15 People to Watch – Part Two

Last issue, The Journal of Healthcare Contracting presented part one of this two-part series featuring executives in our marketplace who are making a difference. Here are the remaining eight of the 15 thought leaders in the healthcare contracting industry as determined by JHC readers.

Mike Rosenblatt
Corporate Vice President, Supply Chain Management and Clinical Engineering Services,
SSM Health Care
St. Louis, Mo.

SSM Health Care owns and manages 20 acute care hospitals and three nursing homes in Missouri, Illinois, Wisconsin and Oklahoma. In addition to the owned facilities, it has 27 affiliate hospitals buying through its group purchasing relationship with Premier, Inc.

Mike Rosenblatt’s department helps coordinate the purchasing of approximately $350 million of supplies and equipment annually. In addition, the department runs a regional biomedical engineering company, SSM Clinical Engineering Service, which serves SSM’s facilities as well as 100 retail locations. SSM Health Care is an owner of Premier Inc., which Rosenblatt considers the “first solution” for a wide variety of the IDN’s contracting needs.

Rosenblatt received an undergraduate degree in public administration, and received a master’s in health administration from the Father Flanagan School of Hospital Administration at St. Louis University. He spent several years working in a personnel department, then as a director of information technology, prior to becoming vice president of operations at St. Joseph Hospital in Kirkwood, Mo. SSM recruited him after buying the facility and then, in 1994, hired him for the corporate materials management position.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Rosenblatt: Last year, I gave a presentation to a system leadership group and gave them four takeaways regarding supply chain management. They are:
We don’t pay retail. We’re out there looking for world-class pricing and service.
Everything is negotiable – not only price, but terms, delivery, consulting services. Sometimes the GPO doesn’t have the best deal, because it can’t put together the same value proposition that we can.
We don’t give something without getting something. In order to achieve supply savings and other logistics improvements, supplier negotiations often require us to ask for concessions and to offer concessions.
Proceed until apprehended. I am a professional, and the people in our department are all competent. We know our organization’s strategic direction, and we proceed down the path that is in line with it. We get a lot of collaboration along the way, and we communicate what we’re doing, but we don’t wait for approval at every step in order to make supply chain improvements. SSM was awarded the Malcolm Baldrige National Quality Award in 2002, and in keeping with our Continuous Quality Improvement culture, we support collaboration within our supply chain organization. For materials management, that means collaboration with our key stakeholders – the department heads. Our department might not know what the best hematology analyzer is, for example. But if the departments tell us the best two or three, we can go to market with our user group behind us to bring home the best deal.

JHC: In your opinion, what’s the major thing that’s right with healthcare contracting today? What can be done to reinforce and improve on it? On the other hand, what’s wrong with healthcare contracting today? What can be done to change it?

Rosenblatt: Suppliers are getting bigger, and that’s both good and bad. The good part is, they’re seeing themselves as consolidated and coordinated companies, looking to bring value across many of their supply chains. Their service has gotten better, because they put people in the street who can coordinate six or eight product lines. When 18 people show up with the same logo on their card, you’re dealing with 18 different companies. It’s hard to get value-add or synergy. But a corporate representative who knows how each of his or her company’s organizations relates to one another can exchange more strategic information with us. In the long run, this leads to better products and better outcomes, because the vendors understand the market better. At the same time, the consolidation of vendors takes competition out of the marketplace, and that’s not good. It leads to less capacity in the market, and less ability to negotiate. We’re also worried about shrinking capital dollars. We’re experiencing a lot of pressure to bundle our purchases and to be the best technology managers we can. Once upon a time, materials management was viewed as having a large amount of play on the widget side, but very little on the capital side. Now, we have a bigger role to play in negotiating the best capital deals we can, not only for the purchase of the equipment itself, but for the downstream cost of supplies and labor that go into the cost of ownership of a piece of equipment.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Rosenblatt: First, systems such as ours will insist that they be treated as systems, not individual facilities. All too often, vendors call on our 500-bed facility on the interstate, but ignore the 60-bed hospital that’s 90 miles from a large city. Each of our hospitals is just as important as our flagship. In St. Louis, we closed several materials management offices and opened one offsite purchasing office. We’ve created buying centers with expertise and depth, which often don’t exist in single hospitals. So we’re able to demand that “system-ness.” Second, IDNs such as ours will do more local negotiating in order to put additional value into play. When you boil everything down, the strategy for most healthcare contracting is to trade market share for price – that is, buying more products from fewer vendors, and in return, getting a lower price. But GPOs tend to get in the way of that strategy, because they’re still pursuing dual- and multiple-source contracts. So one of our strategies will be to do more local negotiating, pledging SSM as a sole-source buyer.

