10 People to Watch in Healthcare Contracting

Welcome to the Journal of Healthcare Contracting’s second annual listing of people to watch in healthcare contracting, each of whom was selected based on suggestions received from readers and industry sources.

Their stories are about change: the changing relationships of contracting professionals with clinicians, co-workers, department directors, staff and national GPOs. They talk about facing the need for change and then responding swiftly, all the while learning from mistakes and empowering others to help move the ship forward.

Enjoy meeting this year’s interesting, dynamic healthcare contracting professionals!

Joy Barnett
Director of Administrative and Support Services
LSU Health Sciences Center, Services Division
Baton Rouge, La.

LSU Health Sciences Center is an eight-facility hospital system with 855 medical-surgical beds, 199 psychiatric beds and a total of 1,556 licensed beds. At least 80 percent of LSU Health Sciences Center’s $790 million budget is used to provide care for uninsured patients, which comprise 75 percent of its total patient load. Joy Barnett joined LSU Health Care Services Division 12 years ago and currently manages the system’s purchasing staff. While Barnett has worked for the state of Louisiana for the past 30 years, the last 25 years have been in the area of government purchasing, with a focus on medical supplies and equipment.

Barnett has negotiated (or overseen the negotiation of) state agency contracts for pharmaceuticals and radiology supplies and equipment. At LSU Services Division, she has embarked on a number of standardization initiatives, including cardiology products, exam gloves, gowns and drapes, and the rental of specialty beds.

The Journal of Healthcare Contracting: Name some important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Joy Barnett: The most important thing I’ve learned is the immeasurable value of having a strong medical director and a devoted nurse to work with me on clinical standardization. As a team of three, we have been able to achieve significant savings and reduced inventories that none of us would have accomplished individually. Other lessons I have learned are:

Be consistent in decision-making. Always be ethical and fair, and never base decisions on emotion or preference. If a contract doesn’t make good business sense and can’t be justified, don’t agree to it.
Always look at the big picture. There will always be vendors who come in and offer a lower price after the fact. But, sometimes, accepting that low price can cost a system more [in the long run].
Rather than just saying “No” to a clinician, come up with an alternative solution. Customer service is the key to success.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Barnett: One thing that has proved to be very right for us is the incentive provided for systems such as ours when we contract for the entire network of hospitals. The best way to drive down costs is for the healthcare system to be truly committed to compliance. When the level of commitment is there, the vendors are willing to partner with you and provide greater discounts.

Another thing I think is right with healthcare is the level of partnership offered by some of the GPOs. Among other things, our GPO has helped us tremendously with standardization projects. It has also provided IT services to help ensure correct contract pricing.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Barnett: One thing wrong with healthcare contracting is that inappropriate relationships exist between some vendors and physicians. When a physician receives perks from a vendor, it makes getting the true picture and negotiating the best available contract difficult. I’m not sure what can be done about this, but I’ll bet the recent investigations into the orthopedic industry will elicit some changes.

Another thing wrong with healthcare is that vendors want long-term contracts for three to five years. When the technology is changing almost faster than you can sign the contract, it is very difficult to make long-term commitments.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Barnett: I believe, or at least hope, that healthcare contracting will become more customer service-oriented. I believe vendors are constantly looking for new ways to provide customers with incentives, particularly networks that function as a system. I think both healthcare contractors and vendors will have to stay educated and informed on the leading edge of technology in order to negotiate the best contracts for [the end users], our patients.

Bob Carretta
VP, St. Barnabas Health Care System
Executive Director, Livingston Health Services
West Orange, N.J.

St. Barnabas Health Care system comprises nine hospitals and medical centers, and a total of 3,690 beds. The system also includes nine nursing and rehabilitation centers, three assisted-living facilities, ambulatory care facilities, geriatric centers, a psychiatric facility, a statewide behavioral health network and comprehensive home care, and hospice programs. St. Barnabas’ $2 billion annual budget helps care for the 225,000 annual inpatient and same-day surgery patients, as well as 1.5 million outpatient visits.

Bob Carretta has worked with St. Barnabas for the past 15 years, overseeing materials management, engineering and operations support services. Although his engineering background is strong, Carretta says he especially enjoys his work in purchasing.

