Making Contracts Work

Is there more than one way to make a contract work? Supply chain directors and vice presidents share their thoughts.

Ask four heads of supply chain management what their role is in the contracting process, and you very well may get four different responses. Yet, they tend to share many of the same priorities and goals. What, then, is the most direct path to achieving these goals and making contracts work?

Patient safety and quality outcomes almost always top the supply chain list of contracting priorities. Closely following are pricing/cost containment, technology (meeting physician needs) and service levels, though not always in that particular order. Depending on each hospital or hospital system’s circumstances and culture, however, directors of supply chain management often regard their role somewhat differently from one another.

At Philadelphia, Pa.-based Temple University Health System, Bill Mosser, managing director of supply chain services, regards himself as a facilitator. Because supply chain management tends to have limited expertise in the medical field, Mosser says his role is “to present data, facts and market analysis, and remove the emotion out of the decision making and purchasing process.

“We get our people engaged and base purchasing decisions on what they need, not want,” he says. So, while he admits he’s no expert on infection control, he makes a point to get input from doctors who are experts. “Our philosophy is that changes in [hospital] culture cannot be mandated,” he explains. And, with four hospitals and a relatively low overhead and smaller staff, he appreciates the advantage of getting everyone to work together.

“We work to empower our people,” he says. “We’re a collaborative organization.”

Chris Clinton, business manager, surgical services at St. Joseph’s/Candler (Savannah, Ga.), a two-hospital health system with additional centers for orthopedics, cancer research and neuroscience, likes to place himself at the center of the physician-vendor-administrator triangle. “I believe [supply chain directors] should set the pace and direction” of the contracting process, he says. “When we talk to leadership about contracts, we need to share information so as to get everyone [aligned] as closely as possible. The same goes for vendors and physicians.”

The role of supply chain management in the contracting process “is getting more important every year,” says Leonard Schmidt, system director, supply chain, Provena Health. The six-hospital system, which includes 16 long-term care and senior health agencies, operates in Illinois and Indiana. Supply chain management needs to work closely with both physicians and administrators, he says. “We need to educate doctors and show them data so that they understand why hospital [administration] makes its choices. Historically, vendors have had a close working relationship with physicians. Supply chain management should be more involved to ensure its hospitals are getting the best products possible.”

In response to what the role of supply chain management is in the contracting process, Florence Doyle, vice president of supply chain at Newtown Square, Pa.-based Catholic Health East, a 33-acute care hospital system with four long-term acute care hospitals, cites a pair of published authorities. “The answer to this question is nicely summarized by Eugene Schneller and Larry Smeltzer in their book, Strategic Management of the Health Care Supply Chain,” she says. “Supply chain management needs to facilitate strategic sourcing (contracting), which is a process for managing risk and reducing cost in the acquisition of goods and services.”

“The authors cite Young, a supply chain theorist, who defines risk as ‘the potential to be deprived of use either by reason of long lead time, non-delivery or unacceptable quality.’ Risk also relates to the possibility of purchasing goods that will not satisfy end-users.” That said, “supply chain management is responsible for quantifying the facts while concurrently working collaboratively with the stakeholders,” she adds. “Supplies have overtaken labor as the fastest-growing line item, and supply chain management plays a key role in helping to manage this. Supply chain management needs to deliver the optimal value proposition that is focused on price, quality and service.”

Team approach
A solid team approach to contracting depends on trust and buy-in from those involved in the process, according to experts. This means maintaining open lines of communication to avoid surprises and frustration, particularly on the part of end-users. “Supply chain management must provide doctors with data up front, before any changes are made,” says Schmidt. “We need doctors to trust the changes we make. If we get them involved up front, we can build a stronger foundation.” While physician buy-in is vital to a sound contract, the consensus of other clinical staff and administrators can be just as important. “Keep them all informed very early on in the process,” he adds. “The last thing you want to do is make anyone feel that change has been made without [his or her] input.”

Sharing information is a starting point, adds Mosser. But, this should include market data, he says. In addition, supply chain directors must listen to the needs of physicians, clinicians and administrators, and maintain a sense of humility and humor. “We must be able to laugh at ourselves,” he says. “We don’t want to intimidate others.”

Finally, “the [contracting] process must be flexible enough to allow us to fast-track when necessary,” Mosser says. “Getting everyone to work as a team can take four or five months,” he says. “We don’t always have this much time, so we have to be able to [move things along] when necessary.” And, all the while, heads of supply chain management must be able to manage any problems that arise, he adds.

Indeed, problems do arise. Price targets are set, and vendors fail to meet them, notes Clinton. But, while price increases may threaten the health system’s productivity, Clinton says that changing products also may have an adverse effect. “We don’t want to see a price increase from a vendor impact our profitability,” he says. “But, we have to be sensitive to what a constant change in products can mean for physicians. Don’t ever discount the fact that doctors are comfortable using particular products. So, ideally, we want to contract for the best prices with our current vendors. A change in products could affect physician productivity.” Besides, he adds, “at the end of the day, I have found that doctors do care about getting good prices and being cost-effective.”

