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1 Supply Chain Transformation Case Study: NSLIJHS Donna Drummond, VP and Chief Procurement Officer NSLIJHS Paul Hamilton, Managing Director, FTI Healthcare.

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Presentation on theme: "1 Supply Chain Transformation Case Study: NSLIJHS Donna Drummond, VP and Chief Procurement Officer NSLIJHS Paul Hamilton, Managing Director, FTI Healthcare."— Presentation transcript:

1 1 Supply Chain Transformation Case Study: NSLIJHS Donna Drummond, VP and Chief Procurement Officer NSLIJHS Paul Hamilton, Managing Director, FTI Healthcare Mapping the Future

2 Economic Impact $5.7 billion annual operating budget 42,000 employees - the largest employer on Long Island and the ninth largest in New York City 9,000 physicians 10,000 nurses 1,230 medical residents 772 medical students 3,900 nursing students 2009 Operating Statistics 25,100 babies delivered 278,000 hospital discharges 137,000 ambulatory surgeries performed 605,000 emergency visits 817,000 home health visits 67,100 ambulance transports Facilities 16 hospitals 2 clinical affiliate hospitals 16 long-term care facilities Centers of Innovation Centers of Progressive Care North Shore Long Island Jewish Health System (NSLIJ) is an interrelated network of 16 hospitals, two clinical affiliate hospitals, 300 physician practices and 16 long-term care facilities. NSLIJ is one of the nation’s largest IDNs and the second largest healthcare system in New York State. Introduction North Shore Long Island Jewish Health System 2

3 3 Service Offerings Geographic Coverage San Francisco Los Angeles Chicago Houston Dallas Atlanta Washington DC New York Miami Philadelphia Detroit Charlotte Pittsburgh Cleveland Boston Nashville Denver Phoenix Healthcare, Corporate Finance & Restructuring Supply Chain Management Productivity Improvement Product Line Profitability Clinical Resource Management Clinical Documentation Integrity Revenue Cycle Improvement Clinical Throughput Physician Practice Management Interim Management Strategic Advisory Services Full Implementation Support Financial Restructuring Introduction FTI Consulting, Inc. Founded in 1982, FTI is the preferred services provider of healthcare performance improvement, corporate finance / restructuring, transaction advisory, forensic and litigation consulting, and economic consulting. FTI has over 3,500 professionals, trades on the NYSE (FCN), and has an enterprise value in excess of $3.0 B.

4 Discussion Topics Megatrends driving healthcare today Imperative for improved operational quality and efficiency Introduce North Shore / Long Island Jewish Healthcare System (NSLIJ) Discuss NSLIJ’s supply chain transformation 4

5 Healthcare Reform Demographic Changes Technological Impacts Physician Changes Patient Safety & Quality Megatrends driving healthcare today 5

6 The Imperative Leading to Reform Stem skyrocketing costs; mitigate national debt Reduce unfunded liability; expand health coverage Tie quality outcomes to reimbursement Impact on Providers Coverage will expand Individual mandate & employer requirements Medicaid expansion Elimination of pre-existing conditions & lifetime limits Taxes on “Cadillac insurance plans” Taxes on drug makers, health insurers and medical device manufacturers passed to buyers Operating Assumptions Increased Medicare & Medicaid volumes reduces cost-shifting to commercial payers Must generate positive return on Medicare Benchmarking and controlling costs Pushing payers to increase/maintain rates (those that cannot may consider consolidation) Higher levels of collaboration with physicians to create and get paid for value Healthcare Reform The Reconciliation Bill was signed into law on March 23, 2010 6

7 .. However, the “cost bubble” does not maximize until Baby Boomer cohort hits 75 when utilization peaks The U.S. population is aging as the oldest Baby Boomers 1 are now turning 65... Demographic Changes The 90+ age cohort is the fastest growing The percent of total U.S. population that is 65+ is expected to grow from 13% in 2010 to 19% in 2030 Hospital Discharges & Days of Care by Age (2006) 1 Defined as those born between 1946 and 1964 Source: U.S. Census Bureau; Claritas; CDC’s Health, United States, 2009; U.S. National Center for Health Statistics; Utilization statistics based on 2006 data. Population Shift (2000 – 2020) Average age of hospital inpatients was ~41 in 1970 vs. ~53 in 2006 7