The Journal of Healthcare Contracting: Name some important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Bob Carretta: I learned that to accomplish anything, we must pay attention to the people we work with. We can learn quite a bit by listening to others’ ideas. I have learned to respect each person’s dignity and to preserve others’ pride. Another thing I’ve learned is the importance of relationships. We must get to know people and develop a sense of trust. This is important both in interpersonal and vendor relations.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Carretta: I have found that when doctors know how much products cost, they usually are shocked at the price and want to use the right product. Hospitals are learning that doctors must be informed and involved in contracting in order to make good decisions. We’ve formed product analysis and acquisition teams comprised of doctors, clinicians, administrators and materials managers. This way, doctors can get the necessary information to make informed choices based on quality and cost. If we don’t get those who use the products into the contracting room, we won’t get anywhere.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Carretta: Some GPOs have lost track of what’s important and are not working closely enough with the hospitals. Instead, they are looking for the best bottom line and taking too much ownership in companies. We must work together to lower costs. We cannot lose sight of patient care and product value. At St. Barnabas, we are obsessed with patient satisfaction. We want everyone to participate in contracting, not just certain companies we have stock in. Of course, some GPOs do have the right agenda: They consider what’s right for the patient, what legitimate prices are and what the best products to use are.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Carretta: I hope to see doctors, clinicians and administrators more involved in contracting and working more closely together. I would like to see the vendors come to understand the need for these relationships, so that we’re all on the same page.

Michele Chulick
VP of Administration
Beaumont Hospitals
Royal Oaks, Mich.

Beaumont Hospital, Royal Oak, Mich., is a 1,061-bed facility with a sister hospital, Beaumont Hospital in Troy, Mich., which has 254 beds. The hospital system has an annual budget of about $265 million for supplies and services. Beaumont Royal Oak boasts one of the world’s largest interventional cardiology programs and is one of the nation’s leading centers for cardiac research.

Michele Chulick, VP of administration, joined Beaumont in 1979 as assistant director of management engineering and, later, senior associate director of information services. Her early background as director of financial and operations consulting with international public accounting firm KPMG provided Chulik with financial tools she has used recently to redesign Beaumont’s supply and distribution system. Chulik has managed to get clinicians at Beaumont involved in contracting and product selection processes.

The Journal of Healthcare Contracting: Name some important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Michele Chulick: First, we must always do what is right for the patient, as well as consider our customers’ different perspectives (physicians, patients, etc.). We must also keep in mind the perspective of the end user, who uses a specific product, in order to make this a win-win situation for everyone. I have found the greatest value in a win-win situation is where the vendor understands the strength of the institution. It’s a balance; customer satisfaction, customer service and honesty are keys to a smooth-running organization.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Chulick: Once doctors are involved in the contracting process and are educated, they become an asset to the process. We find when doctors understand pricing, they think twice about using certain products. We have established value analysis teams that include doctors in new product and device reviews and inventory reviews leading up to the contracting process. We bring the doctors to the contracting table whenever possible, especially in situations involving specialty devices.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Chulick: There appears to be no rhyme or reason for price setting for certain specialty devices. Take orthopedic implants: Companies make huge margins on products. They work with a doctor who requests the product be brought into the hospital, often without the knowledge of our supply team, until the product has been implanted. In the end, we are required to pay that company’s price if the product is not under contract. The doctors are our customers, and we want to keep them satisfied. To do so, we must educate them as to what’s involved in the pricing and contracting process. Doctors can be very helpful at the contracting table. We look for a win-win for both the hospital and the physician.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Chulick: We’re moving through an evolution in healthcare, in which less traditional GPO models are emerging. I think we will see GPOs working differently with hospitals in the future. The GPOs will need to become more flexible and, at the same time, help hospitals achieve greater savings. The old 90 percent compliance model may become more difficult to achieve. While compliance helps keep prices down, it limits the ability of doctors and other end users to use certain products. We should see more doctor-hospital partnerships in the future. Ideally, we want our doctors to be able to choose some of the vendors they would like to work with. So, in the future, we will try to move away from compliance contracting and do more price contracting with several vendors, as long as the prices are comparable. It’s a balancing act to hit profit margins and keep our customers happy.

Jim Francis
Chair, Mayo Supply Chain Management
Mayo Clinic
Rochester, Minn.

After Jim Francis graduated with a degree in hospital administration from the Washington University School of Medicine in 1984, he joined Christian Health Services, an integrated delivery network in St. Louis. The IDN was in the process of diversifying, acquiring and managing other institutions. There, he learned about the art and science of contracting, which has benefited him greatly, he says.

