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Scope conference 2010 in Florida, Bill Stankiewicz attended.www.shipperswarehouse.com
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1
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Integration As A Better ModelApril 2010
John Black, VP of Supply Chain
Greg Goddard, Director of Operations
2
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
3
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Mercy OverviewProfile
Member Facilities
Operating Revenue
Co-workers
Medical Staff
Uncompensated Care
Beds
26 acute care hospitals
3 heart hospitals
1 rehab hospital
$3.9 Billion
36,900
4,650
(incl. 1,235 integrated physicians)
$208.0 million
4,379 licensed beds (3,638 acute)
Information current for Fiscal Year 2009, ending June 2009
8h Largest Catholic health system in U.S.
27th Largest health system in U.S.
4
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Facilities
Co-workers
•Corporate Office – St. Louis
•Consolidated Services Center –
Springfield, MO
300 FTEs from varied clinical and
business disciplines
MISSION: to improve clinical, operational and financial performance of our customers through a clinically integrated supply chain.
Supply Chain Management Consolidated Services Center
Inventory Management
Pharmaceutical Repackaging
Custom Procedure Tray Manufacturing
Purchasing
Customer Service
Transportation Management
Print Operations
Group Purchasing Supply and Pharmaceutical Contracting
Capital Equipment Contracting
Contract Compliance Monitoring
Rebate Management
Pricing Administration
Member Services
Performance Consulting Clinical Support Service
Patient Care Services
Operational Support Services
Mercy OverviewROi Structure
FOCUS & DIRECTION:
▶ Leverage Infrastructure – Reduce Costs, Increase Service
▶ Reduce Variation – Product Selection/Use and Process
▶ Improve Value – Improve Revenue and Reduce Cost
5
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
ROi’s Mission: Drive Value to Members Through Supply Chain
Mercy OverviewValue of the Whole > the Sum of its Components
Supply Chain(Service)
GPO:(Cost Control)
Performance Consulting:
(Clinical Integration)
Components…
Consulting:
Alignment w/ cliniciansProcess ImprovementData Analysis
Group Purchasing:
Item File ManagementPrice ControlPhysician & Commodity
Contracting
Supply Chain:Distribution operationsMMISPharmacy Repackaging.
Together…
Improved Clinical Alignment, Abilities and Outcomes
Lower Costs, Better Control
Improved Service & Information
6
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Mercy OverviewTop 10 Facts About ROi …
Most visited Provider Based Supply Chain model in the U.S.
8th largest GPO in the U.S. – 1,500 members
ROi has the 2nd highest compliance and $/bed penetration in the U.S.
Top 10 volume Medical distributor in the U.S.
ROi is the first provider-based organization to build and operate an
FDA registered custom pack manufacturing operation
CSC repackages 4.4 million unit dose pharmaceuticals per year
Supply Chain defects 75% better than industry average (5σ quality)
99% fill rate (next day, first time fill) – best in industry
7
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
8
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Issues Facing ProvidersFacing the “perfect storm”…
Operating costs
increase
Revenues
decline
Economic
recession
Exploding
technology costs
Capital
constraints
Pension funding
concerns
Pension funding
concerns
Growing supply
costsState and
Federal budget
cuts
Lost investment
portfolio
Growing labor
costs and RN
shortages
Elective services
reduction
Growing bad
debt from
uninsured and
under-insured
Rising costs of
medical errors
9
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
SOURCE: CMS, office of the Actuary, National Health Statistics Group.Note: Breakdown of the top 80% of $2.3 trillion US healthcare spend in 2008
35%
30%
25%
20%
15%
10%
5%
0%Hospital
CarePhysician / Clinical Services
Prescriptions Drugs
Program Admin
Research Structures
and Equipment
30.7%
21.2%
10.0%
6.8% 6.7%
Operating Expenses
Labor…………... 48%
Materials………. 29%
Overhead……... 23%
Nursing Home Care
5.9%
•Labor – materials related
•Materials – all consumables
•Overhead – space, systems,
Issues Facing ProvidersCurrent Trends - Supply Expense
10
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
The Provision of Care
Touch Based Care
2010
2000
1990
1980
1970
COST
High
Low
SUPPLY CHAIN
RELEVANCE
Critical
Incidental
SUPPLY
Disposable
Reusable
Tech
64 Slice CT
X-Ray
Tech Based Care
Supply cost are growing at almost twice the rate of labor*…
*Source: Solucient, “Supply Costs for U.S. Hospitals Show Substantial Three-Year Rise,” Healthcare Financial Management, August 2005; Advisory Board
Growth Database; Clinical Advisory Board interviews.
