– There is strength in numbers – at least when it comes to the hospital supply chain after a merger.
Hospitals and health systems are increasingly engaging in merger deals with like-sized organizations to leverage economies of scale, increase efficiencies, and realize savings for both providers and patients.
An area ripe for savings post-merger is the hospital supply chain.
Hospitals and health systems have much to gain from combining their purchasing power. In fact, organizations can save an average of 1.5 percent annually on common supply chain expenses shortly after a merger, according to researchers at the National Bureau of Economic Research.
For health systems generating millions to billions of dollars, those modest hospital supply chain cost reductions can translate to significant savings for providers and patients.
Newly formed Bon Secours Mercy Health had supply chain savings in mind when finalizing their deal.
“With the merger, executives had a savings goal in mind and the supply chain made up a very large portion of that goal,” Amy Whitaker, vice president of supply chain clinical integration at Bon Secours Mercy Health, recently told RevCycleIntelligence.com.
Bon Secours Health System and Mercy Health completed a merger of equals in September 2018, creating one of the largest health systems in the country with 43 hospitals and over 1,000 care sites along the east coast and Ohio and Kentucky.
Health system executives brought the two Catholic ministries together to advance the health of patients in the communities they served, as well as realize significant savings for all stakeholders.
Specifically, executives at Bon Secours Mercy Health set an $87 million target for supply chain savings this fiscal year, Whitaker reported.
Despite facing an ambitious goal, the new health system is on track to meet their supply chain savings goal thanks to some help from health IT and group purchasing partners and the development of a new value analysis program.
USING BLACK BOX ANALYSES TO JUMPSTART SUPPLY CHAIN SAVINGS BEFORE THE MERGER CLOSES
To meet an $84 million savings goal, Whitaker knew she had to start optimizing the new health system’s supply chain even before Mercy Health officially joined Bon Secours Health System.
However, she faced significant challenges with identifying tens of millions of dollars in savings across two organizations.
“We were given the challenge of creating savings documents to understand how we could calculate some savings targets. But prior to the merger, everything was shielded. We could not see pricing, usage, volume, and other data on the Mercy side and vice versa,” she said.
Federal, state, and internal regulations, as well as technology barriers, prevent organizations from accessing the bulk of each other’s data prior to completing a merger, making organizational alignment and benefit realization management a daunting task.
Without access to Mercy Health’s data, Whitaker struggled not only to create a plan for supply chain savings, but also start the process of bringing the two ministries under single contracts for all supplies, equipment, and services.
The experienced supply chain leader and former nurse turned to Bon Secours Health System and Mercy Health’s mutual health IT and group purchasing partners to help. The vendors performed “black box” exercises that used data from health systems to create savings projections.
“They were allowed to give us high-level category savings,” she explained. “For example, they could say that combined we spent x amount on a certain product and based off of the data, we feel like you guys could save a certain percentage by combing purchasing power.”
The vendors – Premier and Lumere – provided Whitaker and her counterpart at Mercy Health savings projections for key supply chain items and areas, including nursing, price parity, and physician preference items. Using the information, the supply chain leaders developed a benefits realization summary to achieve their savings goal starting on day one post-merger.
“The black box exercises really helped us to organize, budget, and understand where we needed to focus our limited amount of resources initially while we were trying to launch the integrated supply chain program,” she explained. “With the information, we very quickly understood the areas in which we had similar purchasing patterns. So, we could do a parity analysis and get a new contract for the new ministry with the items we both already use.”
The information also prevented the new supply chain team from facing post-merger complications with health IT and organizational alignment.
“It was nice to see each other’s information on September 1, but the logistics of actually being granted access and physically being able to analyze the data is a completely different story. Their intranet and our intranet are secured, and you couldn’t get access,” she stated.
But with a benefits realization summary already in place, the team could immediately carry out its plans for realizing savings and start developing a plan to ensure future savings for the growing organization.
USING VALUE ANALYSIS TO OPTIMIZE SUPPLY CHAIN
Now that Bon Secours Health System and Mercy Health have merged, the combined health system has set its sights set on further growth. And similar to their initial merger, health system executives expect to realize savings and quality improvements with each of its potential deals.
“One of our priorities was creating a process that we can grow with,” Whitaker explained. “So, we researched best practices employed by larger health systems across the country and found value analysis.”
Value analysis in healthcare is the process by which healthcare organizations purchase supplies, equipment, and services after considering the product’s impact on care delivery, patient safety, and health outcomes, as well as total cost. The process emphasizes appropriate utilization and pricing, cost-savings, and improved outcomes.
At Bon Secours Mercy Health, Whitaker implemented a value analysis program, naming it “Supply Chain Clinical Integration” because of the program’s high level of interaction with clinicians and other stakeholders.
Through the supply chain clinical integration, Whitaker and her team identify a product and its key volume drivers. Then, the team examines clinical quality research to determine if a certain approach or product is better in terms of quality outcomes for patients and providers.
Supply chain sourcing attaches a price per item to the product and Whitaker takes the information to clinicians and executives to discuss the opportunity to purchase high-value products or services.
“We take that total picture and we talk through the impact the products will have on patients and our clinicians. And that is the leading portion of the analysis, ,” she elaborated. “We always talk to the key stakeholders first to show them the information and see if they are willing to try another product that has very similar quality outcomes and/or better quality outcomes.”
Discussing price comes after, she stressed.
“A lot of times, value analysis programs lead with finance and it’s just by nature because it’s the supply chain,” she said. “For us, it is an important input to our process but it’s not the leading input. We will pay more for a product that has demonstrated superior quality outcomes.”
The supply chain clinical integration program has only been in place since February, but Whitaker has already noticed a significant impact on the supply chain.
“We have seen successful already – our CEO, CFO, and everyone all the way from corporate down to the facility level has been educated about the supply chain, and our clinicians are voting members,” she said. “It’s an interdisciplinary team that makes that final decision. It takes a little bit of time with how many people are involved, but it’s very important for us to try and understand the whole picture.”
And getting access to the whole picture will help the growing organization to continue cutting costs while improving care quality for patients and providers, she concluded.
The original article from RevCycle Intelligence can be found here.