For TPC, a collaborative approach has led to substantial savings for its members.
TPC members had established a relationship with one another well before it began its charter on Jan. 1, 2010. Prior to forming the coalition, TPC members – a group of independently owned hospitals – worked together on several other initiatives. Their decision to formally unite was a means to solidify their commitment to work together to achieve results, including maximum efficiencies and savings. Their efforts have paid off, and then some.
The Journal of Healthcare Contracting recently interviewed Rob Addison, vice president, TPC, about the organization’s initiatives and goals and the benefits its member have realized over the past four years.
The Journal of Healthcare Contracting: How large is the coalition? Are you open to new members joining?
Rob Addison: Currently, eight member healthcare organizations make up TPC, and the coalition is actively seeking new members to expand its footprint outside the state of Texas and into other regions of the country, such as Oklahoma, Arkansas, Mississippi, Louisiana, New Mexico and Colorado. In addition to our anticipated membership growth, other independent, stand-alone organizations interested in forming a regional coalition are actively seeking out TPC for consultation.
JHC: Has the coalition provided members with more advantages than originally expected?
Addison: Our coalition members have experienced many advantages that were not originally expected. One clear advantage that has exceeded member expectations is our three-year savings target. Our members made a significant move in late 2009, when we put our preferred group purchasing organization of 20-plus years out to a collective bid and selected MedAssets as our new performance-improvement partner. Our three-year agreement with MedAssets included a $50 million annualized savings guarantee, based on approximately $850 million in supply spend Our coalition members, working together in a collaborative and committed fashion, have realized over $90 million in annualized savings in a three-year period.
This type of performance doesn’t happen without a disciplined, collaborative decision-making process. Our members make pre-committed decisions based on standardization and utilization initiatives and then hold each other accountable for the implementation of their shared strategies. Another significant advantage that our members have realized – which was anticipated but uncertain – has been the ability to achieve system-level results. Because of their dedication to each other and their joint decision-making power, TPC members have experienced system-level results, as indicated by the savings. This is an important outcome for a group of independent providers that are thriving in an environment of mergers and acquisitions.
A final example of an advantage that has resulted from the coalition is the group’s success with physician preference initiatives (PPI). Our team of physicians engaged in a distinct analytical review to present insight on PPI cost drivers and savings opportunities. The physician engagement resulted in standardization, improved pricing and utilization for total annualized savings of more than $49 million. Nearly half of our savings are in the PPI space. Few organizations are achieving those kind of results. The ability to share data and collaborate with physicians in a collegial, structured and scientific manner is essential to successful PPI initiatives. This process affirms to physicians that it is possible to maintain high quality patient outcomes while improving financial results. This distinct method of engaging physicians before, during and after product conversion, across multiple physician practice lines and member healthcare organizations, has yielded substantial results.
JHC: What are the top initiatives your regional purchasing coalition has pursued in the last 12 months?
Addison: Three initiatives that will deliver the largest savings for us include:
- Interventional cardiology. After driving 19 percent savings in this category in 2010, we recently completed a pre-commit standardization initiative, whereby we reduced vendors for stents and balloons from three to two. The primary vendor was awarded 70 percent of the market share. Our members converted product very quickly and achieved over 80 percent market share with the primary vendor within the first month of the contract, resulting in additional financial incentives from the vendor and an additional 10 percent savings for our members.
- Re-manufacturing. We are in the second year of our re-manufacturing initiative, expanding beyond OR products (e.g., burrs, bits and blades) to the cath lab (e.g., endoscopic trocars). We are estimating $2 million in realized savings from this program.
- Total joints. We are addressing total joints across TPC as another pre-commit initiative, which we believe is unprecedented in the industry. In the past, total joints have been addressed on a local basis, however, we are looking to maximize our leverage as a virtual IDN and drive further financial value.
JHC: How has being part of a regional purchasing coalition enabled members to leverage their buying power?
Addison: Our members leverage a shared infrastructure, which supports clinical engagement and committed decisions that deliver superior, documented savings. Our collaborative approach has helped meet cost reduction goals leading to maximum efficiencies and savings for our members. Because our members are committed to the coalition model and to each other, we have evolved to a structure that ensures members participate in 80 percent of committed purchasing events. While many hospitals participate in annual GPO pre-commitment initiatives, we have expanded our efforts to include other product categories, such as physician preference items. To make the process even more fruitful, we have taken the bold step of adding financial penalties for members that do not reach participation goals. This allows us to optimize total savings in both high-volume commodity products as well as PPI. By combining both the GPO and custom contracting strategies, we are able to leverage the collective, committed volume of our members.