Doug Bowen
Vice President, Materials Management,
Banner Health
Phoenix

Doug Bowen got his first materials management job at a local HCA hospital, stocking shelves while attending school in Utah. After finishing college and grad school, he stayed in materials management, working within HCA and then HealthTrust (which spun off from HCA).

Bowen relocated to Nashville (HCA’s headquarters) in 1991 to become a business analyst for the materials management system. His job was to ensure that the company’s hospitals were implementing the system successfully. Three years later, he became manager of materials management systems and led a team that designed HCA’s automated Supply Management and Resource Tracking (SMART) system.

In 1997, Bowen moved to Dallas to guide the development of one of HCA’s consolidated service centers for its North Texas division. The idea was to convert individual hospitals into a multi-hospital, high-performing procurement and distribution operation, with one warehouse and one purchasing system for all. While working on the project, Bowen worked with BCX Technology to develop a point-of-use system to facilitate the automatic replenishment of medical-surgical supplies.

In 2002, Bowen decided to apply his for-profit, business-minded approach to materials management to non-profit healthcare. He got his opportunity with Banner Health. With 19 hospitals, six long-term care facilities and operations spanning seven Western states, Banner is one of the largest non-profit health systems in the country.

At press time, Bowen was preparing to implement a consolidated service center for Banner’s seven Phoenix-area hospitals. Plans call for centralized purchasing, distribution and accounts payable.

JHC: Name the two or three most important lessons you have learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Bowen: While working at HCA, I witnessed the incredible power of full contract compliance. Suppliers are willing to go the extra mile and deliver great pricing and value to an organization they know is contract-compliant. They know that that organization will deliver market share and eliminate unnecessary selling and administrative costs. We are achieving outstanding results applying the contract-compliance principle at Banner. Our suppliers know that a contract with Banner will deliver results. After all, contract compliance simply means keeping our word.
Second, I learned the difference between data and information. Many times, we end up with piles of data. But being able to cull information on which to make decisions is a different thing. A good information system, and good people who can help you mine the data in it, are critical pieces in your business decision-making process.
Third, I learned the benefits of standardization. Variety may be the spice of life, but it’s not welcome in the supply chain. In fact, it kills efficiency. Standardization can make your entire process more streamlined, including processing purchase orders and paying for them. Every item in your supply chain brings with it an overhead burden. You have to have it in your database and on your shelves, and you have to move it around. The more variety you offer, the more you overload your system.
Fourth, I learned that centralization makes good business sense for selected processes, such as contracting, purchasing and accounts payable. Final product approval ought to be centralized as well. At Banner, we instituted a materials management board to help us make product decisions. The board consists of our region directors of materials management, three registered nurses (who oversee products for the OR, cath lab and other areas, respectively), our director of contracting (Dave Tiemeyer), our four contract managers and our purchasing manager. This team reviews products and receives input, and then makes the final decision as to what we will bring into the system.

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

Bowen: I like having the flexibility to apply a combination of GPO and local contracts to our portfolio. This flexibility provides healthcare organizations the ability to select the right tool for the contracting job at hand. I think that in the past, GPOs tried to be all things to all people. But they’ve come to realize that they have to encourage owner-directed contracting.

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

Bowen: I am continually amazed at how suppliers treat new customers so much better than their current ones. They are willing to offer better pricing and greater value to a potential new account, but are unwilling to offer the same deal to their current customers. Why don’t suppliers acknowledge and reward their current customers? We all know it is cheaper to keep a current customer than to find a new one. Given this scenario, it’s no wonder that our industry is always playing musical chairs with our product lines. It is a vicious circle. In addition, contracts could be more clear and easy to measure, so that the healthcare organization and supplier share their expectations for market share, sales, service levels, product availability, etc. If they’re not on the same page, they fight about whether the other has been living up to its obligations. It’s a prescription for disaster.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Bowen: With the continued improvement in information technology and contracting processes, I believe we will see shorter contract terms and more agile supply chain partners. In the past, contract terms averaged three years or more, and many were cut for five, six or seven years. These agreements may have sounded great when they were signed, but the marketplace can do a lot of things in seven years. Contract terms now are getting shorter, with many cut for three years or less. In the future, I see contract terms that will be measured in just months, allowing healthcare organizations to act on opportunities, challenges and change. I see healthcare supply chain partners working better together to focus on what matters most – high-quality, cost-effective healthcare products for the patients, so that healthcare providers can deliver excellent patient care.