Task-force approach
Generally, supply chain management continues to rely on task forces and committees to facilitate the flow of information throughout the organization. But, the make-up of these committees is changing. “Our champions are not always physicians,” says Schmidt. “I work in a corporate office with six facilities across the state of Illinois. [As such], I rely on department heads, materials managers and administrators within each hospital to work closely with the doctors. It’s key that we let physicians and department directors know the financial implications of different products. Then, the department directors can work with their physicians [to make appropriate choices].”

Administrators and physicians at Temple University Health System similarly have begun working closely with physicians to evaluate the financial implications of different products. “We have virtually eliminated our value analysis teams,” says Mosser. Now we try to include [administrators] and stakeholders in the decision process.” So, in place of value analysis teams, the organization relies on project teams, which include administrators, department directors and physicians/clinicians specific to the products being evaluated. “Once decisions are made, the group disbands,” he says.

Catholic Health East employs task forces, and some of the same members of these task forces also participate on GPO committees and advisory boards. “For those committees and advisory boards that are clinical, we ensure that we have front-line clinicians who understand patient, staff and physician needs,” says Doyle. The organization also has a supply chain council comprised of supply chain executives who establish and execute supply chain strategy for the entire organization. All task forces and the supply chain council are advised when a contract is awarded. If and when products must be converted, vendors must meet with the Catholic Heath East system office to discuss the strategy and process, which is closely monitored, says Doyle.

GPO involvement
Generally, supply chain management heads depend on GPO expertise throughout the contracting process, and other administrators and clinicians also tend to trust this involvement. “With regard to physician preference items, our GPO has been helpful in identifying best practices,” says Clinton. For example, the GPO initiated a vendor traffic light system, which keeps doctors on track with price management. Physicians at St. Joseph/Candler can rate cost-effective vendor ‘green,’ and less effective vendors yellow or red. “This practice has given our doctors new terminology,” says Clinton. “For example, we had been working with one vendor [on its pricing] for months, and finally one of our surgeons told them, ‘I’m going to be a green doctor.’ That was all it took.”

At Temple University Health System, where Novation value analysis teams work as subgroups of the hospital’s teams, staff and administration do not really distinguish between the GPO and the hospital people, says Mosser. “Novation’s [teams] have access to all of our data and provide market research, quantitative analysis and more. We have trusting relationships with both Novation and VHA.”

The GPO contract is a tool, and the organization must optimize the benefits, says Doyle. “Our users regard the GPO with trust because, through participation and communication, [the GPO] involves us in the process and understands our objectives,” she says. “It is understood that our GPO helps us achieve excellence in contracting.” Communication is key to ensuring support of the organization’s decision to work with the GPO, she adds.

Whose contract is it?
Ideally, if all stakeholders are involved and engaged throughout the contracting process, compliance should be higher, Mosser says. “Ensure that the contracts belong to all of the stakeholders, not just to supply chain management,” he says. When his hospital system’s quarterly reviews show that one vendor is not getting its share of business, supply chain management must follow up with this, he adds. Users must be comfortable with the products. At the same time, “supply chain management must hold doctors, nurses and vendors accountable for what they originally brought to the table,” he says.

Along the same lines, Doyle’s organization has implemented a compliance scorecard, which is reviewed by its senior management team and regional health corporation CEOs. The scorecard identifies regional health corporations within the organization that are non-compliant with contracts or in the ‘red zone,’ she explains. However, when users appear to be disgruntled with a product conversion, she pays attention. “Twice in my career, I have seen issues following a conversion on gloves,” she says. “My first reaction was that they would subside, but they didn’t.” At this point, supply chain needs to step in as an advocate, she continues. “In both instances, we removed the product at issue and told the staff we would not bring it back until the problem was resolved. The clinicians appreciated our quick response, and when the issue was resolved, they supported our bringing back the contracted product.”

At St. Joseph’s/Candler, Clinton hopes that by working hard at his end to get vendors’ prices in line, he can offer his doctors a wider choice of products and better ensure their compliance. “My goal is to reduce the price of products, not the number of vendors we use,” he says. And while “it would be nice to have fewer products on the shelf, I don’t want to do this to the doctors.”

Above all, it’s important to “track your [contracting] successes,” adds Clinton. “[To do this] we’ve had to submit monthly reports, which can be a lot of work. We have actually looked over invoices and purchasing orders. But, [in once case] it showed us we had saved about $1 million over a nine-month project.

“Track your successes, and then celebrate it at the end of each project,” he says.

About Laura Thill

Laura Thill is a contributing editor for The Journal of Healthcare Contracting.

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