Issues Facing ProvidersCurrent Trends - Supply Expense
11
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
July 2009
SMI led program
5 Respected IDN participated
Complete supply spend focus
One question…
“Could Supply Cost Ever Exceed Labor?”
2010 2020 2030 2040 2050
“A”
“B”
“C”
“D”
“E”
Supply Cost Trending Study:
ANSWER: Yes – now what do we do…
Issues Facing ProvidersCurrent Trends - Supply Expense
12
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Issues Facing ProvidersMoving the Supply Chain Forward
Unsustainability – Cost/complexity of traditional models is not sustainable. Only two essential parties are critical: makers and users.
Homogenization - The lines of GPO’s, Distributor, and Provider Supply Chains will increasingly blur. GPO’s and Distributors will create creative counter measures to abate erosion of market control
Leadership – Providers are not leading. Providers will increase the recruitment of supply chain experts from outside the healthcare industry to infuse new talent.
Marketing beats Science - The rapid growth of technology development will cause spending on supplies and technology to exceed the Providers ability to objectively evaluate and cut cost.
Corporatization - Integrated Providers will begin to adopt a more corporate structure and mentality of management to drive out variation in business and clinical practice.
Profitability Linkage - Successful providers will integrate and link usage and reimbursement data for better decision making.
Integration Candor - Successful providers will increase their candid physicians conversations on their role in cost and quality.
Non-Traditional Integration – Industry/Payors will increase understanding and involvement in the costs and quality of care.
Moving into the Neighborhood – New technology will enable more quality care in the home environment and erode the traditional acute setting.
13
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
14
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Understanding the IssuesChallenges with the Traditional Healthcare Supply Chain Model
Manufacturer
Hospital Dock
Patient Use
Healthcare Supply ChainTraditional Challenges
Cost of Distribution
Rising Cost of Supplies
Input on Contract Process
Value Customers Based on
Size and Distance
Lack of Consistent Service
Controlled by Outsiders
Physician Collaboration
Service Levels
Product Selection
Data Management
Silo Management
Limited Best Practice
Sharing
Too Complicated
GPO
Distributor
15
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Med/Surg Dist.
Lab Mfg.
Pharma Mfg.
Dietary Dist.
Film Mfg.
Lab Dist.
Radiology Dist.
Pharma Dist.
Med/Surg Mfg. Mercy Hospital
Mercy Clinics
Other Hospitals
Other Clinics
Retail Pharmacy
Home Health
Retail
Mass Merc.
Linen Service
Dietary Mfg.
Linen Mfg.
Other???
ISSUE: Complexity
Complexity of product
and information flow
within the traditional
healthcare supply chain.
Understanding the IssuesWhy Did We Change the Model? (The Traditional Model)
ISSUE: Geographical Match
More than 90% of Mercy’s
volume is OUTSIDE of the
traditional distributors hub
distribution service area
16
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Understanding the IssuesBig Bang or Intelligent Design? (The Traditional Model)
PROVIDERSMANUFACTURER GPO
DISTRIBUTORS
INTERMEDIARIES
Manufacturers pay GPO’s administration fees based on Mercy’s purchases.
GPO’s share back a portion of administration fees to Mercy.
Mercy pays distributors a fee for warehousing and distribution of products.
Manufacturers pay Providers rebates based on GPO contract compliance.
Rebates
Distribution Fees
Admin Shareback
Admin Fees
Admin Fees
Tracing Fees
Bulk Discounts
Channel Fees
17
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Mfg. Cost ……………….
Mfg. Profit ……………..
Sales Tracing Fees ……………………….…………….
Distribution Cost ………………………………………...
Distribution Profit ………………….……………………..
Transport Profit ………………………………………………………….…….Transport Cost ……………………………………………..………………
TotalDelivered
Cost
Company
A
Company
B
Company
C
GPO Admin Fees ……………………………..
Company
D
Understanding the IssuesThe Anatomy of Supply Cost: The Traditional Model
18
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
19
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
GPO Admin Fees ……………………………..……………………...
Mfg. Cost ………………………………….……….