In 1993, Christian merged with Barnes and Jewish hospitals to form Barnes Jewish Christian (now BJC HealthCare). Francis was asked to lead the new IDN’s supply chain management team. He did so until 1999, when he was recruited by Mayo to lead its supply chain expense initiative.

Physician-led and -operated, Mayo provides outpatient and inpatient services in Rochester, Minn., Jacksonville, Fla., and Phoenix, Ariz. In Minnesota, outpatient medical-surgical services are provided, and 794-bed Methodist Rochester Hospital and 1,157-bed St. Mary’s Hospital operate. In Jacksonville, Mayo offers outpatient clinic services and operates 298-bed St. Luke’s Hospital. Mayo also offers clinic services and operates the 208-bed Mayo Clinic Hospital in Phoenix. Francis’ department handles contracting for Mayo entities throughout the country. Day-to-day supply chain services are handled locally.

Mayo has a three-pronged mission: clinical practice, education and research. In addition to its clinics and hospital, the organization has a system of hospitals and clinics around Rochester, Minn., an international reference lab business and technology transfer activities through Mayo Medical Ventures. The Mayo supply chain totals about $1.3 billion annually.

The Journal of Healthcare Contracting: What is the most challenging contracting project you’ve worked on in the past 12 months?

Jim Francis: It’s not hard for us to find challenging activities. But there’s no question that the most challenging agreements involve physician-preference items and outsourcing opportunities. The Mayo supply chain is physician driven and focused on meeting patients’ needs. We contract for physician-preference items through a collaborative process involving all the key stakeholders, largely physicians, at Mayo sites. Due primarily to their nature, which calls for a great deal of performance metrics, the outsourcing agreements are equally complex.

We recently renegotiated our GPO agreement and struck a strategic partnership with [Novation]. It’s a mutually beneficial agreement that clearly spells out how we interact with them. We have worked very hard with VHA and Novation to build the right relationship for our organization, and I think that’s achievable for any organization.

JHC: What contracting project(s) are you looking forward to working on in the next 12 months?

Francis: Many of our initial large supplier agreements are coming up on expiration. For example, we’re working on a very large pharmaceutical distribution agreement that will cover about 70 pharmacy operations. We’re also working on a lab distribution agreement.

JHC: What important lessons have you learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Francis: First, I believe you need to treat people openly, honestly and fairly, with a great deal of integrity. We need to have open, frank and honest discussions if we are to achieve what we want to achieve for the mutual benefit of the organizations involved in a contract.

Second, I believe in hiring the very best and brightest people to be part of the team. At Mayo, we are blessed with many talented individuals who do their best for the Mayo supply chain, day-in and day-out.

Last, there’s no substitute for preparation. Whether you’re preparing for a presentation to the board of trustees, or entering into negotiations with a supplier, you need to be prepared for those discussions, and you need to determine your walk-away point.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Francis: It’s been a long road but, increasingly, healthcare organizations are realizing the strategic importance of supply chain management and the role healthcare contracting plays in the overall strategy of leveraging volumes and achieving economies of scale. I report to the chief financial officer; I have access to the senior leadership of the organization. That’s incredibly important to an organization’s success in supply chain management. We’ve focused on a lot of things on a collaborative basis, such as strategic planning across all the materials management organizations. All of that has contributed to the success we have achieved in our activities.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Francis: Data fragmentation, that is, a lack of information to facilitate contracting and efficient supply chain management. That’s fueled by a lack of a common numbering system or nomenclature for medical-surgical products. We’ve been discussing this for years. Personally, I don’t think [it will occur] until regulation or law mandates it. When that day comes, though, we will be able to compare products, quantities and prices. I think that will facilitate better contracting.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Francis: The common numbering system is one. To that, I would add that group purchasing organizations are here to stay. They add significant value to the supply chain. It all depends on what the right relationship or partnership for your organization is. [GPOs] have shown flexibility in custom contracting, and will, I think, continue to evolve to respond to unique needs.

I believe there’s a greater willingness on the part of physicians to get involved in contracting, and on the part of materials managers to get them involved. There’s increasing clarity of the value both can bring.

Standardization and utilization activities are very important. Gain sharing may help facilitate them, but it’s too early to say.

Last, I think we’re making improvements in information technology. E-commerce and enterprise resource planning systems are being used to facilitate supply chain management, and I think that’s an exciting trend.

