Supply Chain Services team enjoys a storied history in its off-site consolidated service center (CSC), named the Arizona Distribution Center or AZDC for short, to fortify its acute care, non-acute care and joint venture member facilities.
Back in 2004, the Phoenix-based team determined the need to lease off-campus space to encompass its burgeoning operation. Three years later, courtesy of a favorable return on investment, the team expanded to the current 200,000-square-foot building. During the real estate and stock market nadir of 2009, they took advantage of a favorable investment opportunity and bought the building, he recalls.
“We ‘grew up’ in this building with a ‘prove it first, pay as you go’ financial model,” said Doug Bowen, Vice President, Supply Chain Services. “First, we started out by leasing 50,000 [square feet] at this location. We proved the return on investment (ROI) of this new CSC business model. Next, we achieved increased savings every year, year after year. As our volumes grew larger, our footprint grew larger and our savings grew larger. Then, during the real estate crash of 2009, we purchased the building at a great price.”
Banner Health’s distribution model supports bulk deliveries to the acute care hospitals from the AZDC. The bulk orders are bound to economic reorder quantities that are then broken down to logical units of measure at each hospital for direct distribution to our acute care departments, Bowen describes. Any low-unit-of-measure (LUM) distribution activities from the AZDC largely are limited to medical devices used in surgical areas, he added.
“During the pandemic, we were very grateful to be running a bulk model – not a LUM model – as this allowed a full CSC and a full stockroom at every hospital, so we had much better supply chain fill rates, availability and resiliency than any [hospital] LUM program. Our CSC did create a LUM distribution program for non-acute sites to backfill shortages experienced from a third-party distributor,” he told Healthcare Purchasing News.
While the Banner hospitals experienced fewer demand-related disruptions, the Banner non-acute and joint-venture (JV) facilities needed extra support that they found in the AZDC, according to Bowen.
“During the pandemic, we were informed that our non-acute care operations were suffering from constant backorders that were threatening to shut down operations, so we put together a plan for AZDC to fill the gap to keep our non-acute operations running,” he said. “We were able to get a daily list of all of the backorders, by location, and then the AZDC team was able to ‘save the day’ with daily pick/pack and ship operations.”
Further, the AZDC historically serves as a safety-stock reserve for Banner Health’s most frequently used hospital supplies, including personal protective equipment (PPE) and intravenous (IV) supplies, according to Bowen. And the Supply Chain Services team completes an annual “Flu Preparedness Plan” that includes an increase in reserves for supplies used to treat respiratory illness. “This preparedness gave us a head start when supply chain disruption began to occur,” he added.
How did the non-acute and JV facilities know they could rely on the AZDC? Communication.
“Since this was a new process, we had daily status calls with all the stakeholders to track progress, celebrate the successful deliveries and to create action plans for any areas of improvement,” Bowen said. “The stakeholders provided excellent feedback and suggestions, and we were able to resolve problems and make improvements quickly, which helped to build trust in the performance of the new process. Paul Oppat [Executive Director, Supply Chain Services] deserves the credit for designing a successful process solution within hours of learning about the needs from our non-acute and JV facilities.”
In addition, Banner’s Supply Chain Services team maintains a structured, but customized, process for non-acute providers.
“Generally, there is not a dedicated supply chain member to serve in each location,” Oppat explained. “Instead, it is an additional duty for someone that does not report to Supply Chain. To ensure this space benefits from our strong Supply Chain, we have a corporate team dedicated to supporting all of the non-supply chain team members that run these non-acute care facilities.”
When the pandemic hit, Supply Chain Services customized the process even further. “We took the daily backorder reports from all the non-acute suppliers and filled all the backorders out of our Arizona Distribution Center (AZDC),” he indicated. “We understand our non-acute customers have unique needs. We dedicate several team members who directly provide service to our non-acute customers to assure they receive the same personalized service enjoyed by our acute care sites. This is a direct expression of our desire to ‘make supply chain easy.’”
IT as customer service
Customer convenience through information technology (IT) remains a hallmark – if not a requirement – for effective and efficient healthcare supply chain operations, a notion that Bowen’s team understands and supports.
Banner Health’s IT configuration includes a cross-linked, interconnected system spanning multiple areas. They have used Infor’s Lawson system as the legacy enterprise resource planning (ERP) system since 2002. They use GHX for electronic data interchange (EDI), Cerner for the clinical system and electronic health record (EHR) and Workday for the human capital management (HCM) system.
“Working with a third-party [company] we developed a customer-friendly requisitioning system based on the needs and feedback from the customers we serve,” Bowen indicated. “[Our staff] told us it was important to replicate the online shopping experiences they were familiar with including product images, supply suggestions, custom shopping templates and transparency to cost. The ERP and requisition shopping experience were integrated utilizing the ERP’s punch-out technology. This technology allows the customer to access the web-based requisition shopping experience from the ERP and upon checkout returns the completed requisition back to the ERP for processing, fulfillment, receiving and payment processing.”
They also built integrations that facilitate supply information sharing between the ERP and the EHR platforms, including item master information utilized in patient case documentation and patient charging/revenue cycle, he added.
Creating a local GPO
Banner Health became one of a few regional provider networks to create its own group purchasing organization (GPO) – called Supply Chain Value Network (SCVN) – to augment, but not replace, the national GPO – Premier – in which it retains membership.
Supply Chain Services drives sourcing and contacting efforts through category segmentation delineated in five areas: Blood, Food, Drugs, Commodities and Medical Devices.
“As we studied the categories, we saw that our GPO was effective in the Food, Drug and Commodity segments,” Bowen noted. “However, they were less effective for the Medical Device and Blood categories. This is not a shortcoming of our GPO, or any GPO; but I believe it is typical for national GPOs due to the local – not national – nature of these products and the suppliers’ preference for local contracts in these segments.”
SCVN focuses on contracts better served through local and regional suppliers as well as most purchased services, according to Bowen. Further, Banner Health uses SCVN as an avenue to form relationships and provide contracting and supply chain services to other interested provider organizations, he added.
Eliminating redundancy between the local/regional and national organizations takes “a lot of coordination, collaboration and communication,” Bowen admitted. “Mike Halmrast and the sourcing team do a great job of planning using our contract calendar and involving all the stakeholders so we can co-create plans and then execute those plans together.”
Since its initial agreement in 2008, Banner Health created its own insurance division that it expanded in 2012 and then again in 2015 to function as both provider and payer to bolster its philosophy behind providing value-based care. They offer a variety of health plans that include Medicare and Medicaid options.
“This has allowed the supply chain, the insurance division and the providers to work together in new ways to address the challenges of value-based care and move forward together,” Bowen noted. “The integration journey with outside insurers is still in front of us.”
Dennis Laraway, Banner Health CFO, see the development as a necessary service expansion for community care and value-based decision-making.
“ We believe that we need to have the skills and capabilities that insurance companies do from the point of purchase of health coverage all the way through the points of rendering care, episodic care, or even more managed care,” he said. “We need to have all of those capabilities under one organizational structure. The integration of skill sets from payer to provider to supply chain are key in managing value-based care.”
Banner Health may be considered a sizeable regional system but Bowen encourages smaller organizations to consider adopting and implementing much of what they’ve accomplished because it’s doable.
“For smaller organizations it does make sense to do this work in pieces and grow organically,” he advised. “Having said that, I think that same approach also makes sense for the large organizations. Keep in mind that we did not complete any of this work overnight. It has accumulated and grown over 20 years. In addition, I remind my team that this work is like cleaning your kitchen. The kitchen may be clean today, but you can count it being a mess tomorrow. The work has to be done every day to keep it clean and running smoothly.”