Mfg. Profit …………………………….…………..
Sales Tracing Fees ………………………..………………………...Distribution Cost ………………………………
Distribution Profit ……………..
Transport Profit ………………….
Transport Cost ………………….………………
TotalDelivered
Cost
Traditional
ROi ModelExpense Revenue Net Impact
Delivered cost of supplies over and above manufacturer
COG and profit ranges from 14 – 28%
ROi Model – An Approach to SolutionsThe Anatomy of Supply Cost: The ROi Model
20
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
MANUFACTURER
GPO
DISTRIBUTION
Eliminated non-essential supply chain entities (GPO & Distributors)
Captured traditional fees to fund Mercy’s Supply Chain infrastructure while
increasing rebates to SSUs
Increased control and accountability for service and pricing
Established closer link to Manufacturers
Rebates
Admin Fees
Tracing Fees
Bulk Discounts
ROi Model – An Approach to SolutionsSimplicity is Better: The ROi Model
21
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Med/Surg Dist.
Lab Mfg.
Pharma Mfg.
Dietary Dist.
Film Mfg.
Lab Dist.
Radiology Dist.
Pharma Dist.
Med/Surg Mfg. Mercy Hospital
Mercy Clinics
Other Hospitals
Other Clinics
Retail Pharmacy
Home Health
Retail
Mass Merc.
Linen Service
Dietary Mfg.
Linen Mfg.
Other???
ISSUE: Complexity
Complexity of product
and information flow
within the traditional
healthcare supply chain.
ROi Model – An Approach to SolutionsTraditional Model
ISSUE: Geographical Match
More than 90% of Mercy’s
volume is OUTSIDE of the
traditional distributors hub
distribution service area
22
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
SOLUTION: Complexity
Storage location capable
of handling all healthcare
products in a
consolidated fashion.
SOLUTION: Geographical Match
Central distribution point - More
than 86% of Mercy’s volume is
INSIDE of the ROi distribution
service area
Lab Mfg.
Pharma Mfg.
Film Mfg.
Med/Surg Mfg.
Mercy Hospital
Mercy Clinics
Dietary Mfg.
Linen Mfg.
Storage &
Distribution
Pharma Dist.
ROi Model – An Approach to SolutionsROi Model
23
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
24
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Gain consensus
Reduce variability
Promote standardization
Create value
Produce sustainable change
Measure and report results
Provide enterprise leadership
Facilitation
Decision Making
Sustainability
Keys to Vendor Compliance – Less is MoreVendor Compliance Begins with Clinical Collaboration
25
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Keys to Vendor Compliance – Less is MoreHorizontal Integration
Service Line representatives will have responsibilities for communicating in two distinct directions:
Vertically within their other SSU to other disciplines, other departments, etc. Horizontally across Mercy to their representative “peer” and eventually to
other/future ROi members
SPR STL OKC FTSM ROG HOTS KS
Future
Members
Across the FacilitiesAcross the Facilities
26
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Keys to Vendor Compliance – Less is MoreThe Results
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Contract Utilization Trend
Aligned for Vendor and Customer Value
Contract
Utilization
2004 2007 2009
ROi Aligned Begins (37.8%)
Current (85.9%)
27
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
ACTION:
38% reduction in number of contracts
194% increase in annual spend under contract
REACTION:
Partner means Partner
Easier to manage
Focused attention
Simplicity and Growth yields alignment of expectations:
Improved Pricing for ROi
Improved Share for Vendors
600
500
400
300
200
100
0
2002 2008
557
405
Number of Contracts
$0
Annual Contract Spend
2002 2008
Mill
ion
$160$100
$200
$300
$400
$500
$470
Keys to Vendor Compliance – Less is MoreThe Results
28
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
7,745 pharmaceutical items utilized
529 used in all SSU’s
Keys to Vendor Compliance – Less is MoreBefore: Variation in SKU’s
0
500
1000
1500
2000
2500
3000
3500
1 SSU2 SSU
3 SSU4 SSU
5 SSU6 SSU
7 SSU
1 SSU 2 SSU 3 SSU 4 SSU 5 SSU 6 SSU 7 SSU
Number of Items 3028 1719 958 632 480 399 529
% of Items Common 39.1% 22.2% 12.4% 8.2% 6.2% 5.2% 6.8%
29
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
3,500 pharmaceutical items utilized
1,700 used in all SSU’s