8 Technological innovations in healthcare over the past 20 years are generally characterized as: Traditional InvasiveLess InvasiveNon-Invasive Technological Impacts Open heart surgery  25-30 years Angioplasty  10-15 years Open heart surgery  25-30 years Angioplasty  10-15 years Cardiac Balloon Catheter ($500)  Stent ($2,300)  Treated Stent ($5,000) X-ray machine ($175,000)  CT Scanner ($1MM)  CT Functional Imaging w/ PET ($2.3MM) Open Surgery Instruments ($10,000)  Laparoscopic Surgery Set ($15,000)  Robotic Surgery ($1MM) Cardiac Balloon Catheter ($500)  Stent ($2,300)  Treated Stent ($5,000) X-ray machine ($175,000)  CT Scanner ($1MM)  CT Functional Imaging w/ PET ($2.3MM) Open Surgery Instruments ($10,000)  Laparoscopic Surgery Set ($15,000)  Robotic Surgery ($1MM) Less Invasive Having a Shorter Life Cycle Increasingly Costly Open Cholecystectomy One 10-18 cm incision Laparoscopic Cholecystectomy Three to four 1 cm incisions Single Incision Laparoscopic Cholecystectomy One 1.5 – 2cm incision Bare metal stent  7-10 years Drug-eluting stent  3-6 months Bare metal stent  7-10 years Drug-eluting stent  3-6 months 8

9 The practice of medicine is fundamentally changing Declining professional fees Rising practice costs and malpractice premiums Un-insured (today)  under-insured (tomorrow) Conflicts over ED call coverage Increased private capital dollars available for investment in equipment and facilities that capture procedural and ancillary service revenue Increasing sub-specialization and “turf” battles Shift from “solo” to “corporate” practice with professional managers or full hospital employment Source: October 2008,The Physicians’ Foundation; Merritt Hawkins & Associates Physician Changes 9

10 Cumulative Change Since 2002 Physician Practice Cost Inflation and Changes in Medicare Physician Payments Source: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds Physician Changes 10

11 Patient Safety & Quality Improving total value within the delivery of care will be a prerequisite to survival. Leadership in the most innovative health systems are proactively making significant financial and human capital investment to rethink clinical governance, processes and measurement to ensure accountability around quality and cost imperative. In a recent NBR broadcast, Dr. Toby Cosgrove, CEO of the Cleveland Clinic was asked “…What do you think is the most important issue facing other hospitals as they adapt to the new health care law?” “…Clearly we're going to see more patients and so I think one of the important things for the country so we don't have health care costs go wild across the country is we need to become more efficient. And in order to do that, we need to measure quality, as well as measuring costs, so we get maximum value for our health care dollar. We also have got to be very concerned about our efficiency and driving down costs and we need to have hospitals collaborate with hospitals, so you come together as a system, so you don't repeat technology and back office sorts of things. We need to have doctors coordinate with hospitals to drive the efficiency of the hospitals…” 11

12 Establish Organizational Priorities 12

13 NSLIJHS Supply Chain Strategic Imperatives 13

14 The Challenges NSLIJ wanted to improve clinical quality, service excellence and strengthen our financial position NSLIJ decided to respond to declining reimbursement by increasing patient volume Overcoming the limited capacity at our hospitals would require large facility investments NSLIJ could not provide superior quality care just by building newer facilities with the latest technology - We needed to be able to attract and retain the best people to care for their patients The Goal Leverage supply chain to expand our debt capacity and afford salaries for top talent Improving supply chain cost performance also represented a golden opportunity to reduce cost and improve patient safety by reducing unwanted variability in the delivery of care Supplies account for roughly 25% of a typical hospital’s operating budget Adding labor and logistics to this jumps to 35 to 45% Unnecessary variation in the patient care environment leads to increased risk and waste Strategic Context 14

