The Long Game

Banner Health’s Doug Bowen has been a lifelong student of supply chain and created a lasting legacy that’s benefited both his organization and the industry at large.

February 2024 – The Journal of Healthcare Contracting

By Graham Garrison

Never underestimate the power of a compliment.

Doug Bowen began his career in 1985, working at a local hospital while attending college. A few months into the job, he was restocking supplies for the emergency room when a physician ran in. The physician was obviously in a rush and asked Bowen for a certain product. Bowen was able to find the product and put it in the ER physician’s hand. Bowen will never forget what happened next. The physician looked him in the eye and said, “Strong Work!”

Bowen decided then and there that he wanted to care for our nation’s caregivers through a career in supply chain. “Mark Twain said he could live for two months on a good compliment,” he said, “but I tell everybody I made an entire career out of a good compliment.”

The U.S. healthcare supply chain is always changing. There are new products that come along, new processes, software, and systems. Bowen has never had a day of work where he was bored or disengaged. “It’s always been challenging and there has always been something new for me to learn.” He once had a boss who told him that his operations and department would never get better until he got better. “So, from that day on, I’ve always thought that I need to be a lifelong student of supply chain and really try to learn all I can to be as good as I can, so that we can have improved operating results for the department.”

Bowen, now senior vice president of supply chain services and chief supply chain officer at Banner Health, is used to working at what he calls “the long game.” He is this year’s JHC Contracting Professional of the Year.

Pivotal moments

Bowen’s first supply chain job (then known as Materials Management) was at a local HCA hospital, stocking shelves while attending school in Utah. After finishing college and grad school, he stayed in supply chain working with HCA and HealthTrust (which spun off from HCA).

Bowen relocated to Nashville (HCA’s headquarters) in 1991 to become a business analyst for the supply chain system. A few years later, he became manager of supply chain systems and led a team that designed HCA’s automated Supply Management and Resource Tracking (SMART) system.

While at HCA Information Services, he worked with David Welch, Ed Jones, and others to create a strategy for the future supply chain at HCA. The resulting strategy could be summarized by one word, “disintermediation,” the removal of intermediaries in the supply chain or “cutting out the middlemen,” he said.

Bowen took the position of supply chain officer for the HCA North Texas Division to implement the disintermediation strategy: to buy direct from manufacturers, eliminate distributors, and provide internal distribution from a Consolidated Service Center (CSC).

“In the early ’90s, just about everybody was buying from distributors,” Bowen said. “The strategy from HCA was to do their own internal distribution and buy directly from the manufacturers so that they could take advantage of those relationships. The money that we were spending with those manufacturers would be a direct discussion, as opposed to having somebody that might take advantage of what’s going on in the middle.”

HCA implemented the strategy in 11 different markets around the country. Bowen led the efforts in Dallas for the HCA North Texas division by creating a consolidated service center. The CSC had centralized distribution, procurement, and accounts payable all out of one building. “It was an opportunity to show that you could take the individual hospitals and migrate them to a centralized high performing service center and be successful.”

Banner Health’s 20-year plan

In 2002, Bowen moved to Phoenix as the VP of Supply Chain for Banner Health. He immediately went to work to implement the same CSC strategy at Banner Health.

Upon interviewing for the position, he came away impressed with the organization’s leadership. Longtime CEO Peter Fine spoke Bowen’s language with an emphasis on being data driven, disciplined in cost controls, and results oriented. But it was during Bowen’s first meeting with Ron Bunnell that he got the surprise of his career. In that meeting, Banner Health’s CFO shared the organization’s 20-year strategic plan.

“People make plans, and a lot of times you go a totally different direction,” Bowen said. “I looked at Ron and said, ‘You’re kidding me, right? And he said, ‘No, I’m not.’

Bunnell shared a quote from Peter Drucker, “The best way to predict your future is to create it.”

Bowen responded: “Well, I must admit that the idea of a 20-year strategic plan is … bizarre.”

“It’s not bizarre,” Bunnell replied, “It’s brilliant.”

Indeed, Bunnell’s statement turned out to be true, as Banner Health meticulously followed the strategic plan over the next two decades – and actually achieved it.

