Due to careful planning and a solid framework, in less than two years, the Central Atlantic Health Network (CAHN) has forged a strong connection among its 39 hospital members (11 IDNs) and anticipates $8 million in savings by the end of 2012. When the regional purchasing coalition began operation Feb. 1, 2011, its goal was “to approach the supplier community as one entity in order to create an incremental economic advantage and to generate additional value through other quality, cost and efficiency opportunities.” Guided by a board of directors and formal by-laws and operating documents, CAHN has grown from an $800 million supply chain operation to a $1.2 billion supply chain spend operation. Indeed, its executives’ foresight to form an LLC early on has provided a clear set of parameters within which the coalition can move forward.
In a recent interview with the Journal of Healthcare Contracting, Preston Comeaux, III, vice president, financial support services/supply chain management, Vidant Health, and Tom Lawton, managing director, materials department, Centra Health, spoke about the coalition’s goals and direction.
The Journal of Healthcare Contracting: Are you open to new members joining?
Preston Comeaux and Tom Lawton: Yes, we are. However, any new CAHN member must be a VHA member and must receive approval from 100 percent of the present CAHN membership.
JHC: What steps are CAHN’s leaders taking to ensure the coalition will flourish in years to come?
Comeaux and Lawton: We are engaged in organization-wide strategic planning. Our process includes a well-thought-out contracting plan and a success strategy for physician-preference devices, products and materials. We believe that our future opportunities lie in pharmacy, capital equipment and service areas.
JHC: What goals does the coalition hope to accomplish in its first five years?
Comeaux and Lawton: In our first year of operations, members saved approximately $4 million, and we anticipate savings of $8 million in the 2012 calendar year. Planning for 2013 is underway, with a focus on physician preference, and we expect to significantly exceed our 2012 savings. Calendar 2014 and 2015 will result in a continued, accelerated savings growth pattern.
JHC: What advantages will CAHN be able to offer its members in the upcoming years?
Comeaux and Lawton: Our members will experience the opportunity to be part of the best supply network in the nation, with market presence fully recognized by the supplier community and a track record of success. We will venture into areas such as service contracts, insurance and employee benefits. And, we will constantly churn what we have developed and continue to reap rewards from our relentless pursuit of best prices offered to a supply chain network.
JHC: How will being part of a regional purchasing coalition enable your members to leverage their buying power?
Comeaux and Lawton: Regional purchasing coalitions add leverage to buying power in tangible and intangible ways. From a tangible perspective, they provide access to tier maximization, particularly within the GPO contract portfolio. A recent trend in GPO contracting is the nationally negotiated network tiers. Being in a network, you have access to those tiers. Additionally, members gain specific knowledge from product evaluations. When several members are going through evaluations, one is able to better validate or invalidate objections by comparing notes. From an intangible perspective, it comes down to building strong professional relationships with those from your industry. The networking [opportunity] in CAHN strengthens our skills and knowledge, [as well as] our ability to impact our organizations.
JHC: Is this something your members should become better and smarter at over the years?
Comeaux and Lawton: Absolutely. And quite frankly, we have to. With the decline in reimbursement, uncertainties of healthcare reform and constant pressures on reducing cost, supply chain leaders must improve with every lesson learned. Working in a network has its challenges and is best positioned for success when everyone is on the same page.
JHC: Can you explain the process whereby your supply chain executives meet and make their decisions?
Comeaux and Lawton: The network’s operating committee has a formal process for identifying, obtaining consensus and executing initiatives. Opportunities and potential projects come from network leadership, members, VHA and the VHA region, and are presented for consideration. Based on the size of spend and potential savings, the operations committee allocates resources to further investigate an opportunity. A formal member voting process and Robert’s Rules of Order are utilized for decision-making. The operations committee is supported by its board of directors, which approves the contract plan as well as sets the overall strategy of the network. The operations committee meets face-to-face monthly in a central geographic location and utilizes teleconference as needed. The network is supported with dedicated leadership, sourcing and analytics through a consulting agreement with VHA.
JHC: How will you co-exist with your GPO?
Comeaux and Lawton: As an LLC, CAHN has the ability to go off GPO contract when the value from the contracted suppliers is not satisfactory or practical for the membership, or when a relevant contract does not exist. VHA and Novation are fully supportive and provide the resources to work with non-GPO suppliers.
JHC: How will you ensure that the interests of each of your facilities are considered and that each facility’s needs are met?
Comeaux and Lawton: Our contract plan is mutually established with each member, with one vote. Although there is a possibility that not every member will be able to participate in every initiative, the goal is to find opportunities relevant to all organizations. The network goal is to ensure that no project negatively affects price points as a result of our decisions.
JHC: How difficult does it appear to be to get buy-in from each of your facility’s physicians and staff when it comes to purchasing off the coalition’s contracts?
Comeaux and Lawton: Buy-in typically has not been difficult to obtain. In instances where this has been a challenge, the vendor community has worked with us to establish provisions beneficial to all parties. With regard to staying on contract, historically there have been very few instances of product request running contrary to the networks’ contract portfolio. However, as we contract more and more on clinical and physician preference items, this issue will come up.
JHC: If you could change one thing about the way your purchasing coalition works, what would that be?
Comeaux and Lawton: Speed. There are so many factors impacting our ability to get things done quickly, it is difficult to narrow it down to a single item. Bottom line, as we continue to develop pristine data, build collaboration with suppliers to achieve results faster, and align CAHN goals with our organizational goals – yet work within competing priorities back at our individual shops – we will get things done more quickly.
JHC: How do you envision your purchasing coalition in five years or so?
Comeaux and Lawton: If you asked each member, you might get a few different elements, but I suspect we would all hope to have:
• A physician committee coordinating our internal physicians around Network projects.
• Mature sub-committees focusing on standardization and utilization of product and clinical practices.
• A deep contract portfolio consisting of commodity, clinical preference and physician preference items.