John Lewis
Vice President and CFO,
Rex Healthcare System
Raleigh, N.C.

John Lewis is responsible for patient accounting, general accounting, business planning, budgeting, purchasing and materials management for Rex Healthcare System, an IDN which includes two acute-care hospitals, a medical school and physicians’ practices.

After receiving an MBA from Duke University, Lewis was a management consultant for Boston Consulting Group. Prior to that, he was involved in public policy and strategy consulting for SJS Consulting. Lewis began his career as a junior high school English teacher in the Japanese public school system.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Lewis: First, I believe in having good people on the job and giving them the credit they deserve. Within our purchasing department, we have a very good infrastructure for identifying important issues and following through on them.
Second, I believe very firmly in partnerships. We need to build loyalty and long-term relationships, and work toward everyone’s benefit. Our vendors, physicians and department heads all need to work together. I’ve personally invested time getting to know our surgeons and understanding their needs. We need to understand the issues facing all our department heads, as they must try to understand finance.
Third, I believe vendors should come to us with opportunities. We can’t know everything that’s going on, so we need to be kept informed. Our vendors understand that we’re paying attention to our expenses more than ever, and they are responding by making an attempt to understand better what it is we’re looking for. I want our vendors to be successful, but I also want fair pricing. And I want to work with our vendors year in and year out.
Fourth, it’s important to have a clinical component in the purchasing department. Purchasing is no longer just about pricing; it’s also about knowing whether certain devices will work for us. We have a business RN person in our organization who is very effective.

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

Lewis: The quality of the information we have is much better now than it has been in the past. This is especially true among GPOs. They are fostering better information, because they understand where we’re going and what our needs are. Information helps us make better decisions. It helps ensure that the price we pay for something is the right price. And information helps us understand what we need to do to get better pricing. Perhaps we should sign up for a different tier, or buy off one contract instead of another. We have access to much more powerful information systems than ever before.
Another thing that’s right about contracting is that vendors are continually gaining a better understanding of hospital economics. Even just three or four years ago, I was surprised at how incomplete their information about us really was. But today, when they come out with innovative technology, they work with payers ahead of time to ensure that we will be reimbursed for using these new devices. After all, even though we want to immediately use many of these innovations, we can’t do so if they aren’t affordable, either in terms of pricing or reimbursement.

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

Lewis: Many vendors have yet to gain a good understanding of providers’ needs, and are still focused very much on market share. They continue to try to make the physician the customer and push products on the hospital. In my world, the hospital needs to be viewed as the customer, not simply the name at the bottom of the purchase order. And I don’t see strong evidence that things are changing as quickly as we want them to change.
We have worked very hard at building relationships with the medical staff. We have worked to help them understand the economics of hospitals, why we need to make certain changes, and why we need their support. In fact, we couldn’t have accomplished many of the things we have without their support. For example, we are changing our [deep vein thrombosis] protocol. This calls for physician support, and it impacts our product choices. Our spine surgeons and interventional cardiologists have been phenomenal in their support of our efforts and in helping us make progress in our product purchases.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Lewis: Information and relationships will continue to grow in importance. I think GPOs will evolve in the same direction. They will become much more than organizations that simply contract for commodities. Instead, they will facilitate information sharing among their members. Much of that information will be about products, such as, why is one system using disposables when others aren’t. GPOs can help us to understand where our spend and opportunities are. As their information systems evolve, facilitating this sharing shouldn’t be cost-prohibitive.

Tim Jennings
Director of Pharmacy Services,
Sentara Healthcare
Norfolk, Va.

Tim Jennings began his healthcare career in clinical pharmacy, working with physicians at the bedside making recommendations for drug therapy. He joined Sentara eight years ago as clinical pharmacy program manager. In that position, he was involved in formulary management for Sentara’s facilities and health plans, which serve more than 300,000 members. He also became heavily involved in contracting for pharmaceuticals. Two years ago, he became director of pharmacy services.

