Businessman of Group Purchasing

Premier’s Mike Alkire believes IDNs can improve both financially and clinically – with the right plan.

Businessman of In many ways, Mike Alkire reflects the way group purchasing organizations are evolving. His background is business- and information-systems oriented, not hospital-purchasing- or materials-management-oriented. While keenly aware of the need for low contract prices, he expresses his vision for Premier in terms of operational efficiencies and greater shareholder value. And he embraces the broader goal that Premier has set for itself – helping its members improve their financial and clinical performance.

Alkire graduated from Indiana State University with a bachelor’s degree in computer science. He went to Indiana University for a master’s in business administration, with an emphasis on finance. After graduation, he worked for the auditing and consulting firm Deloitte Haskins & Sells (now Deloitte & Touche USA). At Deloitte, Alkire was primarily responsible for systems implementation, and in the late 1980s, he played a role in developing the Arizona Health Care Cost Containment System, the state’s Medicaid system. Alkire was responsible for developing data-aggregation systems for the program.

From there, he went to Seattle to work for Capgemini, which was building its portfolio of business consulting, technology consulting and business turnaround services. He ultimately was given responsibility for the company’s operating units west of Houston, and focused on its high-tech and supply-chain sectors. His clients included Compaq and Western Digital.

High-tech companies, such as those in California’s Silicon Valley, were just waking up to the value of supply chain efficiencies, says Alkire. “This was the mid-1990s. Supply chain was a huge opportunity for savings and true company differentiation among high-tech organizations. Look at what Dell did for developing laptops.”

When Capgemini bought Ernst & Young’s North American consulting operations in 2000, Alkire – who was a member of Capgemini’s North American operating committee – was asked to help transform Ernst & Young into a more efficient profit-and-loss-focused business. He assumed a number of other roles with the company, and held responsibility for sales and operations for the high-growth and middle-market sector. “Our goal was to work with these fast-growing companies and build out service offerings that met their needs, many of which were supply-chain-related.” His clients included manufacturing companies as well as dot-coms.

It was at Capgemini that Alkire met Susan DeVore, who spent more than 20 years with Capgemini Ernst & Young in a variety of capacities, including senior healthcare industry management practice leader, member of the executive committee for the North American consulting organization, and vice president and sector leader of the consulting firm’s high-growth middle-market sector. DeVore joined Premier in July 2003 as president of Premier Purchasing Partners. Later that year, she asked Alkire to join her at Premier to help develop and implement a three-year Transformation Plan, designed to improve Purchasing Partners’ returns to Premier shareholders and help differentiate it in the market. In July 2006, he was named president of Purchasing Partners, while DeVore became chief operating officer of Premier Inc.

The Journal of Healthcare Contracting: While at Capgemini, you had an opportunity to work with up-and-coming companies like Compaq and Western Digital. What did you take away from that experience?

Mike Alkire: I got to work with some of the most innovative, best-thinking leaders in industry. I got to watch how they operated their businesses and how they performed against analysts’ expectations. There was so much you could glean as you worked on the inside of these businesses.

JHC: You joined Premier in 2003 to help transform Purchasing Partners. What were you trying to transform, and how did you get started?

Alkire: It was a very solid business. But [we wanted to figure out] how to substantially differentiate it in the market. We had to build out a significant amount of credibility among our shareholders, who are also our customers. The very first thing we did was drive some efficiencies and show them that we could be fantastic stewards of their admin fees. When we got here, we were returning about 47 percent of the fees back to the owners. Last year, we returned 72 percent.

JHC: How did you do this?

Alkire: We increased our field presence from roughly 30 people to 120 people. They are out there supporting our owners, talking about industry best practices. We also increased our investment in technology. We made some pretty significant investments in how our organizations buy products through GHX [the Westminster, Colo.-based electronic trading exchange]. We created a price activation model, which ensures our owners that they activate the appropriate prices for products at the right time in the buying process. One of the big issues our owners were struggling with was having the wrong price in the system; and not finding the pricing discrepancy until months later, then trying to go back in and fix it.

JHC: Conventional wisdom has it that healthcare is far behind industry in implementation of information technology. Were you shocked when you left the corporate world and entered healthcare?

Alkire: It was substantially different. Some clients we had worked with [at Capgemini] had three months to figure out how to do an EDI transaction with Wal-Mart or lose 50 percent of their revenue. Situations like that provided a substantial impetus for these organizations to change.

Healthcare leaders are all about providing a fantastic service – care – to people in need. So, was I expecting to find a substantial difference in how business was transacted in healthcare? Absolutely, because their mission is different. In healthcare, it wasn’t about driving a bottom line, or increasing revenue or shareholder value. But I did see an opportunity to bring some of the best practices outside healthcare, and at least make healthcare organizations aware of them, and then figure out if there was a way to shape their ideas and thoughts to adapt some more progressive practices from outside the industry. We will have to figure out what best practices from other industries we can apply to healthcare, if this country is going to have an affordable healthcare budget in the future.

JHC: Can you briefly describe some of the other technology investments you have made at Premier?

Alkire: We made significant investments in spend analytics, [such as] off-vs.-on-contracting spending analyses and tier analyses. Our members struggle with price parity. Today, 180 hospitals have signed up for our SpendAdvisor [Premier’s spend-management decision-support tool, which allows members to identify conversion opportunities, monitor contract utilization, perform department-level spending analyses, identify opportunities to develop locally negotiated contracts, develop supplier scorecards and compare prices paid to national benchmarks.] The beauty of this is that it’s an opportunity for our hospitals to truly share knowledge. [SpendAdvisor provides] great analytics for the institution, but the backbone of it is shared data.