The corporate strategy involved five phases:

  • Turnaround. This was considered the “Fix It” phase and occurred from 2000-2002. “The Fix It phase started out when the company was first formed, it was losing money,” Bowen said. “They had to go through a process of just trying to sell some assets, decide which assets were going to remain, and then create some strategies around the markets that Banner Health was still in and turn the organization around.”
  • Performance. Banner Health team members called this the “Do It” phase from 2003-2006. “Here we had to prove to everybody that we could reliably perform as an acute care hospital company and produce reliable results.”
  • Growth. The “Grow It” phase lasted from 2007-2010. “A real focus on growth, and that was both acquiring hospitals and building hospitals.”
  • Innovation. The “Change It” phase happened from 2011-2015. Banner doubled down on computerized physician order entry during this time and increased the quality of care significantly at every hospital.
  • Industry Leadership. The “Lead It” phase covered 2016-2020, right up to the pandemic. “Banner Health worked to establish itself as a leader in the industry, not only in clinical quality, but also in supply chain and other facets of non-acute care and the successful introduction of a health plan – Banner-Aetna, which hastened Banner’s transition from fee-for-service revenue to value-based care with income based on covered lives and a focus on keeping people healthy.

Within each of those organizational phases were supply chain objectives to meet. For supply chain, the “Fix It” phase involved shifting from siloed goals to centralization, followed by employing IT tools and educating stakeholders during the “Do It” phase. Engaging physicians for standardization at scale came in the “Grow It” phase. Creating a culture of supply chain being everyone’s business happened in the “Change It” phase. And finally, enterprise-wide optimization and network value creation became the norm in the “Lead It” phase.

Did growth only happen in the three years designated by the plan? No, Bowen said. Did the “Fix It” phase only last two years? No. But the idea was that whether it went two years, five years or even longer, everybody was focused on the next step. “The whole organization knew what was coming next,” he said. “So that’s what I thought was most powerful about this strategy. We’d have an annual leadership meeting to review what we’d achieved and what we still had left to go on each stair step. We were able to plot our progress.”

Proof of concept for a CSC

Although Bowen had experience in getting a consolidated service center strategy up and running, he and the leadership team at Banner Health wanted to execute theirs with a crawl, walk, run mindset. “The deal I made with our CFO was that we’d do a proof of concept,” Bowen said.

In 2004, Banner Health leased 50,000 square feet of a 200,000-square-foot building. Their return on investment proved good in a few short years and they leased the entire building in 2007. Banner Health soon added a pharmacy distribution and a compounding center.

When the real estate market crashed in 2009, Bowen saw the opportunity for Banner Health to buy the building. His boss agreed and they negotiated a favorable price for it. Owning the building was advantageous about a decade later when hospitals nationwide were facing a financial crisis.

Banner Health added surgical kit packing manufacturing in 2011 through American Contract Systems, which was later acquired by Owens & Minor. They provide the people and operations for kit packing for Banner Health, manufacturing more than 5,000 packs a week and over 260,000 packs a year. “The reason we wanted to get into this business was to control all the raw materials,” Bowen said. “We control everything that goes into our surgical packs and we’re able to make changes on the fly as things happen with recalls. We were able to control all the components, and we’ve been able to keep our costs flat.”

In 2012, Banner Health added a pharmacy robot to fill prescriptions. All of their Banner and Aetna insurance customers, plus all employees, get prescriptions through this mail order program.

In 2015, they added high-density pallet storage with automated shuttle capabilities to their CSC.

The CSC proved to be a “superior” asset during the pandemic, Bowen said, allowing Banner Health to hold enough inventory to mitigate outages and disruptions, resulting in a 100% success rate for procedures to be completed with zero cancelled due to lack of a supply item.

The CSC has benefited the IDN in more ways than just distributing supplies. The investment itself turned out to be fortuitous for the organization. Following the pandemic, a lot of health systems were losing money, including Banner Health. In the latter part of 2022, the head of real estate approached Bowen and the CFO about selling the CSC building to an investor and leasing it back. Warehouse real estate was in high demand due to an increase in shipping from online retailers and with the building sale, Banner Health put more than $50 million back into operations.

“We took advantage of buying low and selling high, and we sold the warehouse at the opportune time,” said Bowen. “We never had that as part of our business plan, but it turned out to be a very fortunate event because the money that we were able to make from the sale took Banner from a year-end loss to a year-end gain. It was exciting to be able to have supply chain come to the financial rescue of the organization.”

Last summer, Banner Health Supply Chain Services (SCS) added a second distribution center and 100,000 square feet, allowing SCS to expand the number of SKUs and the amount of each product managed through the internal distribution center network.

