1. Spend Analytics August, 2007 Industry Overview and Implementation Mark Scagliarini Director Account Management Service Yankee Alliance

2. Agenda Introduction What are Spend Analytic Tools? Industry Issues Long-term solution Choosing a Spend Analytic Partner Implementing Spend Analytic Tool

3. Founded in 1984 Headquarters in Andover, MA Member of Premier 42 Employees Yankee Alliance

4. Acute Care Members 55 Acute Care Facilities 1,003 Senior Living Facilities 1,423 Home Health Care Facilities 24 Surgery Centers 47 Imaging Centers 19 Community Health Centers 3,000 (+) Physicians

5. Objective Continually improve members financial and operational performance through collaborative forums and knowledge transfer

6. YA accomplishes its objectives through a collaborative process…. Members enhance learning by participating in committees and forums

7. Member Support Dedicated Account Manager to support members Updates by Yankee Senior Team at member facilities Benchmarking Service Team and Management Engineers Clinical Resource Support (Clinical Pharmacist, Perioperative Nurse)

8. What is Yankees involvement? Spent a half year evaluating tools available to the market and determining our role Currently utilizing two tools Premiers My Spend DDS 10 Yankee Alliance Hospitals participating in our program Provide members with Optimization Resources

9. Spend Analytic Tools What are they? AND Why do we need them?

10. What is a Spend Analytics Tool? Software programs that collect clean, normalize, and match a Hospitals OWN data; in order to provide the Hospital with report generation capabilities.

11. What does this mean to Cleanse, Normalize and Match Data? Cleanse- To fix all of the catalog numbers, Unit of Measure, and description variances and mistakes. Normalize- To link all catalog numbers, descriptions, and vendor names to one standard. Match- To link all of a facilities items to the items that are on an existing GPO or Local contract.

12. Data Acquisition Process Frequency Varies by tool As frequent as every two weeks As infrequent as once per quarter Files PO History Invoice History Item File Vendor Master Contract File Generally these are easy custom reports for your IT department to create one time and then schedule to run.

13. Why do we need these tools?

14. Healthcare Industry Crisis Each year the healthcare industry loses $Billions based on sub-optimal performance of supply chain, lost productivity in resource intensive services and unnecessary variability in medical practice. *Modern Healthcare 2006 Confidential

15. We still cannot answer basic business questions easily: What did I buy? Did I pay the right price? Did I use what I bought? Did I charge for what I used? Did I collect what I billed?

16. Why cant I use my MMIS? I spent millions on a Materials system….. I had a team of consultants assist with the implementation….. I maximize my eCommerce capabilities… I have even paid to have my data cleansed…..

17. Answer: Data is not Synchronized The Healthcare Supply Chain is a non standardized marketplace

18. The Problem: Different Product IDs throughout the Supply Chain Mfg. Item Case Pallets Trucks Distributor Trucks Pallets Case Item Hospital Patient End User Manufacturer GLN, HIN, DUNS, ??? Mfg. # Dist. #???Hosp. # Item data, Data Sync, ship notice, invoice, recall request for quotation, planning schedule, PO Electronic Commerce Information Flow Healthcare Industry Product ID – Every participant in the supply chain may use a different product ID and there is no standard for unit of measure. {No common Identifier for products}. Each participant in the Healthcare Supply Chain has a different product number for the same product. Makes ordering, recalls, and proper identification to the patient difficult.

19. Problems Found due to Product Identification * * Source: Department of Defense Data Synchronization Study ManufacturerDistributor GPO Customer Missing Middle Levels of Pkging 15-20%1-4%20-25% 15-25% Hard Packaging Quantity Errors 1% 2% 2-5% Unit of Measure Confusion/Misuse 2-6%1-3%2-5% Unknown Missing Packagingnot Middle Level 3-8% 3-7% 5% Manufacturer Name Problems NA2-5%1-4% 30% Obsolete Products 1-4%2-5%1-8% 5-15% Missing Product Brand Names 2-5%5-10% 20-25% Incomplete Item Descriptions 5-15%3-12%5-15% 10-20% Wrong Customer Unit Prices Unknown1-2%NA 1-2% Customer Paid More Than Lowest Contract Price NAUnknownNA3-6% Percentage of Total

20. Business NameItem Number TypeItem Number BDMfg Catalog Number329461 BDGTIN00382903294619 BDGTIN30382903294610 BDGTIN50382903294614 CARDINAL HEALTHPV Order NumberBF329461 OWENS & MINORPV Order Number0722329461 OWENS & MINORPV Order Number0723329461 AMERICAN MEDICAL DEPOTVendor Catalog Number777127217 AMERICAN MEDICAL DEPOTVendor Catalog Number777127218 GOVERNMENT SCI SOURCEVendor Catalog NumberFSC1482679CS GOVERNMENT SCI SOURCEVendor Catalog NumberFSC1482679PK ALLIANCE JOINT VENTUREVendor Catalog Number888021932 THOMAS SCIENTIFICVendor Catalog Number8938M25 THOMAS SCIENTIFICVendor Catalog Number8938M28 VWR INTERNATIONALVendor Catalog NumberBD329461 Bad Data: Multiple Product Numbers (329461 - 1/2 mL BD Lo-Dose U-100 insulin syringe with 28 G x 1/2 in. BD Micro-Fine IV permanently attached needle)