Dave Hunter
System Director of Supply Chain Management
Providence Health System
Seattle

Providence Health System encompasses 18 acute care hospitals, 12 freestanding long-term care facilities and 19 low-income and assisted-living facilities, from Southern California to Alaska. Dave Hunter first joined the IDN in 1983 and worked in materials management and purchasing. He left in 1988 to pursue other opportunities. But in 1993, Hunter rejoined Providence, first in group purchasing and, later, in regional operational duties and regionalized supply chain management for the IDN’s five Washington-based hospitals. Today, he is system director of supply chain management for all of Providence’s 18 hospitals.

The Journal of Healthcare Contracting: What important lessons have you learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Dave Hunter: First, I’ve learned how important relationships are, whether they are with hospital department heads or administrators and senior executives. Healthcare is about people and their relationships. You can’t accomplish anything unless others have trust and confidence in you. The second thing I have learned is there is no perfect computer or automated solution for hospitals. Vendors don’t have perfect solutions to offer. It takes continuous hard work to solve a hospital’s problems. Finally, I’ve learned to surround myself with good, capable people. Supply chain management is not a one-man operation. It takes many good, reliable people to succeed.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Hunter: Today, senior management recognizes the importance of supply chain management in the overall cost structure of healthcare. This wasn’t the case 20 years ago. It really is up to supply chain executives to communicate their challenges and accomplishments in the industry with senior leadership. Supply chain executives must work with senior leadership to reinforce those accomplishments.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Hunter: I think the most difficult thing about healthcare today is the lack of excellent software solutions. Now that so many solutions are multi-faceted (i.e. they include supply chain management, general ledger, patient information and accounts receivable), they are also more complicated for the user. There is no longer a “best-of-breed” system. So, on the positive side, hospital systems today can better aggregate data. But the flipside is that this data is not always clean and clear-cut for all of the hospitals in the system to share.

Of course, we can’t forget that the original stand-alone software systems lacked some things as well. Developing good software solutions is an evolution. We have to be patient and remember that the end result will be well worth it.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Hunter: I see relationships between the GPOs and the larger IDNs changing. GPOs will have to become more creative in working with large healthcare systems, particularly in regard to offering a balance between choice of products and competitive prices. Some IDNs are large enough to be GPOs. These IDNs want to drive their own ships. They want more flexibility. So, GPOs will have to come out with more custom contracts for these [customers]. Those GPOs that are not flexible enough to adapt to the needs of the larger IDNs will have a more difficult time staying in business.

In addition, IDNs and larger hospital systems are reaching a point where they have more information at hand. As this trend continues, these health systems won’t have to rely so heavily on GPOs for contracting. The IDNs and hospital systems will be in better positions to do their own contracting. Again, GPOs will have to find more creative ways to work with IDNs.

Bob Inbornone
Corporate Director of Contract and Supply Chain Administration
Health First
Rockledge, Fla.

Health First is a nonprofit organization with a mission to deliver healthcare services to anyone in need, regardless of ability to pay. In fiscal 2003, the organization offered the following services:

More than $81 million in charity care
More than $245,000 in in-kind and direct support to other charitable community organizations
Reduced-cost flu shots to more than 4,000 Brevard County residents
The availability of pocket-sized “Domestic Violence Resource Guides” to those in need.

Bob Inbornone, a registered rehabilitation therapist and cardiopulmonary technician who found his way into management, joined Health First in 2000 as the matrix director. At the time, he put together a case management program Ð one of the first in the state. The program integrated nurses into the utilization review process. Recently, Inbornone moved into his present position, which calls for him to use his clinical experience to identify physicians’ perspectives and needs.

The Journal of Healthcare Contracting: What important lessons have you learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Bob Inbornone: We need to rely on prudent, patient-driven decisions, with tangible outcomes and values. There must be more evidence-based medicine and decisions based on independent literature, rather than vendor-influenced decisions. In order for our physicians and clinical staff to request new devices, they must complete a physician (or non-physician) request form. We let doctors and our staff know the financial implications of that request, its impact on existing contracts and the [DRG margin], and the clinical staff’s ability to use a particular device.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce or improve it?

Inbornone: Contracting today formalizes relationships and expectations between the buyer and seller. It holds the vendor accountable to performance standards outlined in the contract and permits the vendor and health system to agree on a mutual set of expectations. Contracts also help save time by establishing prices and service expectations upfront.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Inbornone: There must be enough flexibility in the contract language to ensure patient care requirements are met and new technology is addressed. Also, there should be consequences [spelled out] for vendors in the extended warranties, if their claims aren’t valid. Vendors must be held accountable.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Inbornone: We will see more price-driven contracts in the future. We also will see a greater focus on dollars spent rather than on market share. And, physicians and clinical staff will become more engaged in the contracting process. Healthcare systems will have to be creative to be successful. They will require the support of the executive leadership in the organization.

