In the acquisition of capital equipment, a St. Louis contracting team is more than a rubber stamp.
Considering IDNs spend so much money on capital equipment each year, it’s a wonder that many of them leave the heavy lifting of capital equipment contracting to people lacking contracting experience (opinions of their own negotiating skills notwithstanding).
Six years ago, St. Louis-based BJC HealthCare decided to take steps to prevent its contracting department from being just a rubber stamp, and with good reason. Of the $521 million the IDN spends annually on supplies, about $60 million is capital. BJC comprises 13 hospitals serving Missouri and Illinois, ranging from large, teaching hospitals to small, rural facilities.
Capital dollars take a big bite out of operating expenses, considering acquisition cost, depreciation, service costs and equipment-related supplies, said VP of materials services Nancy LeMaster at the recent VHA Leadership Conference.
The trick was to create a system that would offer departments and vendors consistency and flexibility. “We wanted something consistent, but we didn’t want to create something that the departments would spend every minute trying to circumvent,” said LeMaster. In short, BJC sought to transform a reactive capital equipment-buying process to a proactive one. “Most important, we wanted to move into the realm of being a professional resource to the departments, not just a paper pusher.”
Lack of trust
The obstacles were plentiful. Trust and respect between the contracting and clinical departments were lacking. As in many IDNs, the clinicians resented the contracting team’s efforts to become more involved in the capital equipment-contracting process. They regarded the capital dollars allotted to them as theirs alone, and considered any attempt by contracting to get involved to be an assault on their independence. Meanwhile, those in contracting perceived that the clinical departments had a tendency to needlessly waste the hospital’s money on imprudent capital purchases.
The second obstacle was the lack of consistency in the capital-purchasing process. For example, the procedure for purchasing replacement equipment was entirely different from that for purchasing equipment for new construction. The third obstacle was the failure of the IDN to figure ongoing service costs into the overall cost of a piece of equipment. The fourth obstacle was the contracting department’s history of getting involved too late in the acquisition process.
And the fifth obstacle? The belief on the part of clinicians that everybody is a great negotiator. “We had physicians and radiology directors involved,” said LeMaster. “They were very proud of what they had done, and they had an increased sense of ownership.” The problem was that too many times, it was the sales rep who told them they had gotten the best price in the country.
Steps toward change
One of BJC’s first steps toward change was mandating a strict capital approval process. Now, LeMaster herself signs off on capital contracts. “That allowed us to pull in all these [acquisitions],” she said, adding that the consistency also gave vendors some direction.
In addition, the IDN moved to a two-year capital budgeting cycle, eliminating the year-end rush by departments to spend budgeted dollars before they lost them (a practice that lent itself to unwise purchasing and contracting decisions). The two-year cycle also gives LeMaster’s department more time to explore bidding and bundling opportunities.
Third, BJC made a decision to separate its capital dollars into two buckets: one for replacement or infrastructure purchases, the other for growth-oriented purchases. The decision was made because departments were focusing too much attention on sexy, new-technology purchases, and too little on the more mundane replacement purchases, e.g., boilers and chillers. Decisions about how many dollars go into each bucket are made by a high-level committee called the building, land, technology (BLT) committee. A second committee called the “scrubber” group, reviews the numbers to ensure all proposed acquisitions make strategic sense for the IDN.
Results? Today, 76 percent of BJC’s capital equipment purchases are made through negotiations, as opposed to less than 25 percent when the IDN began the transformation. Savings are higher than ever. And whereas cutting a purchase order was the materials department’s primary job, now it is a non-event. LeMaster said the real action takes place in the planning and negotiating stages. And all of these changes were accomplished with the addition of just one FTE.
Although well-planned processes are essential to bring about changes in an IDN’s culture, people are critical too, said LeMaster. “You have to build trust and convince physicians that this is a strategic thing to do,” she said, adding that those working in the contracting department must be comfortable working with clinicians.
BJC accomplished the goal of creating a consistent, yet flexible, approach to big-ticket contracting and purchasing. Today, both the departments and vendors understand the process. There are fewer surprises and, according to LeMaster, people in the IDN are now focused on the total cost of capital equipment ownership, not just the acquisition price.