21. Bad Data leads to multiple customer problems What you see may not be what you want or get What you see may not be what you want or get Multiple Manufacturer Names What is it? Difficulty in ordering Order 50 receive 500 or Order 20 cases, receive 20 boxes Order 50 receive 500 or Order 20 cases, receive 20 boxes Multiple Product Numbers Inconsistent Item Descriptions Packaging Issues Old product data Attempting to order obsolete products Attempting to order obsolete products

22. Hospital Impact Premier contracts with over 300 Manufacturers One Yankee Pilot Hospital has over 1800 different names Less than 23% of the manufacturer names match Premier Premier has written over 1,300 contracts that cover almost a million items The average manufacturer uses 3 valid catalog numbers per item Premier only has 1 catalog number per item in its contract file The Pilot Hospital has less than 1% of the contract items used contain the same catalog number as the number used by Premier (234 exact matches out of 29,466 actual contract items used)

23. Cost of Dirty Data 60% of all invoices have errors Each individual invoice cost $40 - $400 to reconcile Erroneous data increase supply cost 3-5% $2 to $5 Billion dollars is lost each year due to supply chain inefficiencies Source: 2003 CHeS and Healthcare eBusiness Collaborative Study

24. SuppliersTransportationManufacturersDistributorsGPOsProviders/Consumers Synchronizing the Healthcare Supply Chain

25. GLN Farm Item Case Pallets Trucks Distributor Trucks Pallets Case Item Store Customer End User Supplier GTIN SSCCGTIN Item data, Data Sync, ship notice, invoice, recall request for quotation, planning schedule, PO Electronic Commerce Information Flow Grocery Industry The Solution: Same Product IDs - Other Industries GTIN - Global Trade Item Number - Identifies trade items (products and services) sold, delivered, warehoused, and billed throughout the supply chain. {One Identifier for products} SSCC – Serial Shipping Container Code - System identification for logistic units. Contains the GTIN identification In most other industries such as the Grocery industry there is a consistent Product ID throughout the supply chain.

26. Supply Chain Models Manufacturing Distributing Provider PATIENT Product Cash and Information Healthcare Supply Chain Efficient Supply Chain

27. Who is Working on this in the USA? Organized in 2001 Most of the Largest GPOs Two eCommerce Exchanges The DOD and VA Additional Affiliate Members CHeS Purpose: Working Together to Adopt and Promote Uniform Industry Data Standards. CHeS Initiatives: Customer Identification (GLN) Product identification (PDU) Product Classification (UNSPSC) http://www.chestandards.org

28. Provider Data Receipt Premier receives data via GDSN Distributes to Baptist via Lawson Manufacturer Loading 10 items from Sage 11 items from BD Documentation of Challenges and Lessons Learned Hospital (Baptist / Lawson) + DOD Healthcare GDSN Pilot GPO (Premier) Manufacturers (BD, Sage) On Boarding Partner (Ontuet) On Boarding Partner (Ontuet) Global Registry 1SYNC Data Pool GDSN Phase II Execution & Participants

29. Medical Industry Product Data Utility - Powering the Supply Chain MMIS Vendors eCommerce Exchanges Federal Data Provider Distributors GPOs Medical industry PDU provides and synchronizes clean manufacturer product data to primary players in the medical supply chain Product Data Utility

30. While these are great initiatives….. They are years away from becoming reality. And hospitals today cannot afford to wait!

31. Fortunately technology has caught up to be able to provide us with solutions, today! UNCOVER SAVINGS OPPORTUNITIES CONTRACT MANAGEMENT MAXIMIZE TIER SELECTION AUDIT PRICE PAID AUTOMATE COST ANALYSIS BENCHMARK PRICING Spend Analytic Tools

32. Who offers these tools? National GPOs Premier My Spend Novation Spend Amerinet Diagnostix Advisory Board- Spend Compass Independent Technology Companies- Deman Data Systems Consulting Companies

33. Picking the right Spend tool to Partner with

34. Things to consider when evaluating spend analytic tools: Data accuracy (Most Important!!) –UOM Issues –Data match rates Contract matching ability Benchmark philosophy Actionable reports Implementation support

35. What business objectives are you looking to accomplish? 1.Identify total spend 2.Identify Unsigned contracts 3.Non-contract item identification 4.Run market share reports 5.Automate contract conversions 6.Compare contracts 7.Price benchmarks 8.Savings and utilization trackers

36. First Identify: What you are looking for in a tool. For Example: Volume vs. Market share analysis Contract expiration vs. Contract conversion Real time vs. Quarterly On-line tool vs. Engaged implementation team

37. Answering those questions will help you determine which tool and which company to partner with.

38. Current report option IMS Distributor GHX Current GPO reports If you dont use these free and available reports today, how will use all of the Spend Analytic Reports???