Post-pandemic operations

In a post-pandemic world, Banner Health continues to focus on three traditional pillars: Cost, Quality, and Outcomes, while adding a fourth: Preparedness.

Prior to the pandemic, Bowen said Banner Health was very fortunate to have a CSC to allow for more inventory and not operate a LUM program, giving a cushion for all supply chain disruptions. “Now that we have experienced the pandemic, we have put off any thoughts of a LUM program,” he said. “We’ve purposefully chosen to stock more products at our CSC to help mitigate the disruptions. A lot of people think that the supply chain has recovered, but it really hasn’t. We still have supply chain disruptions happening every day.”

Even in late 2023, there were typically more than 3,000 items on back order every single day.

It’s been that way ever since the pandemic, Bowen said. Banner Health is stocking more products and moving to more multi-source agreements. “Having a sole source agreement, and then the sole source can’t provide product, you automatically have to go out to the market and find more,” he said. “So, we’ve decided to move to more multi-source agreements as part of our strategy. We’ve also decided to have more self-reliance and double down on our own consolidated service center capabilities.”

The IDN has moved to more domestic source products, more investments in domestic suppliers, and is pre-planning for substitutes. “We’ve had so many products go on back order, we have a playbook for every product about what are the substitutes,” Bowen said. “We have the ability to jump right into action as problems happen.”

Premier, in partnership with its members, has created a program designed to promote domestic and geographically diverse manufacturing and ensure a robust and resilient supply chain for essential medical products. The program is intended to provide a means to invest in or partner with businesses that can supply shortage products, co-fund the development of affordable products that address specific market needs and create strategic sourcing contracts to ensure continuous supply for Premier members and customers. “The program continues to be successful through investments or long-term purchasing commitments on these initiatives,” Bowen said.

The Prestige relationship has been extremely successful in giving Banner a domestic mask source that is competitively priced, Bowen said. “Banner has made Prestige our formulary mask and in doing so we have significantly outperformed based on our initial commitment. Within the exam glove category, we are in the process of moving to a domestic product for a portion of our exam glove utilization. Overall, we continue to explore several categories for domestic options that provide for a high-quality cost-effective option.”

Banner Health was recently awarded the 2023 Corporate PSWMSDC Spend – Regional and 2023 Corporate Total MBE Spend – Regional awards by the Pacific Southwest Minority Supplier Development Council (PSWMSDC). These awards recognize Banner Health’s commitment and contributions to supplier diversity and inclusion and the economic development of the communities we serve. This is the second time Banner Health has been recognized by the PSWMSDC. Banner Health also received the 2022 Corporate Total MBE Spend – Regional award.

The makings of a great team

Bowen believes in the motto that you’re only as good as your last day’s work. One day you may have favorable market conditions, but the next day you may not. “It’s humbling to know that no matter how many things you’ve done well in the past, you’ve still got to figure out how to solve today’s problems,” he said. “Always be on high alert.”

Indeed, great strategies and great products do not make a great supply chain, he said. Great people make a great supply chain. “The people that run your supply chain are important,” he said. “Every member of my team has created our success. Every achievement that we’ve ever made was the result of a team effort.”

The SCS Leaders strive to create positive relationships with all their team members, ensuring they know they belong, and they are appreciated, Bowen said. “These efforts help us to hang onto the team members we have and retain them while they are on their Banner Journey.”

The SCS Leaders work to “ensure supply chain services is a great place to work” and they measure their progress and results by using an employee survey called “The VOICE Survey” which improves employee engagement and satisfaction. “The SCS turnover rate has always been better than the benchmarks and the supply chain department also typically outperforms the benchmarks.”

The supply chain team often repeats a phrase from Banner Health CEO Peter Fine: “Leadership matters!”

To this end, Banner Health has a program in place to create a career path and journey for its employees. About 90% of Banner Health’s supply chain leaders are promoted from within. “It’s been one of the things that’s been attractive for people to want to join Banner supply chain is they know they’ve got a journey ahead of them that they can grow with us.”

Bowen wants for them what he has been able to enjoy in his four decades in the industry – a satisfying, exciting environment to solve real-world problems for our nation’s clinicians. And he’s more than happy to be the one giving a compliment or two that may jumpstart the next great supply chain leader career.

“I dedicated my career to supply chain based on one good compliment almost 40 years ago,” he said. “To this day, if any one of my team members gets a ‘Strong Work!’ from me, they know they are receiving my highest possible compliment and sincere appreciation.”

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