John Pritchard, Publisher of The Journal of Healthcare Contracting sat down for a Q&A with Joe Walsh and Curtis McEntire. Joe is former Vice President of Supply Chain at Intermountain Healthcare, now President of Supply Chain Sherpas (www.supplychainsherpas.com) – an advisory, coaching, and education organization with a mission to elevate the healthcare supply chain. Curtis is the President of Mazree (www.mazree.com), a technology company focused on simplifying the complexities of the supply chain.
Both Joe and Curtis are members of the Supply Chain Catalyst (www.supplychaincatalyst.org), a coalition focused on transforming the healthcare supply chain through services, education, analytics, and technology.
John Pritchard: Joe and Curtis, thank you for taking the time to share some of your perspective on the healthcare supply chain, particularly around asset disposition.
Joe, you spent the first portion of your supply chain career outside of healthcare but have been immersed in healthcare over the last decade. What is it about the healthcare supply chain that interests you so much?
Joe: Healthcare is at an inflection point in its history and we get a chance to be part of this industry-level transformation. In supply chain, we have the rare opportunity to directly improve affordability, access and quality for patients and their families, which is especially meaningful as they experience a some of their most vulnerable moments in life. We have already made incredible strides in the healthcare supply chain. However, we still have many gaps to close and considerable opportunities to pursue in the interest of elevating the collective capabilities of the healthcare supply chain. For example, too many organizations continue to leave millions of dollars of value on the table each year by not investing in effective Asset Recovery programs.
John Pritchard: That’s great. Let’s dive into Asset Recovery or, as others may call it, Asset Disposition. I’ve heard you mention that this is one of the key missing programs in most healthcare supply chain organizations. Can you elaborate on that?
Joe: Definitely. Each year health systems around the country buy new equipment to better serve and care for their patients. This equipment – pumps, beds, ultrasounds, X-rays, MRI’s, and more – is critical to providing high quality care. In most cases, this new equipment is replacing older used equipment. But what happens to the old equipment? Board members, C-suite executives and community members would each be shocked to know happens to used equipment in most cases:
- The hospital pays to have someone else come and remove the old equipment.
- The hospital gives it away for free.
- The equipment is given to a hospital employee, which is especially prevalent with non-clinical equipment such as furniture.
- Some progressive hospital systems do sell the equipment, but they don’t receive fair market value for it.
John Pritchard: Why is this important to you now?
Joe: Hospitals are routinely laying off nurses and other valuable team members in response to intense revenue pressures. There are many high-impact ways for hospitals to eliminate waste and to create value and Asset Recovery is one of the easiest, fastest and untapped pathways to success.
John Pritchard: So, you would classify this retired equipment as a component of the supply chain?
Joe: It absolutely is. In Supply Chain, we are trained to focus on total cost of ownership and its our responsibility to help the broader organization better exercise this practice. Supply Chain has a responsibility for the entire lifecycle of all products, services, software and equipment procured for an organization, which certainly includes the disposition and/or redeployment of assets. If an asset can be repurposed or sold for 30% of its original purchase price, then why would an organization fight so hard to get lower acquisition prices only to give away this much value at the end of the useful life? This is irrational.
John Pritchard: You mentioned asset redeployment – that sounds interesting. We’ll get to that in a minute, but first you are describing Asset Recovery or Asset Disposition as a “program”. What do you mean by that?
Joe: Yes, a program. Every health system should have an operational Asset Recovery Program consisting of four primary elements:
- Asset Disposition Policy: the company-wide policy defines what should happen to used equipment, how it can be sold, who is authorized to sell, where it can be sold, etc.
- Asset Disposition Procedure: the procedure outlines the process for identifying the used equipment, removing any sensitive information/data from the equipment, making the equipment available to others in the health system for redeployment, listing the equipment for auction, and removal of the equipment by the buyers.
- Effective Technology: the right technology is needed to both make the asset available for redeployment and sell the asset via auction. The technology needs to provide the health system with a clear audit trail for every piece of equipment that is either transferred internally or sold. Technology also gives employees a fair and an arms-length opportunity to buy non-medical equipment.
- Resources: a resource that is assigned to manage this program within the health system is imperative. Without a resource leading this work it will not happen and the health system’s assets will continue to walk out the door without any return.
John Pritchard: You setup a program like this when you were at Intermountain Healthcare, right?