Mike Louviere
VP, Supply Chain Management
Baptist Health System
Birmingham, Ala.

Mike Louviere joined Baptist Health System in August 2004 to help the system forge a turnaround after some tough times. The IDN reported a $52 million loss in 2004 and is in the midst of selling several of its hospitals (one in Talladega, Ala., and another in Fort Payne, Ala.) in order to focus on its operations in the Birmingham area.

Louviere says the organization is focusing on providing great patient care and that compliance to Baptist’s GPO (HealthTrust Purchasing Group) has climbed from 30 percent to 80 percent, for about $9 million in savings.

Prior to joining Baptist, Louviere was regional director of development for pharmacy services for Houston-based US Oncology. Before that, he was corporate VP for resource management at Baptist Memorial Healthcare System in Memphis, Tenn., a non-profit IDN with 17 acute-care facilities across three states. Other experiences include VP of materials management for Columbia/HCA in Nashville, Tenn., and interim CEO at Columbia Audubon Hospital in Louisville, Ky.

The Journal of Healthcare Contracting: What is the most challenging contracting project you’ve worked on in the past 12 months?

Mike Louviere: Cardiovascular, by far, because of all its complexities, market changes and new products. Even though standardization and compliance are a big deal for me, I didn’t feel [this past year was the] time to be heavy handed, so we handled each of our hospitals differently. We have two big hospitals in Birmingham. In one, we had a great champion, who was able to help us standardize a lot of products. In the other, the physicians didn’t want to be told what to do, but they did agree to work with us on getting the same pricing. We had two different hospitals with two different tactics.

To increase GPO compliance, we developed 10 system-wide clinical teams. For example, all the OR directors come together and meet with us on a monthly basis. The meetings serve a dual purpose: Where [the clinicians] need help, we try to help them; at the same time, we talk to them about the need for standardization and price reduction.

We asked every team to look at two things:
1) Is the product on contract or not?
2) Can [the GPO contract] save us money?

No GPO is perfect; we don’t force anything on anyone if the contract won’t save money.

The underlying thing for us is not to put pressure on our clinicians, but to use them to drive the process. We don’t want to force anything; instead, we want to give them information to help them make decisions. Good data is making a difference.

JHC: What contracting project(s) are you looking forward to working on in the next 12 months?

Louviere: Orthopedics is the big project that this organization and many others have not done very well with. We’re setting ourselves up to look at it in the future. Most orthopedic companies tie up as much as 25 percent to 30 percent [of revenues] in sales and marketing. If they would only focus those dollars as other companies do, they could pull at least 10 percent out. We’ve had sessions with the OR directors and have laid the groundwork. We’ve gone to them and asked, “Is this something you would be able to tackle?” We’ve gotten a consistent message, “Yes.”

JHC: What are the most important lessons you have learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Louviere: I would start out by saying that data is critical. I mean data on everything: knowing your physicians and clinicians, knowing their preferences and, of course, knowing what’s what about your price, price variations and all the other prices out there.

That said, the No. 1 most important lesson is this: I’ve learned to actively involve clinicians [in the contracting process] Ð doctors, nurses, pharmacists, radiologists and others. We are the information source. We give them ideas and let them bring up ideas. Then we look at what can bring the greatest impact with the least headache. We haven’t tried to go after everything. In fact, right now, if it’s not a $250,000 or $500,000 contract, we won’t go after it. But clinicians will make these things happen if we involve them.

The second lesson is to look for the win-win. For any good, solid relationship, or for any contract to survive, both sides have to win. Parts of the $9 million in savings we’ve achieved this past year have been value adds. For example, one of the most expensive components of equipment contracts is the warranty. So we are saying to vendors, “If you increase our warranty, that shouldn’t cost you anything.” We have been almost 100 percent successful in increasing warranties for every major piece of equipment by six months to a year. Other value adds include free upgrades, continuing education and discounts for bulk buys.