Sentara operates six acute-care hospitals and more than 70 sites of care, including seven nursing centers, three assisted-living centers and 25 primary care practices.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Jennings: First, because I started my career at the bedside, I constantly remind myself that the patient/ members are at the center of everything we do. Patients are the ultimate recipient of all the services that the pharmacy provides. We have to keep their best interests at heart and realize that whatever we do has to lead to better outcomes for that individual patient.
Second, I learned that in order to be successful in pharmaceutical contracting, you have to involve key decision leaders, such as physicians, in the process. If you do, they will join you in trying to optimize your organization’s financial performance. But in order to get their buy-in, you have to ensure that patient safety and efficacy are at the center of your decisions. And your decisions have to be evidence-based.

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

Jennings: Because of electronics, we have greater access to data, and that allows us to make better decisions about how to proceed with contracts. We know we’re not making decisions on gut feelings, but rather, on the basis of evidence. This could mean combining medical and pharmacy claims data to see which pharmaceutical our system should contract for. We can measure the total impact of a drug. For example, we can look at an asthma drug and see whether it actually cuts down on ER visits. Silo management for pharmaceuticals can, in the long run, end up costing a health system and ultimately, the employer or member, much more.

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

Jennings: Pharmaceutical companies make claims about their products, but very few actually guarantee results from their utilization. As a consumer, you wouldn’t want to buy a car without a 100,000-mile power train warranty. There are very few pharmaceutical manufacturers that actually offer guarantees for the desired outcome. Even though clinical trials may show that the product offers a certain benefit, it’s up to the health system to figure out whether its patient population will experience the same benefits.
Another thing that’s wrong – at least in the pharmaceutical industry – is that the drug manufacturers bear little risk for the inappropriate use of their products. Recently, a drug company was cited because 90 percent of the utilization of its product was for off-label indications. That company was fined, but only a small percentage of its total sales.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Jennings: Although other industries have experienced globalization for years, it’s new in pharmacy – and will only grow. Reimportation of drugs is a real issue. It was big news when Springfield, Conn., announced it would import drugs from Canada. Now, you hear of other localities doing the same thing. In the future I don’t think that we’ll be importing drugs just from Canada, as we do now. We’ll be doing so from the global market. It’s moving very quickly.
The other direction is the change in pricing and contracting dynamics, largely due to utilization of pharmaceuticals. When the Medicare drug benefit was being planned, the Bush Administration estimated it would cost around $400 billion. Now, it has been shown that those figures may be grossly underestimated. The Medicare population averages between $150 and $200 of Rx cost per member per month, which is four to five times higher than the commercial utilization. How will this growth in utilization affect the business model of the pharmaceutical industry and how this will ultimately affect Medicaid best price?

Joseph Di Paolo
Corporate Director of Materials Management and Chief Sourcing Officer,
Atlantic Health System
Florham Park, N.J.

Joseph Di Paolo began his career in software development, serving as project manager, regional technical consultant and programmer for McDonnell Douglas Automation Company. After a short stint as a software consultant, he got involved in computer hardware by joining Wang Laboratories in 1987, first as marketing manager, and then as manager of corporate sales for the New York Financial District.

Shifting gears, Di Paolo became an account rep for Baxter Healthcare (later, Allegiance Healthcare, and now Cardinal Health) in 1991. Later, he became Northeast Region director for Allegiance’s government sales and service. Following that, he became a vice president of corporate solutions for Cardinal, with responsibility for managing the sales and service efforts of the company’s manufacturing and distribution divisions. In April 2000, he made a career shift by joining Atlantic Health System as director of corporate materials management and chief sourcing officer. With three acute care facilities, Atlantic Health System has a non-salary expense budget of $220 million.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Di Paolo: First, I’ve found that reliable and timely information is critically important in making supply chain decisions. Unfortunately, it’s tough to get, because providers have to rely on so many sources for this information. Consequently, people can’t see what they spend on a monthly basis, or they might not be aware that they’re buying five different manufacturers’ gloves, for example. Since arriving at Atlantic, I have placed heavy emphasis on converting to a paperless operation. We were one of the first providers to participate in Global Healthcare Exchange, and we have eliminated paper requisitioning.
Second, I have learned to be sensitive about living up to my agreements. When I was selling, I never felt there was any loyalty. Someone would sign an agreement and then break it the next day, with no intention of living up to it. I’ve discovered that it’s better to maintain an existing relationship with a vendor as a partner than to try to start a new one with someone else. And you do that by communicating. If I’m in a situation where another vendor is offering me a better deal than what I’m currently getting, I’ll call up my current vendor and tell him he needs to help me out. I tell my vendors, “If you give me the best deal you can, I will tell you when your business is under attack and what you have to do to maintain it.”
Third, servicing customers demands integrity. I find that salespeople are under so much pressure to make sales that they are becoming less scrupulous. I like doing business with companies that have a corporate sales team, rather than having 10 different people from the same company calling on you. These people tend to be senior, professional salespeople who know that if they provide value for the customer, follow up on requests and view the customer’s time as valuable as their own, then sales will follow. It’s all about the relationship and less about the quota.

