Cleveland Clinic Follows Many Paths to Cost Reduction

By Linda Alter

Cleveland Clinic Health System doesn’t buy just one supply chain solution for its 14 hospitals and many non-acute facilities in the Cleveland area and Florida. Instead, it combines and customizes solutions to meet specific needs. “I don’t really have one solution, one company that solves all of my problems,” says Alan Wilde, Jr., director of purchasing and vendor relations. “I try to pick the best in class or the most unique. We look at technologies that are out there in the market and try to take advantage of what they have to offer us.”

One such solution is QSight by Owens & Minor. QSight is a point-of-use inventory tracking system that uses manufacturers’ bar codes to track receipts and usage of items. Cleveland Clinic uses the Web-based tool in its interventional radiology, cardiology and electrophysiology units. (Cleveland Clinic didn’t buy the entire Owens & Minor software solution. Another company’s software is being blended with QSight to clean up the system’s data.)

“I have more real-time information on what is being used vs. what is ordered,” says Wilde. “I am able to actually look at usage patterns and make suggestions on what we should order less of or what we should order more frequently. [And] I actually know what physician uses what item.”

Armed with this information, Wilde and his team can approach administrators and physicians to begin standardizing items purchased by the system. “Now we have information about which items are being used, and which doctors are using what. We know which doctors we need to talk to.” Administrators are then approached individually.

Product evaluation committees consider physician requests for new products, and new products in general. Wilde attributes much of the success of these committees Ð particularly those that evaluate physician-preference items – to physician involvement. For example, a physician serves on the operating room committee, and another will participate in a committee that is being formed for cardiology-related supplies and equipment.

Reverse auctions
Over the past five years, Cleveland Clinic has realized over $66 million in cost reductions. One cost-cutting tool it has adopted is the reverse auction. For some product categories, reverse auctions have replaced the traditional RFP process and have speeded up the purchasing process.

Using software by Ariba (Sunnyvale, Calif.), the IDN hosts reverse auctions for perfusion items, contrast media, gloves, patient beds, mattresses, furniture and other items. Manufacturers are alerted that items are going up for bid and are invited to participate. They log on electronically and bid against each other, with the lowest price winning the contract.

Because of its size and clout, Cleveland Clinic can help vendors grow their business and market share; in return, the IDN gets reduced prices. When Wilde and his staff analyze potential contracts, they do so with an eye on the different tiers offered. They ask questions such as, “If we sign up today at tier 1, will we save money?” “How about tiers 2 or 3?” “And if we commit to a higher tier, how will we reach it? Will we need to consolidate the business between two different suppliers?” The IDN tries to answer these questions as quickly as possible in order to take advantage of cost-savings as soon as they are available.

Outside assistance
In order to maximize its efficiency, Cleveland Clinic seeks outside expertise when necessary. For example, the IDN has hired an external auditing group to look at its GPO contracts and make sure it receives the pricing at the tier by the date indicated on the contract. The auditing group recoups any cost savings that is due the health system that it didn’t receive.

By maximizing manufacturers’ rebate programs, Cleveland Clinic has been able to get money back after spending it. “We’ve signed up for every single one and we meet with our suppliers to try to meet the goals that are outlined,” says Wilde. “We’ve had about a 20 percent increase in the amount of rebates that we’ve gotten traditionally.”

Buying certain products in bulk has helped the health system save money. “We’ll sit down with our supplier and talk to them about a bulk buy. They may be trying to meet certain numbers at the end of their quarter,” says Wilde. At first the purchasing staff had to approach their suppliers about buying in bulk. Now the vendors approach them. “Bulk buys help the sales reps meet their numbers and Cleveland Clinic save money,” says Wilde.

No single cost-saving method is more effective than another. “All of them are effective and there isn’t one method that works best for all circumstances,” says Wilde. When asked about the most pressing challenges facing Cleveland Clinic’s purchasing department, Wilde notes that it is trying to keep the costs of new products in line with the cost of the old ones.