No. 3 is leverage. As much as vendors tell you they want to do the good thing for you, they don’t have to. You have to have leverage. That comes from information, knowing what’s out there, knowing what you can do for them, knowing what’s important to them.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Louviere: Most people want to do the right thing: They want to provide good care to patients. Vendors have an idea that their products are good. And I get the feeling that more vendors are beginning to understand that although selling the product is a significant piece [of the transaction], it is not the only one. They are looking for other ways to help us, whether it’s looking at best practices, the high cost of healthcare or the cost of processing equipment.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Louviere: Together, [providers and vendors] are allowing healthcare costs to skyrocket. We keep seeing double-digit escalation of prices for implants and pharmaceuticals. It goes back to [the questions]: Why are vendors spending 33 percent [of revenues] on their sales forces? And why are we spending $175 [for providers] to process a purchase order instead of $7 [the cost of processing a purchase order using good information technology]?

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Louviere: I think we’re moving toward process improvement instead of just the sale of the product. The real vision will be driving total value. There’s a lot of value we haven’t hit upon. And we have to continue to drive compliance and standardization.

Phil Mears
Senior VP for Supply Chain Management
Catholic Health Initiatives
Denver

Catholic Health Initiatives (CHI) is the third-largest nonprofit healthcare system in the country, comprising five community-based health organizations in 19 states, with 68 hospitals and 44 long-term care, assisted- and independent-living and residential facilities. Sponsored by 10 religious congregations, Catholic Health Initiatives has annual revenues of $6.1 billion and a supply chain budget of $1.2 billion.

The system is highly compliant with Schaumburg, Ill.-based Consorta and, last year, spent $750 million through Consorta contracts. Two years ago, CHI partnered with Consorta on a custom-contracting model.

To make centralized contracting work for such a geographically dispersed health system, CHI has grouped its facilities into five regions, called “regional operations conferences,” or ROCs. Each ROC is made up of one materials manager and one OR director from each region.

Phil Mears joined Catholic Health Initiatives in 1998 to head up the new system’s supply chain resource group. Prior to that, he had been VP of materials management for Centura Health in Denver.

The Journal of Healthcare Contracting: What is the most challenging contracting project you’ve worked on in the past 12 months?

Phil Mears: Our greatest challenge has been to build our new contracting model with Consorta and to engage our hospitals, clinicians and staff in the contracting process. Susan’s [Schrepp, CHI director of custom contracting] team does all the number crunching and fiscal modeling of opportunities, the request-for-proposals and visits with the sales representatives. But, behind the scenes, our representatives are driving what they want to contract for. It’s been a great challenge, but exceptionally rewarding. Today, our [custom-contracting] portfolio has more than 30 contracts. These are contracts that don’t compete with Consorta. That’s really why we set up custom contracting: to cover the breadth of our spend and to go in the direction of clinical-preference items.

In addition, Catholic Health Initiatives has determined we will move from a holding company model (which is how the organization was set up in 1996) to an operating company model. Moving from an independent model (where every facility stands for itself) to a group model is very different. In supply chain, we have been instrumental in helping lead this change.

JHC: What contracting project(s) are you looking forward to working on in the next 12 months?

Mears: Our ROC took on a major initiative to move from five medical-surgical distributors to two. The agreements have been signed, and they were effective July 1. Part of our rationale is that we are moving toward a common information system. We selected Lawson Software a couple of years ago. I believe we had 38 independent information systems.

With one information system comes standardization and scrubbing of data, so that everyone talks the same language and can migrate toward a common item master. The value lies in identifying opportunities in contracting and price management. In our [former] holding company model, each facility did what was best for itself. But in the new operating company model, that’s shifting. Now, the cleaner the item master and the better our ability to keep it clean, the better served [CHI will be]. And the medical-surgical distribution award will help us reduce the number of variations out there.

JHC: What important lessons have you learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Mears: For me, the most important things are people and relationships, and working to understand your role in the organization. When I started my supply chain career 28 years ago, [materials management] just wasn’t one of those areas that got a lot of attention. I was schooled in hospital administration, and I never got any background on it. But my professional experience has taught me that people are the glue that helps the hospital in its mission, that is, to take care of clinical and patient needs. In order to do that well, you need the tools, equipment and supplies. And, you need to provide those things in such a fashion as to not break the bank, and in an atmosphere that allows clinicians to perform at their highest levels.