39. IMPLEMENTATION

40. Putting out fires It is easy to get caught up in day to day operations Pick a good partner to assist and guide your department through this process.

41. Step 1: Validate Data Check sample data sets to verify accuracy of reports No tool is perfect Highlight and check large variances first Most tools gain in effectiveness and accuracy the longer they work with your data Add in distributor mark-ups, equipment sur- charges, etc. (if your tool allows) Build faith in tools and data

42. Prioritize opportunities Start Easy and Get Early Wins.

43. Divide data into different areas of focus 1.Unsigned Contracts –Start Easy –Look at contracts that you are already purchasing from but have not signed

44. What are Unsigned Contracts ? Products that a hospital is already buying but have not signed the available contracts. Future Contract Analysis

45. Tier Maximization

46. Our reports showed: Unsigned contract savings opportunity of $8,481 Achieved by signing Tier 3 with 70% market share compliance Manufacturer denied tier 3 with no explanation Resolution: 1) Provided Manufacturer with market share data demonstrating compliance. 2)Manufacturer approved the tier position. 3)Manufacturer approved a retro credit

47. Areas of Focus Cont. 2.Credits: Audit Price Paid –Tools can compare price paid to signed contracts –Collect retro credit As a contract management tool you can load your contracts and audit your invoice pricing to ensure on-going accuracy.

48. Areas of Focus Cont. 3.Non-Contract: – Most tool can show you the items that are not on a contract –Ask yourself a few basic questions: –Can they be added to a contract? –Can they be converted to an existing contract? –Do I need to negotiate my own local contract 4.Negotiating Own Local contracts: –Utilize tools volume and market share reports –Utilize tools benchmark pricing to negotiate new contract You have the data… USE IT!

49. Goals for Non-Contract Items Goals for Non-Contract Items Convert to existing contracted manufacturer. Add items to an existing National GPO contract. Facility to negotiate local hospital contract.

50. Develop your own process flow Largest area of opportunity Not Low Hanging Fruit Work closely with GPO and Spend Analytics provider to manage this process

51. New Contracting Opportunities $71,912,254 *Based on 5 hospitals current non-contract spend.

52. Areas of Focus Cont. 5.Contract Conversion –Some tools prove the ability to do automated contract conversions –More efficiently evaluate and convert to your new GPO contracts. 6. Standardization and Utilization –How many different glove manufacturers do you have? –Are you using different manufacturers in Interventional Radiology vs. Operating Room? –Can you standize to one vendor to maximize your contract tier position?

53. Contract Conversion Opportunities 1.New GPO Contract Opportunity 2.Spend Analytics tool can provide facilitys usage, calculate market share and contracts cost impact. 3.This new process helps the hospital prioritize opportunities and accelerates the contract uptake timeline. The hospital now has the data it needs to present the cost savings opportunity to the appropriate department head or clinician for clinical approval.

54. Hospitals current price $1,447 Hospital item number included New Yankee Alliance price $950 Cost impact calculated $497

55. Trending Product Utilization Hospitals Drug Eluding Stents by Quarter

56. Track Conversions and Product Changes

57. Organizational Value Integrate tool and data throughout your organization. Engage CNO, Chief of Surgery, CFO, Department Directors, etc. –Now that you have the data it is much easier to go the administrators to recruit their support on a conversion or a negotiation. Incorporate the data into your Value Analysis Meetings.

58. What are your hospitals current areas of focus? Incorporate data into already existing projects Start with your hospitals hot buttons or problem areas Start NEW with expiring and replacement contracts, rather then going back in time.

59. For our hospitals this has opened up new opportunities, that were previously overlooked….. 1.Trocar Evaluation and Conversion 2.Orthopedic Screw and Plate conversion 3.Standardization on Bone and Tissue Suppliers 4.Peripheral Stent Evaluation and Conversion

60. The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency. Bill Gates

61. Self Assessment Do you have an effective contract management system in place? Are you evaluating all new GPO contracts and activating them? Do your buyers check GPO contracts when placing orders and verify confirmation mismatches? Are you maximizing your eCommerce options? Are you tracking savings? Do you have an effective Value Analysis Process?

62. Challenges: Data can be overwhelming Not everyone likes working with data Not everyone is good at working with data Department is way to busy already Things to consider: Evaluate current processes and incorporate data into those processes It is much easier to manage on going as part of your daily work, rather then solely as a separate project. Dont get caught in the trees with endless drilling…..

63. Contact Analyst Do you need a dedicated contract manager or analyst? An individual that focuses solely on managing your contracts and product conversions They are not firemen! Best Practice Tip: We have found that our hospitals that have had the most success and documented the most savings are the ones that have had a dedicated Individual to this project.

64. Top 3 important aspect of a good report: 1.ACTIONABLE 2.ACTIONABLE 3.ACTIONABLE IF YOU CANT QUICKLY ACT ON THE INFORMATION PROVIDED IN THE REPORT, THEN IT MAY NEVER BE ACTED UPON!

65. Track savings and improved efficiencies! Use the tool to demonstrate its ROI as well as your departments hard work.