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Before
After
Before After
Number of items 7,745 3,500
Number of items in common across all SSU's
529 1,700
Keys to Vendor Compliance – Less is MoreAfter: Variation in SKU’s
30
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Objective:
Create a system-wide formulary for
pharmaceutical products to reduce variation and
yield clinical, operational, and financial benefit
for Mercy
Goals:
65% reduction in SKU’s by end of year 2
Reduce cost by $2 million by end of Year 1 & an
additional $1 million by end of year 2
Enterprise adoption of therapeutic interchange
in 3 categories in year 1
Key Attributes:
Corporately Supported (Sr. Leadership)
Integrated Governance – DOP, Physicians, ROi
Physician Led
Evidence based – White Papers
Objective - Metrics Driven
Sustainability built into process
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
GOAL
3,500
2007 2008 2009 +
SKU Reduction
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0
GOAL
$3.00
COST Reduction
Mil
lio
ns
2007 2008 2009 +
Keys to Vendor Compliance – Less is MoreThe Results – Enterprise Formulary
31
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
ROi Guiding Principles
Involvement of Stakeholders…
Creation of Value…
Keep Our Word…
Simple to Understand…
…Highly Effective When Done Well
Keys to Vendor Compliance – Less is MoreHow We Do It!
32
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
33
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
MAKE BUY PARTNER
Our approach to every opportunity…
Key Questions: ▶ Are current commercial offerings aligned with our needs?
▶ Can we justify the expense of the commercial offering?
▶ Is the need strategic to our business?
▶ Can commercial offerings be modified to deliver expected results?
▶ Do we have the scale to justify an internally developed offering?
▶ Do we have the time to deliver an exceptional internal offering?
▶ Can we resource an internal offering to exceed commercial standards?
Opportunities and SolutionsOur Approach to Integration
34
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Med/Surg Dist.
Lab Mfg.
Pharma Mfg.
Dietary Dist.
Film Mfg.
Lab Dist.
Radiology Dist.
Pharma Dist.
Med/Surg Mfg. Mercy Hospital
Mercy Clinics
Other Hospitals
Other Clinics
Retail Pharmacy
Home Health
Retail
Mass Merc.
Linen Service
Dietary Mfg.
Linen Mfg.
Other???
ISSUE: Complexity
Complexity of product
and information flow
within the traditional
healthcare supply chain.
ISSUE: Geographical Match
More than 90% of Mercy’s
volume is OUTSIDE of the
traditional distributors hub
distribution service area
Opportunities and SolutionsOpportunity
35
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Springfield, MO
101,000 Square Feet
Climate controlled
Refrigerated Storage
Frozen Storage
Controlled Substance Cage and Vault
Suitable for all Healthcare supply storage
needs in one facility
Pharmaceutical Repackaging Operation
Customer Service Operations Center
Private Fleet (60+ vehicles)
Reduction in transportation expense by leveraging existing fleet and reducing third party transportation expenses
Shortened Order Cycle to 12 hours or less
66% increase in acute care Med/Surg deliveries
42% Reduction in hospital inventory
Elimination of 3,000 material service failures (stock-outs) per week
Opportunities and SolutionsSolution: MAKE
36
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Opportunities and SolutionsSolution: MAKE
Each stocked product targets
service levels of 100% with next
day delivery without expedited
freight expenses.
We can leverage our entire volume
through a single point to drive the
lowest price in the market.
Each stocked product is proven to
be clinically acceptable by the vast
majority of users.
94% of all traditionally distributed
products are now currently
sourced through the CSC.
MISSION RESULTS
Service levels from the CSC are at
99.1%; our results are almost 10%
higher than performance from
traditional med/surg distributors.
Products sourced through the
CSC have no direct distribution
or transportation fees.
37
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Stocking Logic Definition:A mathematic process used to determine the
product sourcing origin.
