Provider consolidation touches supply chain executives

Healthcare organizations continue to consolidate, some through outright mergers or acquisitions, others through strategic partnerships. Regardless of the form it takes, consolidation is affecting supply chain executives in one way or another. The Journal of Healthcare Contracting spoke with Gene Kirtser, president and CEO of Resource Optimization & Innovation, or ROi, in St. Louis, Mo.; and Mark Billings, president of Novant Health Shared Services, Winston-Salem, N.C., about recent trends.

St. Louis-based ROi is looking for partners “that are interested in breaking away from the traditional healthcare supply chain model in which functions like sourcing, contracting and distribution are outsourced to commercial companies,” says Kirtser. “We view the supply chain as a highly impactful, highly strategic partner within the healthcare setting. It can be a key driver for transformational change in the way organizations collaborate to make decisions and execute strategy.”

Founded in 2002 by the Catholic health system Mercy, ROi is a supply chain organization that provides a “fully integrated supply chain solution,” including group contracting, distribution and transportation management, purchasing and master item file management, custom procedure tray manufacturing, pharmaceutical repackaging, private-label sourcing and more. Almost two years ago, ROi started providing those services to other integrated delivery networks interested in building a provider-owned supply chain, says Kirtser. Today, ROi serves multiple healthcare customers, including Franciscan Missionaries of Our Lady Health System and, most recently, Spartanburg Regional Healthcare System.

For Kirtser and ROi, group purchasing is part of a larger integrated supply-chain model. That’s why ROi looks for four key attributes in potential partners:

  • First, a senior leadership team that recognizes that supply chain is a strategic asset, affecting as much as 40 percent of a provider’s total cost base.
  • Second, an organizational desire for a different supply chain model, “one that is comprehensive, highly integrated with clinical operations and drives measurable clinical, operational and financial improvements,” says Kirtser.
  • Third, an interest in replicating ROi’s business model. “An analogy we like to use is the Rubik’s Cube,” says Kirtser. “The supply chain – that is, the Cube – is complex. One side of the Cube is group purchasing; another is distribution; another transportation, etc. We believe the elements of supply chain are all inter-connected. You can’t disconnect the GPO from the distribution strategy, from the sourcing strategy, which happens when these functions are outsourced. When you try to successfully match parts of the Cube to make solid colors, you have to address the entire Cube, and a fully integrated supply chain model does just that. “We’ve spent the last decade building a supply chain within Mercy and now we partner with other providers, including supply chain leaders, interested in accelerating how they solve the Rubik’s Cube – or how they build all elements of the supply chain within their system to capture the most value.”
  • Fourth, a commitment to make a decision and work together as one. “We believe we have a cost advantage in pricing and contracts, not because we’re the largest GPO, but because we’re highly compliant and committed,” says Kirtser. “We act very rationally; we do what we say we’re going to do, and we encourage others to join with us who want to benefit as well.”

“We believe healthcare professionals and supply chain leaders realize that just making a GPO or distributor change does not yield big results,” says Kirtser. “As providers are asked to drive significant value in a compressed time frame, more and more are calling us and saying, ‘You bring a different approach and model. Let’s sit down and look at this,’ and we welcome this kind of dialogue because our desire is to be a transparent collaborator to collectively advance supply chain within our industry as a way to improve healthcare delivery.”

Novant Health Shared Services
“Healthcare is an ever-changing industry, and successful organizations must provide healthcare differently than they have in the past,” says Billings of Novant Health Shared Services. “We must improve quality of care while lowering cost structures, reducing duplication and growing responsibly to meet our communities’ needs. Novant’s vision to deliver a remarkable patient experience extends to Shared Services and our partner organizations.”

Shared Services is a strategic differentiator for Novant Health, he says. “It assists hospitals and their communities through a range of partnership possibilities that preserve local market ownership and autonomy. To help hospitals adapt to the dynamic landscape of the healthcare industry, Shared Services can partner with them to address their needs across a continuum of service offerings ranging from shared services to full management agreements. Shared Services can help its partner organizations improve quality and be more efficient through supply chain contracting and other opportunities while creating value for Novant.”

Novant Shared Services offerings include hospital management, supply chain and sourcing, revenue cycle, information technology (IT), clinical equipment management program, service line management and consulting for various services, such as quality and safety. Novant already has partnerships with several organizations, including a hospitalist services agreement with Randolph Hospital in Asheboro, N.C.; a management agreement with Ashe Memorial Hospital in Jefferson, N.C.; and a shared services agreement with Memorial Health in Savannah, Ga.
These partnerships have given many Novant employees an opportunity to collaborate and share best practices with other organizations, says Billings. Organizational growth is not new to Novant. “We have grown from four to 13 hospitals in less than 10 years. Together, we have learned how to operationalize efficiencies, obtain long-term financial vitality and innovate to achieve overall goals. Every Novant leader and employee brings valuable expertise and unique perspective to our company, and Shared Services will engage our internal experts to share knowledge with new organizational partners.”

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