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

Di Paolo: Companies are starting to embrace things like Global Healthcare Exchange and the Universal Product Number. I think manufacturers are recognizing this is inevitable. You’re starting to see bar codes on individual pharmaceutical packaging. I’d like to see that happen with supplies.
I have also seen improvements in the clinical support that vendors offer. Since I will never make a clinical decision, I need to involve our clinicians. They will only come to the table if they’re offered credible information on which to make decisions and that is improving.

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

Di Paolo: The first thing is the transparency of information – or rather, the lack of it. Vendors don’t want to share usage information. But information is power, and sometimes vendors try to prevent providers from finding out what they’re spending and what they’re buying, making it more difficult for providers to negotiate pertinent agreements. One thing I took from my selling days is the need to have a data warehouse, so we can have a record of every transaction and know everything we buy. Now that we have purchase history, we can negotiate better. In addition, it’s unfortunate that most manufacturers still won’t implement universal product codes.
The second thing that’s wrong is the legal burden we face in contracting. Terms and conditions are becoming onerous.
The third thing is that salespeople are selling devices for procedures that have not been FDA-approved. When you talk to the physician, he says that even if it’s not FDA-approved, everybody knows that [the procedure] is the only treatment. When we tell the manufacturer that our physicians are using a product for non-FDA-approved indications, they say it’s too expensive to get FDA approval for this particular indication. At the end of the day, the physician wants to take care of his or her patient and says, “Fine, until you give me something better, I’m not going to let your bureaucracy stand in the way of my taking care of my patients.”

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Di Paolo: GPOs are re-thinking what their primary mission is and once again are becoming advocates for their members, which is what they started out to be. That’s very positive. They can help us persuade manufacturers to do things like implement universal product numbers and give us as much information as possible. They have access to tools, such as electronic catalogs, that can help us cleanse our data. They can lobby the federal government, inform members about legal trends and help us prepare for what’s coming down the pike. And they can help us on the revenue side of things. Manufacturers have to help us figure out how we’re going to pay for their devices, because the insurers might never have heard of it. GPOs can write into their agreements that manufacturers must work with us to capture revenue from their devices.

Christopher O’Connor
Executive Vice President,
GNYHA Ventures
New York, N.Y.

Christopher O’Connor is executive vice president of GNYHA Ventures, a business subsidiary of the Greater New York Hospital Association. He is responsible for all non-pharmacy supply chain initiatives, including the activities of GNYHA Consulting and the GNYHA Services/Premier group purchasing relationship, specifically its regional contracting, technology and data support initiatives. (GNYHA Consulting provides customized contracting, supply chain consulting, outsourcing services, data analysis, and comparative performance measurement services to GNYHA members and other providers in the New York metropolitan area.)

He started his healthcare career in 1992 in the materials management department at The Mount Vernon Hospital in Mount Vernon, N.Y. From 1992 to 1996, he served as inventory control specialist, assistant director of materials management, administrator for outpatient clinics, administrator of outpatient services and managed care, and finally, assistant hospital director/operations.