Having grown up in [materials management], I recognize the importance of this field and the commitment of the people in it to doing a good job. I’m so impressed with the people I have a chance to interact with day-in and day-out. There’s an amazing amount of talent out there. Every time I think I’ve seen it and done it, it’s fun to run across someone who’s done it better, or who has a fresh idea or insight I haven’t had.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Mears: There’s one answer for both what’s right and what’s wrong with contracting. It’s data standardization. On the positive side, we are going the way of the pharmaceutical industry [with its common nomenclature for products]. Unfortunately, as an industry, we haven’t had the right focus on it. As an industry, we’re on course; we’re all pointed in the right direction. But from my perspective, we just haven’t gotten the rally assembled.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Mears: I think with the information piece in place, we will be able to step up to the next level and truly start working with physicians in physician-preference contracting. I find it interesting that [the concept of] gain sharing has popped back up on the scene. As information gets better, you’re able to get your hands around one’s spend, especially in a system like ours, which spans 19 states. With a single platform, I think [Catholic Health] will be a better partner and be able to have good business discussions with our physicians.

Good information kicks us out of the “good citizen” conversations, where you’re saying, “Doc, you have to help the hospital.” Those are the only conversations you can have when you don’t have information. But with information, you can take it to a new level.

Bill Tegel
Director of Materials Management
St. Francis Medical Center
Cape Girardeau, Mo.

Bill Tegel is director of materials management for St. Francis Medical Center, a 249-bed regional facility in Cape Girardeau, Mo. The facility offers a variety of services (including cardiac, orthopedics and neurosciences), operates an emergency center and Level III neonatal intensive care unit, and is building a long-term care facility.

The Journal of Healthcare Contracting: What is the most challenging contracting project you’ve worked on in the past 12 months?

Bill Tegel: Orthopedic implants. We have had success with total knees and total hips, reducing our prices $250,000 a year. And the surgeons didn’t have to change a thing. All we did was sit together and tell the vendor who’s been here for quite a few years that we would change vendors if [the incumbent] didn’t compete.

The most challenging aspect of the process has been changing the mindset of old-school materials management. Back in the 1980s and early-1990s, our directive was to look at vendors, compare pricing, and then ask nurses and surgeons to change vendors. But today, our mindset is to get the vendors to change their practices. We ask our surgeons, “Why should you and your patients pay more for these products than [other IDNs]?” I work on developing personal relationships with surgeons. I get to know them, talk to them about what’s going on in healthcare and show them reimbursement numbers.

JHC: What contracting project(s) are you looking forward to working on in the next 12 months?

Tegel: We will implement a new materials management software system. It will improve our efficiency and help us increase the amount of electronic ordering we do.

We’ll also be working on neuro implants, which have become the fastest growing expense on the market. We have the new artificial spine and spinal cages. We’re on a mission to gather [cost] data. Unfortunately, it’s difficult to get a grasp on these costs. Each procedure is different, and it’s difficult to benchmark [with other institutions].

The other fast-growing expense area is the cath lab, with drug-eluting stents and implantable cardiac defibrillators.

Reimbursement isn’t keeping up with new technology. For example, there’s a lot of pain management [technology], which is very expensive. We are constantly doing studies and looking at our reimbursement for these procedures. When we negotiate, we do so with reimbursement in mind. We say to our vendors, “You need to see what we’re getting reimbursed. You’re going to have to help us stay in business.” And the surgeons have backed us on it.

JHC: What important lessons have you learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Tegel: Three things: The first is how to be a detective. It’s important to know where to find the data you need, then to make sure it’s legitimate. The reason is that when you discuss [costs] with surgeons and department directors, you need to make sure your numbers are accurate and that you can back up what you’re saying. Many hospitals cannot tell you their cost per case or why their supply expenses are what they are month to month. But we code expenses to individual specialties, so we can tell you cost per case in each specialty. And if a [particular procedure] costs $1,000 more this month than last, I can tell you why.

The second thing is the need to know your hospital’s strategic plan. You have to know where to fight your battles.

Third, leave no stone unturned and have enough energy as a materials manager to constantly look at things. You need to stay on top of that contract you signed last year, because things can change really quickly. I have excellent staff members who stay on top of things. And, I’ve learned not to be afraid to ask for more. Why shouldn’t we get the same pricing as a 600-bed facility? We’re just as important to that individual sales rep as anyone else.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Tegel: I think group purchasing organizations are realizing that data collection is becoming just as important as contracting. They have done a good job at contracting for lower cost commodity products. Unfortunately, those products make up only 25 percent to 30 percent of your purchases. The issue has always been the high-dollar specialty items. The more information [GPOs] can provide us as to what our region should be paying, the more valuable they become.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Tegel: GPOs spend a lot of time contracting out the low-spend items. That’s not always a bad thing, but orthopedics, neurosurgery and open-heart are so diversified, [GPOs] can’t sole-source them. That means you’re often better off on your own. Having more data can change that. Novation is trying to create regional groups of hospitals to brainstorm and help each other out.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Tegel: First, I think GPOs will always have a place, but I think you’ll see more regional pricing, as groups of hospitals negotiate together. IDNs are growing and sometimes getting better pricing [than national GPOs].