Joe: We did. For many years we were like most health systems with no formalized program in place. We were paying people to remove our equipment for us, our employees did not have a fair and consistent way to buy used non-medical equipment and donations were not coordinated. We were leaving millions on the table each year. We made the investment in a resource who helped with the policy, procedure and change management. We then boosted our financial gains using technology. The ROI on our investments was exponential.
John Pritchard: You chose to utilize Mazree as your technology solution for this. Can you explain why?
Joe: When we started, our processes were very manual as you might expect. This practically limited the number of potential buyers for our equipment, which even opened a number of relate risks for us. While we worked with several auction solution providers, our employees did not have consistent access to events and interested buyers did not know how to reach us. It was also expensive to use the traditional auction solution providers. Some of the auction providers were charging 50% of the selling price just for facilitating the event.
So, we engaged Mazree – a technology partner that we utilized for other components of our supply chain – and we reviewed our challenges and needs with them. Mazree was very collaborative and solutions oriented as they developed an industry-changing offering. Not only did they build a very robust auction platform but they also provided us with a mobile app, an analytics tool giving us data and transparency for everything we sold, and a portal to sell non-medical items to Intermountain’s own employees.
John Pritchard: Curtis, what types of non-medical items do you see being sold to employees?
Curtis: Employees wanted all sorts of stuff that normally they would have just thrown out – old couches, desks, chairs, tables, exercise equipment, lawn mowers, even an old tractor. Since it was launched late last year we’ve seen thousands of employees utilize the employee portal. It’s been a huge success and nice benefit to their employees.
John Pritchard: What kind of return can an organization expect to receive?
Curtis: Without disclosing our clients’ exact numbers, we find that nearly all major health systems have 300-500 items they could be selling every year. The dollar capture opportunity for most is over $1 million annually.
Joe: Other than expenses for a resource or two, that’s $1 million that was previously walking out the door that is now going directly to the bottom line.
John Pritchard: Joe, you mentioned Asset Redeployment earlier – what do you mean by that?
Joe: Well, in these health systems with multiple facilities you’d rather the equipment be reused internally instead of being sold. There’s no sense in buying a new one if you’ve already got the asset in the system somewhere that is no longer being used. It’s extremely valuable to get it shared and utilized instead of purchasing a new one if you don’t have to.
John Pritchard: Curtis, is Mazree doing anything to help with this process?
Curtis: We are. We believe it’s a key differentiator with our solution. We’d like to help these assets get fully utilized within the health system before they are sold. We can provide health systems the option to send their listing to their own Asset Redeployment Portal for others in their organization to request for transfer before it goes to auction. If no one requests the item after so many days, it will automatically drop for auction – no touches needed by anyone.
John Pritchard: That’s excellent. One final question for both of you. What would you suggest for health systems out there that don’t have an effective Asset Recovery Program?
Joe: Make it a priority. It’s not a lot of work or cost to get a program in place. Supply Chain has a responsibility to manage total cost of ownership throughout the entire lifecycle of every purchase, including equipment. It’s time to lean into the full potential of the healthcare supply chain. Ed Hisscock once said, “we are spending patient’s money.” Where else can you get a 30 to 1 ROI?
Curtis: I agree with Joe. It’s a big opportunity with not a lot of effort needed to stand it up. And if you need help, we have resources that can come in and help develop your policy, procedures, and necessary structure. You can realize a great return very quickly.
John Pritchard: Joe and Curtis, thank you for taking the time to share your thoughts and expertise on this subject. Anyone interested can learn more at www.supplychainsherpas.com or www.mazree.com.
From another perspective, TCO is one of the biggest issues with our clients who sell capital. Buyers seem fixed on comparing net price without factoring the value of an extended warranty, useful life of equipment, and disposition as discussed above. As one recently retired Chief Purchasing Officer shared, an extended warranty beyond the typical 1 year saves money in lieu of buying a service contract or paying for repairs. That savings GOES RIGHT TO THE BOTTOM LINE! Even a higher price paid for better quality equipment can be easily justified if an extended warranty is factored into the initial cost. A lower cost plus an extended warranty should be a slam dunk. Unfortunately, those savings don’t find their way onto most spreadsheets because it takes some research by Supply Chain. Sharing that value with their CFO would lead to a lot of credits from the C-Suite.
As a seller of costly surgical capital equipment, our customers almost never respond when we discuss Total Cost of Ownership. It is as if they are not sure of who has that line item as shown by just how many systems dispose of their used gear.