In 1996, O’Connor became a consultant for BearingPoint (formerly KPMG Consulting), and ultimately became leader of the company’s healthcare supply chain practice for the provider segment. After a short stint with Qwest Cyber Solutions, where he served as director of the Advanced Technology Group, he became senior manager at Deloitte Consulting in New York in 2000. While at Deloitte, he led Lawson Procurement implementations and cost reduction initiatives across the country, and managed the implementation of an e-procurement system for air, rail, shipping and bus transportation in South Africa.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

O’Connor: The first lesson is that honesty and respect are the keys to any successful relationship. However, even with both, you might not have a relationship that is mutually beneficial unless you find the “sweet-spot.” The relationship “sweet-spot” is when both parties are giving and both parties are receiving such that each side is deriving benefit. One-sided relationships don’t work – not in your personal life and not in business.
The second lesson is that you must be able to adapt. Successful people are able to change to address the needs of a changing market. Very successful people see where the market needs to go and drive the change.
The greatest experience that I brought with me throughout my career is from my first job as a special education teacher at Lehman High School in The Bronx. As a teacher of handicapped children, I learned how to work in challenging situations, with challenging people and to find creative solutions to complex problems.

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

O’Connor: Information technology in healthcare has reached a point of adolescence (which is tremendous growth from even five years ago). Hospitals that implemented new systems in preparation for Y2K are now hitting their stride in terms of effectiveness. GPOs can now channel the power of their data to help hospitals manage their total spend in a way that was either impossible before or completely manual. National, regional and local (hospital-specific) contracts can now be easily interfaced with hospitals’ materials management information systems to ensure the correct price at the time of order.
The next big push is going to be for hospitals to more closely link supply costs to reimbursement to close the loop on supply expenses. Understanding supply costs per procedure by patient mix will be a powerful tool in negotiating with payors and with reducing costs internally.

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

O’Connor: There is an absolute disconnect between the goals of hospitals and the goals of the pharmaceutical or medical suppliers. Hospitals negotiate to achieve the deepest discounts possible for their institutions. Suppliers typically negotiate to achieve the greatest profits for their shareholders. Group purchasing organizations serve as the conduit between the two and work to maintain balance.
Standard nomenclature for medical supplies (such as that which already exists with pharmaceuticals) would also be of tremendous benefit to hospitals. Although this has been in the works for many years, it still has not been accomplished. Through standard nomenclature, hospitals would be able to more easily standardize product lines and have a clear mode for comparing products.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

O’Connor: National GPOs have their place and provide tremendous benefits to hospitals, but they are no longer the end game. National leverage coupled with regional flexibility and local empowerment is the answer. To that end, hospitals need the ability to leverage the national contract where appropriate, but take a more regional approach when the aggregated and committed spend of a specific region can produce lower prices. GNYHA has taken this approach in its agreement with Premier.

Warner Thomas
Chief Administrative Officer,
Ochsner Healthcare
New Orleans

Warner Thomas began his career in what was then called one of the “Big 8” accounting firms – Ernst & Young (now Capgemini). At the firm, he came to specialize in healthcare, and ultimately went to work for one of his clients – Southern New Hampshire Medical Center in Nashua, N.H.

Thomas was there for 10 years and was instrumental in creating a physician-group subsidiary, Foundation Medical Partners. Five and a half years ago, he moved to New Orleans to become chief operating officer of the Ochsner Clinic. Three years later, the Ochsner Clinic merged with the Ochsner Foundation Hospital to form Oschsner Healthcare, of which Thomas is chief administrative officer.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Thomas: Hiring the right people – and then supporting them and letting them grow – is No. 1. If you fail to hire the right people, or fail to give them honest feedback, your entire organization will be affected.
Another lesson I learned is that no deal is better than a bad deal. You have to be willing to walk away from something that doesn’t make sense to you or your organization.
The third lesson has to do with the importance of our relationships with others, whether they are with physicians, employees, distributors, group purchasing organizations or managed care partners. It’s so important to establish and maintain good relationships built around trust. We may not always agree, but if people trust you, you can always fall back on that.

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

Thomas: The supply chain has been a weakness in healthcare. Many of the big distributors and GPOs understand that their relationships with providers need to be different. They understand that their role is not just to provide goods, but to understand our pressures and help us improve.