Revenue / Savings Expenses Velocity Unit of Measure
Opportunities and SolutionsSolution: MAKEAsset Utilization
Determining What’s Stocked and What’s Not
Stocking Logic Categorical Algorithms:
38
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Stocking Logic – Example #1
Stock
Opportunities and SolutionsSolution: MAKEAsset Utilization
39
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Stocking Logic – Example #2
Not Stock
Opportunities and SolutionsSolution: MAKEAsset Utilization
40
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Stocking Logic Objective Finding the right balance
Opportunities and SolutionsSolution: MAKEAsset Utilization
41
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Balance = Ability
20% 21% 10%
Driving Value Through Space Utilization
49%
Opportunities and SolutionsSolution: MAKEAsset Utilization
42
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Call to Action - IOM Study (1999) revealing significant patient safety issues
• Medical errors were the 8th leading cause of death in the United States
• More deaths than motor vehicle accidents, breast cancer or AIDS
• 7,000 deaths per year from medication errors alone
• Adverse events cost the United States approximately $37.6 billion each year
• Approximately $17 billion of those costs are associated with preventable errors
Institute of Medicine, Committee on Quality of Health Care in America. To Err is Human: Building a Safer Health System, Washington, D.C.,
National Academy Press; 1999
Opportunities and SolutionsOpportunity: Patient Safety
43
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
The Goals:
▶Reduce medication administration errors
▶Integrate Pharmacy into clinical care
delivery team
The Action:
▶Prioritized clinical quality efforts
▶Determined target area of focus
▶Gained commitment
▶Engaged stakeholders
▶Constructed repackaging infrastructure
▶Standardized hospital-based infrastructure
Opportunities and SolutionsSolution: PARTNER/MAKE
44
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Opportunities and SolutionsSolution: PARTNER/MAKE
45
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Opportunities and SolutionsSolution: PARTNER/MAKE
System-wide implications estimated based on number of beds
10% of medication events (excluding wrong time administrations) result in potential Adverse Drug Events (Archives of Internal Medicine,Vol. 162, Sep 9, 2002)
Medication Error
Type
Potential Prevented
Events (6 mo sample)
Prevented
Administration Rate
Annual System-
wide Implication
Wrong Dose 967 99% 153,548
Wrong Patient 35 100% 5,556
Wrong Route 120 100% 19,050
Total 1,122 99.1% 178,154
Potential Adverse Drug Events Avoided (10%) 17,815
46
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
47
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
$584,000$718,000
40 Days
30 Days
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
Current State Proposed State
An
nu
al
Rep
air
Exp
en
se
0
5
10
15
20
25
30
35
40
45
Serv
ice D
ays p
er
Mo
nth
Expense Service Days
Opportunity:
– Inconsistent service
levels, provided by 7
vendors, with varying cost
points lead ROi to
consider internalization
Solution: BUY/PARTNER
– Unique partnership with
Instrument Repair
company yields:
• 2 dedicated vans with 3
drivers, reporting to ROi
• Service standardization
across all facilities - 33%
overall increase in service
days
• 20% decrease in cost
Opportunities and SolutionsSurgical Instrument Repair
48
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Why Self Manufacture Custom Packs?
Product waste
Lack of standardization
Lack of vendor trust
Excessive cost and inconsistent pricing
Opportunities and SolutionsOpportunity: Product Waste and Program Control
49
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Rationale: Elimination of Unauthorized Substitutions
Elimination of Low Quality Components
Standardization Opportunity
Transparent Cost Structure - Elimination of Vendor Trust Issues
Appropriate Use – Elimination of Under/Over Utilization
Lower Total Cost Solution
Opportunities and SolutionsSolution: MAKE
50
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Up-front customer input to assure buy-in.
Identical or improved product in all cases.
Focus on specification not brand.
Reduces variation and proliferation of SKU’s.
Local, regional, national, international sourcing strategy.
Pride in ownership of brand.
Reduces non-value added cost of products (marketing & sales).
Significant value to Mercy through price reduction.
$12 million in annual spend today , doubling every year.
Double digit savings… every time
Opportunities and SolutionsPrivate Label
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
What is Really Important…Three Fundamental Goals of Decision Making…
Good PatientOutcomes
PositiveBottom Line
HappyCare Givers
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Makers of
goods
Users of
goods
Supply Chain
Manufacturing
WarehousingGPO’sDistributors
Transportation
Backorder
Management
ERP SystemsElectronic Data
Interchange
Inventory
Management
Pipeline
Visibility
Revenue /
Expense
Management
Purchasing
Supply
Chain
Staying AheadConnecting the Links
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Source: Average of group as per public company financials.