15 The Imperative was established in November, 2006 as “Project 100” Patient Focused Care Simultaneously drive out waste and improve patient safety by eliminating unwarranted variation in the delivery of patient care Focus standardization on the development of clinical standards selection and the appropriate supply support Investing in People and Technology Leverage operational efficiency – including the supply chain to sustain our ability to pay for the best talent available Expand our ability to afford important life saving technologies Operating Assumptions Standardize to best patient care practices Reduce over/unnecessary utilization Improve financial performance Reinvest in our infrastructure Our Strategic Imperative 15

16 NSLIJHS Supply Chain Approach 16

17 Supply Chain Approach Reduce Supply Expense Adopt Best Practices Redesign Processes 1) EXPENSE – REDUCE SUPPLY EXPENSE Identify Clinical Expense Reduction Opportunities Identify Pharmacy Expense Reduction Opportunities 2) INFRASTRUCTURE – ADOPT BEST PRACTICES Identify Process Gaps and Interventions Identify Structural Changes Identify System Enhancements Identify Non-Clinical Expense Reduction Opportunities Supply Chain Optimization Strategy Two-prong approach: Identify potential supply expense reductions, implement targeted opportunities and simultaneously design processes and systems to ensure sustainability 17

18 Approach – Supply Chain Philosophy Definition Our approach to supply chain management reflects an emphasis on alignment of core business processes, workflow (procurement, distribution, inventory management, etc.) pricing, contract management, value analysis and product standardization through a clinically focused team environment Objective Reduce supply expenditures through collaboration with physicians and stakeholders Tighten utilization management and standardization of products Design processes and systems to ensure sustainability. Requirements Clinical collaboration to focus on the patient while building transparency in product decisions and practice patterns Shift organizational core values away from total physician autonomy towards clinical teamwork by encouraging decision-making through the use of clinical protocols/standards, data analytics and organization around product decisions 18

19 Approach – Coordination and Oversight 19

20 20 Approach – Infrastructure Improvement Example – Contract Management We identified gaps in core supply chain processes and defined enhancements to people, process and technologies to build a flexible system that would sustain the benefits and continue to yield improvements. FTI and NSLIJ defined and standardized critical contracting activities. Here is an example Process Redesign Sample Contract Management Process 2. Opportunity Identification Estimate of financial impact Risk Identification Prioritization of effort with department (Vendor Score Card) 1. Spend Analysis Spend Analysis – trending Contract gap ID (non-contract) Pricing Benchmark Share of market analysis by category Centralized Spend % of all 3. Sourcing & Selection Stakeholder identification & needs (Spec) Determine approach to market (Strategy) Develop competitive offers (RFP) Collaborative evaluation of offers (VAT or DM) 4. Contract Administration Approval tracking Contract Communications CAF, Corp Rebate & GPO Dividend. Compliance Reporting Cost performance metrics Contract repository Match PO price to contract Data Management 5. Procurement & Payment Control Item master linked to PO Invoice Matching Measurement End User Requisitioning Purchase Rebate Tracking Early payment/discount management Audit

21 21 This is an illustration of cross-functional workflow analysis that was created to support the definition of standard procedures, coordinate contracting activities with the value analysis team cycle, identify control points and provide the foundation for the contract management system. Approach – Infrastructure Improvement Example – Defining Spend Analysis Critical Activities

22 22 Approach – Physician Collaboration Integrated Approach Typical Approach Clinically Integrated Approach Cost management approach Physicians make decisions as individuals Weak alignment of physicians with the hospital’s interest in resource management Local system optimization – limited system thinking Uncontrolled clinical variation Limited focus on throughput and other identifiers that are issues of daily professional practice Decreased emphasis on overall efficiencies A common and compelling vision of new “patient first” model Sustain or improve Quality / Outcomes Use relevant clinical science in conjunction with associated resource consumption data Commitment to decision-making transparency Focus on development of clinical standards and pathways to improve outcomes Identifying relative strengths and weaknesses in the core Peri-operative processes Redesign core process as needed

