Bruce Elegant

Discusses Operations at Chicago’s Rush System for Health

Rush System for Health comprises five hospitals, with Rush University Medical Center near downtown Chicago serving as the hub. It also comprises four community hospitals in suburban Chicago (see box on page 10). As a system, Rush undertakes managed care contracting, purchasing, and more recently, benefits administration. Elegant was charged recently with examining Rush’s approach to supply chain management. Working with an outside consultant, the system issued a request for proposal for group purchasing services about a year ago.

JHC: Please describe the competitive environment in Chicago.

Elegant: It’s a highly competitive market. On the payer side, we’re dominated by Blue Cross of Illinois, which owns about 60 percent of the market. When you add the next two or three largest payers – Humana, United Healthcare and Unicare – you’re talking about 80 percent of the managed care market. So hospitals are very dependent on their relationship with Blue Cross. On the hospital side, we’ve recently seen more movement of hospitals into systems. Advocate Health Care is the largest system in Chicago, followed by Resurrection Healthcare. In fact, Resurrection owns two hospitals within five miles of Oak Park. We are very fortunate to be affiliated with Rush University Medical Center, which is ranked in more specialties than any other hospital in Illinois, according to U.S. News & World Report. Rush also has a magnet-nursing program, which serves as an excellent resource for the system. The medical center serves as the tertiary referral source for the community hospitals, and is the source of many clinical programs.

JHC: What are Rush System’s biggest challenges?

Elegant: They’re no different than what you see in many parts of the country. The first are labor shortages, particularly in nursing. But we have shortages in other areas as well, such as radiology technicians. Most recently, physical therapists and occupational therapists have also become harder to find. The second is malpractice insurance. The American Medical Association has designated Illinois as one of the priciest states in the country, with malpractice insurance premiums skyrocketing for both doctors and hospitals. We’ve seen doctors in a number of specialties leave the state for Wisconsin and Indiana, including OB/GYN, neurosurgeons and most recently, vascular surgeons. But it affects all specialties. Our third challenge is gaining access to capital at a reasonable price. With operating margins shrinking, it is harder and harder to achieve the type of bond ratings you would like in order to access affordable capital.

JHC: How significant is the supply chain to the administrators of the Rush System for Health and Rush Oak Park Hospital?

Elegant: Next to labor, supplies are the largest portion of any hospital’s budget. It’s the one area that we believe is amenable to change without affecting the quality of patient care. That’s why we decided last year, with the help of some outside consultation, to look at every aspect of our supply chain spend and to ask ourselves, How can we do this better? As part of that process, we looked at our current GPO relationship and put out a request for proposal to the major GPOs. We felt that if nothing else, we would cause our current GPO to sharpen their pencils for us.

JHC: What did you end up doing?

Elegant: We ended up selecting MedAssets as our new group purchasing organization. One reason we chose them was their flexibility. If we end up having a local contract that has better terms than what’s available from MedAssets, or if we want to work with a vendor with whom MedAssets currently does not have a contract, they’ll either a) get a contract with that vendor, or b) allow us to maintain our local contract. Another factor (which is still evolving) in our decision was the company’s proprietary software, which tells us whether we’re optimizing our spend. With their reports, we can tell such things as whether we’re buying similar products from multiple vendors, or whether our individual facilities are paying different prices for the same products. Another reason we chose MedAssets was its partnership with a company called Aspen Consulting, which helps members focus on physician-preference items, including orthopedic implants and cardiac rhythm devices. These are things that cost a lot of money, and in which the hospital doesn’t have as much leverage [as with commodities].

JHC: To what extent have you managed to enlist the support of your physicians?

Elegant: In more than 80 percent of the cases, our physicians have been very supportive of the process. Together, we have been able to approach vendors and achieve standardization and significant cost-savings. The physicians have been very supportive of the process, and have worked with us in helping vendors understand our need to get competitive pricing.

JHC: How have you managed to enlist their support?

Elegant: The first thing is to present them with data. After all, physicians are scientists, and they respect good data. Some of that data helps us look at the prices we’re currently paying and compares them to prices of comparable products from different vendors. Another thing that resonates with physicians are the annual reports of publicly traded companies, which show their profit margins. The final thing we’ve done is to say to our physicians, “If you work with us, we will be able to help you maintain your relationship with your current vendor, but at a much better price.” But unless vendors honestly believe that the physicians are engaged and willing to switch products, hospitals will never get the leverage they need to obtain the best prices. One pitfall you can run into is this: You can negotiate prices on an existing technology, but then a new technology shows up at a much higher price. So we are attempting to work with vendors on the pricing of new technology. It’s an ongoing process.

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