Upper Midwest Consolidated Service Center

From a handful of health systems to more than 30, UMCSC has found savings and success as advantages to its coalition.

Armed with a vision to increase efficiencies and reduce expenses, a group of seven health systems collaborated in 2008 to form the Upper Midwest Consolidated Service Center (UMCSC) LLC. Their goal was to aggregate members’ spend and redesign supply chain processes through collective decision making. Today, the coalition has grown to 34 health systems and independent hospitals, with a total of 112 hospitals and 92 surgery centers located in 22 states and three countries. It represents over 95 percent of VHA hospitals headquartered in Wisconsin, Minnesota, North Dakota, South Dakota and northern Illinois and boasts an annual collective supply spend of over $3.3 billion.

The Journal of Healthcare Contracting interviewed Tom Harvieux, vice president of supply chain management, Sanford Health, to learn about the coalitions’ initiatives and successes.

The Journal of Healthcare Contracting: Are you open to new members joining?

Tom Harvieux: Because we are committed that our growth will not be simply for the sake of growth, we are being deliberate in assessing potential members for cultural alignment and like-minded clinical and business objectives. Today, the UMCSC membership is comprised of Class A, B, and C members, as determined by financial obligation and ownership interest.

JHC: Have you found the coalition is providing members with more advantages than originally expected? What are these advantages?

Harvieux: Yes, we have exceeded our savings projections for the consolidated service center and moved faster with regard to physician preference items than we originally expected. We have also expanded our scope to include purchased services, thereby creating significant opportunity for our members.

JHC: What are the top three initiatives your regional purchasing coalition has pursued in the last 12 months?

Harvieux: Our top three initiatives this past year have included cardiac stents, cardiac rhythm management devices and trocars. Our group completed 22 physician preference agreements in 2010, which was a major accomplishment considering the complexity of these contracts and the number of physicians in our member organizations.

JHC: How much savings has your regional purchasing coalition realized in the last 12 months?

Harvieux: Our members realized a savings of $31,289,881, or 10.83 percent.

JHC: How has being part of a regional purchasing coalition enabled members to leverage their buying power? Is this something your members have become better and smarter at over the years?

Harvieux: Absolutely. We had initial success leveraging our purchasing power on products and contracts on which the members had alignment. Initially, smaller members of our group particularly benefited from the aggregation of volume on the aligned contracts. Demonstrating commitment and the ability to move market share have enabled the UMCSC to capitalize on leveraging its collective volume. It has been the rare occasion that every member did not achieve at least some savings, and the CSC operations committee and service provider have worked very hard to ensure no member has been upside down on a CSC agreement. Given the size of our group, it is not uncommon for a member to have existing remarkable pricing based on its local conditions.

JHC: How much savings did the coalition achieve in the first year, and how has that increased today?

Harvieux: The first year, our coalition achieved $14,610,504 in line item and rebate savings, or a 9.7 percent average member savings. Our initial efforts leaned more toward commodity and clinical products. Since then, the group has migrated more toward physician preference items due to the significant savings opportunities available.

JHC: Can you explain your process whereby your supply chain executives meet and make their decisions?

Harvieux: The Upper Midwest Consolidated Service Center LLC is governed by a board of managers, a finance committee, a clinical committee and an operations committee. The board of managers, the finance committee and the clinical committee meet regularly and have equal voting shares. The operations committee’s voting share is equal to the organization’s percentage of spend in relationship to the overall UMCSC spend. The UMCSC is supported by a combination of dedicated and shared resources from the service providers (VHA Upper Midwest Regional Office and Mayo Clinic Contracting Team). The operations committee is responsible for setting bid calendars, reviewing potential opportunities, and approving UMCSC contracts. It is comprised of supply chain executives from Class A members and designated cohort supply chain representatives for Class B members. The operations committee meets monthly for approximately six hours to vote on UMCSC agreements. Several weeks in advance of meetings, a detailed packet is published on the UMCSC website with a meeting agenda, contract summaries and relevant information. Approval of 75 percent of the operations committee membership’s voting shares is needed to pass UMCSC agreements.

JHC: Does the purchasing coalition only work off of the GPO’s contracts?

Harvieux: The UMCSC takes a Novation-first approach when considering supplier partners for alliance contracts. We have considered and utilized non-Novation suppliers on one or two contracts when Novation suppliers did not bring forward expected value to the UMCSC.

JHC: How do you ensure that the interests of each of your facilities are considered and that each facility’s needs are met?

Harvieux: The member-based clinical committee is laser focused on ensuring all UMCSC agreements meet or exceed the clinical needs of the members, while the other committees support the business needs of the members. The founding principles and LLC bylaws support every member having a voice and that individual members cannot unduly influence decisions.

JHC: How difficult is it to get buy-in from each of your facility’s physicians and staff when it comes to purchasing off the coalition’s contracts?

Harvieux: Physician and clinician buy-in and alignment are internal challenges for each of our own member organizations. The thousands of member-represented physicians and clinicians make this an incredible challenge. We have made great inroads through strong leadership by the clinical committee and open communications by members locally. The development of Subject Matter Expert (SME) panels comprised of member physicians organized to establish clinical efficacy and the value of potential products [also has helped].

JHC: What have been the greatest rewards you have reaped, individually and as a coalition?

Harvieux: Personally my biggest reward has been the friendship and counsel I have received through working closely with the supply chain and system executives from the members across the Upper Midwest Consolidated Service Center. We continue to collaborate on many operational topics from lean projects to the use of a materials information system over the past 2 years. I am certain all of our organizations are stronger for the collective experience and the groups’ openness to sharing best practices.

JHC: If you could change one thing about the way your purchasing coalition works, what would that be?

Harvieux: It would be wonderful if we could legally have pricing transparency across the industry! For our alliance, we need to continue to build a more robust information system to allow the automation of data mining and other analytics. Functionally, there is not much I would change at this point. The alliance members are open and they collaboratively work through challenges and opportunities for the benefit of the whole.

JHC: How do you envision the future of your purchasing coalition in five or so years?

Harvieux:In three to five years our alliance will be on the second iteration of contracts. We will have moved past standardization challenges in our initial agreements and will begin to fully capitalize on our alignment. The UMCSC has developed a Strategic Roadmap that emphasizes the following aims:

  • Reduce product cost through sourcing and contracting.
  • Reduce acquisition cost beyond the cost/price of the product.
  • Reduce member infrastructure cost.
  • Improve top-line revenue and performance.

I fully expect that our UMCSC alliance will continue to grow as VHA members from other regions look to join successful purchasing coalitions. The increased pressure of declining reimbursement and other healthcare reform initiatives will make members more open to standardization opportunities as compared to less desirable cost-reduction options. In addition to these, our alliance will continue to build processes to completely integrate clinical leaders into contracting decisions.