JHC: How much savings has TPC realized?
Addison: In the first 18 months, we realized $54 million in sustainable supply spend cost reductions, surpassing our scheduled savings projection by three months. Through 2013, we have reached $93.6 million in annualized supply chain savings, with roughly one-half of those savings in PPI categories. In addition, the purchased services cost reductions include another $20 million, positioning TPC to expand across all non-labor spend categories for even deeper cost savings.
JHC: Can you explain your process whereby your supply chain executives meet and make their decisions?
Addison: Our supply chain council has been instrumental in driving our results. It meets on a monthly basis and helps prioritize and manage the majority of our initiatives. The council will continue to be critical to our on-going success; however, we have expanded beyond the supply chain to include standing committees with different disciplines such as finance, physicians and clinicians. To use a phrase from the past, our esprit de corps drives success through executive, clinician and operations teams collaborating and fostering relationships for meaningful discourse.
Our purchased services organization is very mature and has deep experience in many areas across the organization. As with supplies, our purchased services initiatives utilize working committees including our CFO-based Executive Steering Committee. Our legacy programs include insurance, staffing, energy, foodservice and telecommunication services. TPC members have had access to over 50 contracts and committed programs, with the estimated spend exceeding $70 million. This figure is expected to double, which will increase leverage with vendors, yielding even better terms and pricing. Purchased services is the next frontier to tackle. One of our member CEO’s said it best: TPC is far more than a supply chain management partnership. It is a network of peers working together to increase efficiency, reduce operating cost and improve healthcare.
JHC: Please describe TPC’s relationship with MedAssets.
Addison: Our relationship with MedAssets is a partnership. And as part of that partnership, they bring experience, expertise and supporting tools and processes to drive value. Aside from the savings that they helped us achieve, we have been able to optimize our results by leveraging our members’ combined strength to create a virtual IDN business model. This business model maximizes economies of scale and provides significant financial benefit for national, custom and regional contracts. Some examples of the results that we have achieved beyond the national contract portfolio include the:
- Introduction of operational analytics to achieve even greater cost reductions in clinical supplies through standardization and reduced variability in supply usage by procedure, physician and service line. Consolidation of medical/surgical, laboratory and pharmacy distribution spend under a single custom-contracting agreement.
- The development of custom and regional contracting strategies and agreements for PPI categories, such as orthopedics.
- The conversion of sutures, endo-mechanicals, trocars, surgical mesh and topical skin adhesives contracts to one supplier, leading to significant savings.
- Development of a structure and process to ensure our PPI purchasing decisions include an informed clinical perspective. This perspective has brought improved utilization and standardization across all of our member organizations.
The combination of our GPO’s contracts and our coalition’s business model has allowed us to leverage the collective, committed volume of our members, driving some of the lowest prices in the industry.
JHC: How do you ensure that the interests of each of your facilities are considered and that each facility’s needs are met?
Addison: The shared infrastructure and esprit de corps across our member base allows for meaningful discourse and collaboration among executive, clinician and operations teams. Something that is unique to TPC is that we operate on a one-member one vote, majority-rules voting process, which we believe is essential in order to gain alignment across our member base and deliver system-wide value. Unlike other coalitions, we do not use a volume-based voting approach.
JHC: Is it difficult to get buy-in to the coalition’s contracts from each of your facility’s physicians and staff?
Addison: As we move beyond commodities into more complex categories, such as physician preference items and further penetration of purchased services, the level of effort and required buy-in increases. It is fair to say that obtaining buy-in is harder, but that is why we have the committee structure. As mentioned above, our members’ commitment to each other drives success through executive, clinician and operations teams collaborating and fostering relationships for meaningful discourse.
JHC: Other than cost-savings, what has been the greatest benefit of the coalition to its members?
Addison: Our members are made up of independent stand-alone hospitals. We have leveraged the strength of a virtual IDN business model to create economies of scale and significant financial benefit to coalition members. In addition, our members have established personal relationships with their peers, where they can discuss best practices to not only improve the coalition, but to better enhance their own operating model, in many different areas.
JHC: How do you envision your purchasing coalition in five years?
Addison: As the healthcare industry continues to shift and evolve, we anticipate our coalition will grow beyond Texas and expand into other areas across the country. We envision our coalition will continue to be derived of stand-alone organizations that are striving to remain independent. In the future, we will continue to leverage our current platforms and partnerships to move beyond purchasing and address the changes of healthcare reform from a holistic approach. Looked at another way, if our physicians or executives build trusting relationships and protocols to tackle supply initiatives, then it will be a natural progression to move the discussions to the next area of “value”.