14.1%
HEALTHCARE RETAIL
27.6%
Opportunity(13.5%)
Healthcare Retail
Staying AheadExternal – Driving Volume, Leveraging Partnerships
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Tax/Other (7.1%)
SG&A (32.0%)
R&D (11.3%)
COGS (29.8%)
NI (19.8%)
SOURCE: Vendor financials as reported in Reuters ProVestor Plus Company Report, December 27, 2009
Observations:
▶ Our largest vendors SG&A is…▶2.8 X R&D▶1.1 X COGS▶1.6 X Net Income
▶ Mercy spent $13,892,100 for a vendor to sell us your products…
▶ Only 2 of Mercy’s 23 hospitals make more Net Income than the vendors SG&A from our business.
Spend Breakdown of Mercy
$43,426,000
$12.6
$5.3
$14.6
$2.1
$8.8
Are we the problem?
SG&A is a reflection of
what it takes to get the
product to the customer
We have the ability to
impact this line – let us...
Staying AheadExternal – Driving Volume, Leveraging Partnerships
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
$1.00
$0.90
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
R&D (13%)
Sales & Marketing (13%)
Royalties (7%)
Device Cost (15%)
Profit (2%)
Typical $1 of Spinal Device Revenue
G&A (12%)
Inv. Set Depreciation (7%)
Source: information provided by Spine Vendor
50 cents
dedicated to
selling us the
product
Rep Comp (25%)
Air Freight (2%)Taxes (4%)
9 cents dedicated
to avoidable cost
Staying AheadExternal – Driving Volume, Leveraging Partnerships
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Use ItMove ItStore ItPackage ItMake ItSource It
GPO Broker Manufacturer Packager Distributor Transporter Provider Payor
Contract It Pay For It
Advise It
Wrap Up…
Consultant
▶ 5th Largest GPO in US
▶ $670 million under contract
▶ 300+ contracts
▶ Most compliant GPO in US
▶ Single Negotiation
▶ 1st Provider based Private Label program in US
▶ $4 million annually
▶ Growing interest with other providers
▶ International focus
▶ Demonstrated results in reducing cost
▶ Aggregated buying events
▶ Efficiency based sourcing
▶ Provider Integration
▶ Largest Provider based CPT manufacturing operation in US.
▶ FDA Registered
▶ Rx Unit Dose Repackaging
▶ Top 10 Volume Distributor according to HIDA
▶ Med/Surg
▶ Rx
▶ Office
▶ 60+ Vehicles
▶ +500,000 miles per year
▶ Every location every day
▶ Back-haul common carrier
▶ Courier, TL and LTL
▶ 20 Hospitals in four states
▶ 28th largest health system
▶ 4,379 beds
▶ 1,100 integrated physicians
▶ $4 B in assets
▶ $3.9 B in op. Revenue
▶ Operation in 3 states
▶ Over 150,000 members
▶ Nationally Recognized Disease Management Programs
▶ Incorporated in 1994
▶ GPO Design & Operations
▶ Product Standardization
▶ Medication Safety
▶ Formulary Management
▶ Sustainability Metrics
▶ Maximization of Integrated Model
▶ Distribution Design & Operations
▶ Smart Pump Implementation
▶ Antibiotic Stewardship
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Agenda
Mercy Overview
Issues Facing Providers
Understanding the Issues
ROi Model – An Approach to Solutions
Keys to Vendor Compliance – Less is More
Opportunities and Solutions – Our Approach to Integration
Staying Ahead – Where do We Go From Here?
National Recognition
59
* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
Most Wired Supply Chain Innovator Award Finalist 2006
NCI Supply Chain Innovator of the Year Award 2006 – One of three providers highlighted
Winner – Council of Supply Chain Management Professionals – Supply Chain Innovation Award 2006 (October 2006)
Winner – GHXcellence 2007 Award for Large Providers (April 2007)
Winner – FierceHealthcare Innovator of the Year (May 2007)
HFMA / AHRMM – Breaking down Barriers: Achieving a High Performance Finance/Supply Chain Team (May 2007) – Highlighted Large Provider
Winner – GHX 2008 Innovator of the Year
IDN Summit Peer Award Winner (April 2009)
National Recognition
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* * * CONFIDENTIAL * * * © Resource Optimization & Innovation, an Operating Division of Sisters of Mercy Health System. Creation January 2010.
National Recognition
#2 Overall
#1 Provider
#1 GPO
#1 Distributor
Healthcare Top 25 Supply Chains