We recently signed an agreement for a tool [ValueAdvisor] developed around the whole value analysis process. Member CEOs have been challenging us to [help them manage] new innovations entering their systems. They’re saying, “I’m paying a ton of money for all this technology, but I don’t know if I’m getting the return. We’d love a mechanism to let us actually track it.” We will house [ValueAdvisor] on a Premier server, so if [a Premier member] conducts value analysis on a specific thoracic closure device, another member with an interest in the same device can download that data and use it for their own value analysis or as a starting point in it. We think it will help spread new technologies and innovations across our organizations – not just by word of mouth, but with information grounded in real return, value to the patient and savings to hospitals.

JHC: How does a member measure the value of new technology?

Alkire: You have to assume that the clinicians – nurses and physicians – have looked at all the supporting evidence and have concluded that this is a real innovation. With this tool, the clinicians – for example, a physician who supports the technology – decide what they think the return is. The tool then allows them to track it. Some parameters I’ve seen are reduced length of stay and increased mobility so that people can get back to work quicker.

JHC: You joined Premier to work on the Transformation Plan. Is that work ongoing?

Alkire: The Transformation Plan was a communication mechanism to show people where we were in terms of progress against the goals and objectives we had set out. We had a $68 million imperative over three years.

We set out revenue initiatives – things like building out better contracts with higher utilization, and recruiting new health systems. And we have had incredible success in recruiting new members. We have recruited $650 million of new purchasing volume every year of the plan. That’s due to the whole play of returning increased admin fees, working with a GPO that is operationally effective and able to drive contracts, and having field support and technology.

We also set out to achieve efficiencies. We took $28 million of cost out of this business. We looked at how we actually source our agreements and asked, “How can we be as efficient as possible in doing this?” We learned that the more we could push through technology, the more efficient we could be, and the more resources we could free up to go after high-preference clinical areas and to conduct more face-to-face negotiations. So we have probably put $2.5 billion of spend through reverse auctions, with savings of 20 percent. We have implemented an automated evaluation process, called eRFQ. Reverse auctions or eRFQ work only in markets that have a lot of suppliers, that are more commodity-oriented, where you can create a lot of friction.

And we had capital initiatives.

We actually achieved our $68 million imperative over two years; we had originally set out to do it in three. In the spirit of Malcolm Baldrige [secretary of commerce during the Reagan administration, whose name is used in the coveted quality award], we’re constantly looking at how to continue on that pattern of success and move it forward. Now we’re building out another Transformation Plan for the next three years.

JHC: In November 2006, Premier was awarded the Malcolm Baldrige National Quality Award for quality and organizational performance excellence. Why is that important for Premier members?

Alkire: Baldrige winners are not only focused on ways to improve processes, but they’re performing better than average in their industry. I think our performance has been very reflective of one of the top couple of organizations in the GPO industry. And if some hospitals can leverage the best practices and themselves try to achieve them, that’s fantastic.

JHC: Two years ago, Susan DeVore told JHC, “One problem with the blockbuster deals of the past is that they were long-range. They were probably very competitive in years one, two and three, but they became less competitive over time.” Is that still the thinking at Premier? If so, has it changed the way you approach contracts?

Alkire: We abide by our Premier code of conduct, which calls for no contracts longer than three years [without board approval or unless economic conditions call for longer-term agreements]. We believe the three-year term is fairly reflective of the market. That said, we will take advantage of any aberration in the market. If, for example, a supplier has overproduced a specific product (perhaps they were unable to get it through a channel they thought they could), we’ll take advantage of that. I’m also trying to build a daily “group buy” mentality among my staff. There’s no way we could actually absorb that kind of rapid change. But I’m trying to create a notion of nimbleness and of creating opportunities in the market at any time in order to enhance our agreements. If some of the proposed Medicare cuts take place in the next 18 months, a significant portion of our health systems that are operating in the black could potentially operate in the red. My job is to make sure they stay profitable.

How do we measure success? We sit down with each of our owners at the beginning of the year and talk about their needs from a financial perspective. They may tell us, “We need to take X percent out of our supply chain.” We work with them to put a plan in place, and every couple of months or once a quarter, we validate those numbers in terms of the savings we’re driving, either in new contracts, or through our work with them on standardization and utilization. I think this year we will achieve more than $500 million in savings.

JHC: How can an organization such as Premier hasten the introduction of new technologies? Why should it do so? And how do you help your members evaluate the cost-effectiveness of new technologies?

Alkire: Our contracts have “breakthrough” language in them. If there’s a breakthrough in technology, it’s immediately added into our agreements. This whole notion that breakthroughs are somehow stagnated by group purchasing organizations couldn’t be more false. We share best practices and new breakthrough technologies, because we want our hospitals to provide the best care in the world. We pride ourselves in taking new technologies into the system, for a much better patient experience.

JHC: How will Premier differentiate itself in the future?

Alkire: A continual focus on operational execution. With our assets, tools and technology, and the things we do on the quality side, we will change the game in sourcing. We will have an outcomes-oriented overlay to how we do sourcing, especially in physician- and clinician-preference processes. It’s obvious that we need to make sure that clinicians understand the clinical value of products and the impact they have on [patient care]. For example, in orthopedics, what is the impact of a device on degree of mobility, readmissions or length of stay? To the degree that we can tie supplies and the quality of outcomes together, our hospitals will be able to make huge advances in how they purchase products. So it’s not just price-oriented, but total-value-oriented. It’s not just reducing cost, but providing a better patient experience. Group Purchasing

Premier’s Mike Alkire believes IDNs can improve both financially and clinically – with the right plan.

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