23 Transformational For best practice organizations, contract enhancement represents an example of diminishing returns Reducing the cost of blood and related products is one-dimensional Reframing the approach with physician/surgeon collaboration, evidenced based guidelines assist in improved clinical outcomes and cost savings Outcomes Sustained overall reduction in process variation Monitoring and adherence to evidenced based guidelines and protocols for transfusion Reduction in blood and blood product utilization (Typically 5% to 10%) Improvement in outcomes – LOS, post-op infection rates, respiratory complications Approach 23 Objective : Develop system-wide, data-driven, evidence-based Blood Management practice change to promote the appropriate use of blood, blood products and alternatives, to improve patient outcomes, to eliminate unnecessary transfusion and to lower costs associated with blood use. Approach – Clinical Implementation Example Example – Blood Management

24 Sample Blood Management Dashboard 24 Approach – Results Tracking Example – Blood Management Example

25 NSLIJHS Progress to Date 25

26 26 Outcome NSLIJ Today Established a customer-friendly supply chain organization - capable of continued growth Reorganized the supply chain function - Appointed senior leadership; established Value Analysis Teams; and developed new product introduction processes Created a central data repository for purchase information and contract data Implemented >$70M in recurring, annual, non-labor, expenses in supplies and purchased services The supply chain is much more agile and aligned NSLIJ is now able to respond to short-term changes quickly and effectively The transformation has helped foster a culture and a strong operational foundation Today, NSLIJ Supply Chain capabilities are strong enough to simultaneously: Begin consolidated warehouse and GPO operations; Implement contract management software; Execute a major product standardization initiative; and Begin integration of supply chain to clinical processes

27 27 Outcome Supply Expense Metrics Solucient Compare Group: Standard Major Teaching Hospitals 4Q2009Solucient Compare Group: Standard Total Beds 200-300 4Q2009 Peer group Working with our clinical leaders and department managers, we have achieved over $80M in annual, recurring cost reductions. As a consequence, we were able to decease costs during a period when the average supply expense as a percent of NPSR or on the basis of adjusted discharge increased dramatically due to inflation and new technology. Peer group

28 Outcome Consolidated Distribution Center The IDC currently in development will centralizes warehousing functions to improve service levels, increase operational efficiency, and reduce total supply related costs Quality Reduce variability in the patient care environment Supports standardization of clinical practices across the System Improve management of stock and non-stock supplies Consolidate suppliers to best performers Operations Co-locate core supply chain functions Reduce required safety stock Financial Break-even after 3 Years Positive Return on Investment IDC Quality Operations Financial 28

29 Support affiliate network - extend local and 3 rd party GPO agreements to affiliates Enhance revenue – create a annual revenue stream from contract administration fees Increase purchasing power – combined volume of an expanded network Defined approach to prioritizing contract opportunities Contract Management Software Track obligations Non-standard terms Manage Contract Administration Fee revenues Outcome Group Purchasing Organization 29

30 Determine Net Impact to Corporate Rebate Determine Net Impact to CAF revenue Determine Net Impact to CAF revenue Determine Cost Impact by Available From Pricing Baseline Price Analysis Lowest Price CAF Analysis Maximize Revenue Corporate Rebate Grow Partnerships Total Net Financial Impact Three sources of financial impact Price reduction opportunity analysis CAF opportunity analysis – Corporate rebate – evaluate our market position with each supplier Outcome Defined Approach to Contracting 30

31 Developing effective CLM practices & supporting technology will enhance the transparency and accountability of the myriad of on-going financial transactions Contract management solution because facilitates standardized Contract processes to ensure a repeatable procedures, Approval routing or required escalation to the proper levels within the company Process performance tracking Required functionality include: Searchable repository – ideally digitized Standardized clause/template library Work flow management with event notifications Reporting/Analytics Executive Dashboard Outcome Contract Management Software 31


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