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

Thomas: First, many healthcare organizations have failed to spend time and energy evaluating and improving their supply chain processes and their relationships with the distributors and vendors from whom they buy products.
Second, device and implant companies need to work differently with providers. They have tried to create relationships directly with [clinical] users and have failed to work as well with executives in healthcare systems. Doctors like having good relationships with device companies, because they want to make sure they’re on the cutting edge of technology. But they also want to make sure – at least in our organization – that we get a fair economic deal on the goods we buy.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Thomas: First, you’ll see more of a focus on the part of healthcare institutions on contracting and the supply chain, because these areas are becoming a much bigger percentage of providers’ expenses. The healthcare industry (specifically hospitals) hasn’t spent a lot of time focusing on this area, and consequently has failed to take advantage of savings opportunities. But now that many have cleaned up their relationships with third-party payers, gotten their capital projects together, and squeezed labor as far as they can, they can now focus on supplies. It’s an evolution. Another factor is that new technologies are expensive, and insurers don’t want to pay for them. That’s creating more pressure for providers.
Second, group purchasing organizations are changing their models. They’re creating tighter relationships with the people they represent and distancing themselves from distributors and other vendors.

John Armstrong
Vice President of Supply Chain Management and Support Services,
Scripps Health
San Diego

Southern California-born and -raised, John Armstrong began his career in public accounting and finance. After working on behalf of several hospitals, he decided to make a career change and join Beverly Enterprises, owner and operator of nursing homes and hospitals. Four years later, he joined Hyatt Medical, another owner and operator of nursing homes and hospitals. Looking for more operational experience, he joined Scripps Health in 1981 as controller of the IDN’s largest hospital. From there he moved into system-wide financial leadership roles.

In his current role, he’s responsible for the day-to-day operations of procurement, warehousing and distribution; as well as contract management and material management information systems. He is responsible for developing strategy and performance improvement initiatives as they relate to the supply chain, and he manages construction activity, planning and facility assessment for Scripps’ five acute-care hospitals and ambulatory care network.

JHC: Name the two or three most important lessons you’ve learned from your past professional experiences. How do they affect the way you approach your job and the industry today?

Armstrong: First, I’ve learned that collaboration is the key to success in healthcare and any business. No one has all the answers. The key is to hire and nurture the best staff you can, and surround yourself with experts.
Second, it’s important to build strong relationships with your customers (patients), clinicians and partners (who are distributors, suppliers and GPOs in the supply chain).
Third, after having worked in finance, I’ve learned that being a coach player is much more important than being just a scorekeeper – that is, having “skin in the game” as opposed to sticking to the traditional financial role, in which you’re strictly reporting numbers. If you find a weakness in the organization, it’s important to step up and assume responsibility for making changes. As a finance officer, I’ve tried to solve problems rather than simply report on budget variances. For example, I saw an opportunity to bring physicians to the table to collaborate for better pricing.
The final lesson is that integrity is the key to anything in life. It’s important to stay focused on the mission (which, in healthcare, is patient care) and then communicate that mission to everyone. Everything you do as a manager or leader should facilitate the delivery of patient care in the most efficient, quality way. If you keep focused on that, and put everything you do in that perspective, you’ll be better off.

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

Armstrong: The industry has been successful in getting good prices for commodities, through the use of GPOs and various clinical teams. You can always do better the more you standardize.

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

Armstrong: The weakness is physician-preference items. We’re not getting the best prices and we’re not controlling utilization as well as we should.
New products are wonderful, but they are hurting our margins – and when you hurt a hospital’s margin, you’re hurting its mission. We have to deal with the relationships between manufacturers and physicians, as well as the lack of good data about products. The lack of data means we don’t know how one product compares with another, or what each can do. We lack benchmarks in terms of the most appropriate pricing for products. Hospital systems and hospitals have to level the playing field. With better data, they can do a better job of collaborating with their physicians and negotiating with suppliers.
Finally, it would be helpful to create mechanisms to allow us to share gains with physicians. So getting information and aligning incentives with physicians is key. Ultimately, we will have to standardize in order to achieve a win/win with manufacturers. But we need information in order to do that.

JHC: Name one or two key directions in which healthcare contracting is headed, and where you expect that trend to take the industry in five years.

Armstrong: We’re focused on improving our material management information system, which will provide us with the information we need. A better system will help us improve our internal controls, that is, the controls over our day-to-day procurement and operational activities. It will help us identify and control variations in price, utilization and vendor selection. Hopefully, it will help us integrate cost accounting, so that we can measure the bottom-line impact of our supply chain management decisions. By that I mean giving the doctors the information they need to measure the economic impact of new products or vendors. I don’t think physicians understand the economic impact of their decisions in terms of the profitability of their procedures. If they did, they would be more willing to collaborate with us. All of this information can be used by our value analysis teams to help us strategize on ways to get the best price and control utilization.

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