Second, materials managers will have to get over their fears of dealing with surgeons. A lot of materials managers feel completely alienated from talking to surgeons. I have a great VP and administrator to back me up. Having said that, you have to win some battles to win [surgeons’] confidence. I now have confidence to get data and go to the surgeons. Some may tell me to get out of their offices, but most are concerned about the bottom line, because it’s their business, too. And they’re becoming more supportive. It’s gotten to the point where they come to me with [cost-cutting] ideas. That’s because we’ve asked them, “How can we help you cut your costs to your patient?”

Grant Tribble
VP of Finance, CFO
Athens Regional Medical Center
Athens, Ga.

Athens Regional Medical Center is a 315-bed referral center serving northeast Georgia. It provides a wide variety of services, including open-heart, midwifery, neonatal intensive care, lithotripsy, and diagnostic and therapeutic oncology. In addition, it operates a freestanding substance abuse treatment center, freestanding outpatient radiology center, two urgent-care and occupational therapy clinics, a number of doctors’ offices and a managed care plan.

Prior to joining Athens Regional eight years ago, Grant Tribble did tax work for accounting firm Peat Marwick International (now KPMG). He is a graduate of The University of Georgia, located in Athens. In his current position, he is responsible for accounting, patient administration and materials services. He credits materials director Joyce Waller with raising the bar for that department and garnering the support of the clinical departments Ð particularly the OR Ð in product-related initiatives.

The Journal of Healthcare Contracting: What is the most challenging contracting project you’ve worked on in the past 12 months?

Grant Tribble: We did some significant negotiating and working with clinicians in two areas: OR equipment and mammography equipment. We were able to strike a balance to make sure we got the opinions of all those who needed to be involved.

JHC: What contracting project(s) are you looking forward to working on in the next 12 months?

Tribble: We just received a certificate of need to renovate and expand our emergency department. The materials staff is intimately involved in the contracting portion for construction, as well as equipment for the department. It’s exciting and daunting at the same time.

JHC: What important lessons have you learned from your past professional experiences, and how do they affect the way you approach your job and the industry today?

Tribble: Serving in the army [for six years] and here [at Athens Regional] has given me opportunities. The biggest thing I’ve learned is to empower the people who work for you to do the right thing. At the same time, you have to maintain authority. I’ve learned I don’t have all the answers. But, hopefully, I can look at things independently and see things others haven’t.

Trust those who are working for you, but don’t be afraid to give advice and counsel. And listen to what they say. The people working on the line are the ones who know what’s going on every day. A little humility goes a long way.

JHC: In your opinion, what is the major thing right with healthcare (products) contracting today? What can be done to reinforce and improve it?

Tribble: I don’t know if it’s lip service or a visceral feeling, but I think people understand now that they have to cooperate. They understand that reimbursement is such that you can’t rely on the old methods to get reimbursed. You’re going to get a finite amount of money for the services you provide. You don’t want to compromise the quality of care, but you do have to pay for what you do. No margin, no mission.

People are starting to identify that you can’t look at things from a silo. Cooperation and the idea that things can be done better are moving us in the right direction. I think some product manufacturers, especially on the pharmaceutical side, are starting to measure their products in terms of their outcomes.

JHC: In your opinion, what is the major thing wrong with healthcare (products) contracting today? What can be done to change it?

Tribble: People sometimes try to put things in a shoebox and say that [everything] has to fit this method. But we all know that one size doesn’t fit all. An example would be trying to get people to use certain products they don’t want to use, or trying to force generics when they might not be the best.

JHC: In which key directions is healthcare contracting headed, and where do you expect that trend to take the industry in five years?

Tribble: From my perspective, it helps us to have a group purchasing organization. So I see the continuance of the GPO contracting mechanism as strong. In addition, as institutions Ð hospitals, doctors offices and others Ð get more sophisticated, there will be a greater need for real-time inventory, that is, having things there as quickly as we can get them.

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