Not Your Father’s Purchasing Department

Allina Hospitals and Clinics

With a master’s degree in healthcare administration and seven years managing operations in hospitals and clinics, LeAnn Born might not fit the mold of the typical IDN materials leader. Yet in many ways, her background couldn’t have prepared her better for her current role as director of material operations of Allina Hospitals and Clinics.

Prior to serving as manager for several clinics in the Allina Medical Clinic, Born had limited understanding of materials management. Then she got involved with a large Clinic-wide standardization program, attempting to reduce the number of suppliers from whom the Clinic’s physicians were buying products. The effort allowed her to exercise her strength as a facilitator, in this case, to bring clinicians together to identify standardization opportunities.

She got a taste of and newfound appreciation for system-wide contracting. More important, she enjoyed the challenge of engaging clinicians in the task of driving value and savings for themselves and Allina. She has maintained an appetite for that challenge ever since.

Based in Minneapolis, Allina Hospitals and Clinics comprises 11 owned hospitals, one managed hospital and 42 clinics, serving communities in Minnesota and western Wisconsin. The system was created in July 1994 with the merger of HealthSpan, one of Minnesota’s largest hospital systems, and Medica, the state’s second largest managed-care organization. But in mid 2001, Allina decided to split its organization and separate from Medica.

The department of resource management handles contracting for the entire Allina system, with most of its resources dedicated to the IDN’s 11 acute-care facilities and 42 clinics. With approximately 40 FTEs, the department handled $225 million in purchases in 2003.

Allina is a member of VHA and Novation, the purchasing arm for VHA (and University HealthSystem Consortium). Glen Allen, Va.-based Owens & Minor serves as Allina’s primary vendor for its hospitals and clinics.

Redefining Materials Management
At Allina, resource management is definitely not your father’s purchasing department. With assistance from VHA, Allina has orchestrated a number of cost-cutting initiatives, yielding more than $26 million in savings from 2001 through 2003. They include:

  • Selection and utilization of physician-preference items.
  • Contracting for purchased services.
  • Reduction of OR inventory.
  • Price leveling and establishing pricing authority.
  • Logistical improvements.
  • Setting up of cost-per-case benchmarks in key departments.

“Today, we’re concerned with the entire supply chain,” including high-dollar, physician-preference items, says Born. The typical hospital warehouse holds only about 20 percent of the products that the facility or system buys, she says. Much of the remaining 80 percent are high-dollar items purchased by departments such as surgery, interventional radiology and cardiology. Someone should be looking after those huge dollars. At Allina, the resource management department does just that.

The department’s trained facilitators and clinicians – some with years of experience in Allina’s facilities and clinics – bring credibility among clinicians, says Born. “You have to establish that rapport with the key stakeholders,” she says.

These facilitators sit down with the IDN’s clinicians to look at the items they currently use and identify opportunities to reduce that number.

“We’ve done a lot of standardization work,” says Born. “But our next level of opportunity is with utilization,” that is, working with physicians to actually reduce their usage of high-dollar items, or perhaps to use less expensive items when warranted.

Born’s department is expanding the concept of cost reduction even further, by tackling the costs of purchased services, not just products. Working with VHA consultants, for example, the resource management department has secured cost-effective, system-wide contracts for perfusion services, food services and others. “It’s breaking the stereotype of controlling only what’s in the warehouse,” she says.

Another initiative that has yielded big-dollar savings has been a systematic reduction of inventory in Allina’s ORs. “It’s been a huge project for us,” says Born. Indeed, Allina has realized about $1.7 million in bottom-line savings in its metropolitan ORs by reducing inventory and using consignment for high-dollar items, and an additional $584,000 in its regional facilities. The department has also helped the ORs clean house, that is, get rid of expired or obsolete supplies and equipment.

One Price Fits All
When pursuing contracts for Allina’s acute and non-acute care facilities, Born and staff consider Novation’s portfolio first. “In most situations, Novation’s contracts will meet the criteria that we have identified. But in some situations, they won’t. Maybe the supplier can’t meet certain service levels, or perhaps there’s a manufacturing design that doesn’t meet the criteria our stakeholders have set. In those cases, we go to the market ourselves. But that’s not common.”

Allina prefers to secure uniform pricing for all of its facilities – acute and non-acute care. “It is in our best interest that we offer the same price to all our facilities,” says Born. In most cases, it has been able to do just that.

Even so, contracting for uniform prices is one thing; making sure everyone pays the contract price is another, particularly when you’re talking about more than 50 acute and non-acute care facilities spread across hundreds of miles. In fact, without information technology, doing so would probably be impossible.

The majority of Allina’s purchases flow through a Lawson purchasing and materials management system. Contract prices are loaded into it, and then invoices are monitored to make sure that the facilities are actually paying contract pricing. “If they aren’t, we figure out why,” says Born.

Engaging People in the Process
The greatest challenge – and reward – of managing resources for Allina is finding meaningful ways to engage people in the work at hand, says Born. “In most cases, I’m talking about clinicians, but we also get involved in other areas, such as office products and maintenance supplies.

“It’s frustrating when you can’t do this, that is, when people perceive us as wasting their time. But it’s rewarding when you do get participation. It lets us get better connected, and it allows us to demonstrate the value that we can bring them.”

The people in Born’s department will no doubt need to call upon their ability to engage clinicians as they tackle another frontier of additional physician-preference items, i.e., implantables used in spinal procedures.

“Physician-preference items definitely remain in our list of opportunities,” says Born. “But from a resource management perspective, we will continue to get more involved in purchased services. And as always, we will make sure that the core of our supply chain is working well.

“That means managing our contracts, holding suppliers accountable, maintaining a logistics strategy, tapping into e-commerce when appropriate, and following through on opportunities.”