James G. Wetrich, FACHECEO – The Wetrich Group of Companies

Integrated Delivery Networks

The Wetrich Group of Companies include a health care management consulting firm founded in 2001 as well as a firm with expertise in human capital management including executive search, outplacement, coaching and talent assessment. The firm's senior associates bring over 25 years of experience each in a variety of health care positions, which allows us to offer comprehensive advisory services.

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IDN Session

Thank you for the opportunity to be with you today.

Just a few key points on my background:• Been in the health care industry since 1981• Have spent 8 years on the provider side in hospital administration,

associations/alliances. I played an instrumental role in setting up the University HealthSystem Consortium in the mid-1980s

• I have spent almost 20 years on the supplier side (Abbott Labs and Molnlycke Healthcare) in senior roles

• I have consulted with over 60 companies (domestically and internationally, providers and suppliers) and have run supply chain operations at two hospital systems on an interim basis

• Am on the boards of several medical devices companies

IDN Session

What is an IDN?

The fundamental element of an integrated delivery network (IDN) is the hospital.

There are several types of hospitals in the US:

• Non government not-for-profit• For profit/Investor owned• State and local governmental• Federal government hospitals (Veterans Administration and Military)

For the most part, today we will focus on non governmental not-for-profit IDNs, in the United States

IDN Session

Numbers of various types of hospitals*:Total Number of All U.S.

Hospitals5,627

Number of U.S. CommunityHospitals

4,926

Number of Nongovernment Not-for-Profit Community Hospitals

2,870

Number of Investor-Owned (For-Profit) Community Hospitals

1,053

Number of State and Local Government Community Hospitals

1,003

Number of Federal Government Hospitals

213

* Data are from AHA

IDN Session

A brief history of hospitals:• Hill-Burton Act of 1946• Public Law 93-641 (1974)• Emergence of investor owned and

national alliances of not-for-profits

IDN Session

• Hospitals began to horizontally integrate and multi-hospital systems became popular in the 1980s

• Not long thereafter, hospital “systems” began to vertically integrate and formed Integrated Delivery Networks (IDNs)

• Each IDN is unique and there are numerous ways to describe and categorize IDNs

IDN Session

What types are organizations are in IDNs

• Hospitals• Nursing homes• Doctor’s offices• Pharmacies• Physician groups• Home health• Hospices • Surgery centers

IDN Session

A brief look at:

• I served as the Interim Vice President of Supply Chain Management from August 2015 to May 2016

• Providence Health & Services is a not-for-profit Catholic health care ministry committed to providing for the needs of the communities it serves – especially for those who are poor and vulnerable. The system’s combined scope of services includes hospitals, physician clinics, senior services, supportive housing and many other health and educational services across Alaska, California, Montana, Oregon and Washington – with its system office located in Renton, Washington. Providence Health & Services continues a tradition of caring that the Sisters of Providence began nearly 160 years ago.

IDN Session

A brief look at:

• Caregivers (all employees) 76,329• Employed physicians 3,579• Employed advanced practice clinicians 1,125• Registered nurses 25,958• Physician clinics 475• Acute care hospitals 34• Acute care beds (licensed) 9,395• Providence Health Plan members 500,941• Hospice and home health programs 19• Home health visits 597,634• Hospice days 628,182• Assisted living and long-term care facilities• (free standing and co-located) 22• Supportive housing 14 Facilities, 693 Units• Unique patients served 3,265,653

IDN Session

What are the goals of an IDN?

• Provide comprehensive continuum of health care services to the markets that they serve.

• Deliver high-value episodes of care through standardized, coordinated care.

• Retain patients in-network across sites and services.• Become an attractive provider to insurers with whom they contract

for the provision of care.• Build scale in order to provide clout in the market in order to

compete.• Manage the health of the population in their primary markets.

IDN Session

What are the largest not-for-profit IDNstoday? (ranked on revenue)*

• Kaiser Foundation Hospitals (Oakland, CA)• Ascension Health (St. Louis)• Catholic Health Initiatives (Englewood, CO)• CHE Trinity Health (Livonia, MI)• Providence Health & Service (Renton, WA)• UPMC (Pittsburg)• Partners HealthCare (Boston)• Dignity Health (San Francisco)• Sutter Health (Sacramento)• Mayo Clinic Health System (Rochester, MN)• University of California Health System (Oakland, CA)

* Modern Healthcare Magazine, By The Numbers, 12/2015

IDN Session

What are the largest for-profit hospital chains? (ranked on revenue)*

• HCA (Nashville)• Community Health Systems (Franklin, TN)• Tenet Healthcare Corp/ (Dallas, TX)• Universal Health Services (King of Prussia, PA)• LifePoint Hospitals (Brentwood, TN)

* Modern Healthcare Magazine, By The Numbers, 12/2015

IDN Session

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2005 2006 2007 2008 2009 2010 2011 2012 2013

For-Profit Buyers

NonProfit Buyers

A Wave of Hospital Mergers

Starting in 2010, there has been a surge in the number of hospital mergers. In 2012, the number of deals was more than twice what it was in 2009 — and each of those deals may involve multiple hospitals. *The 2013 data are through July 2013

(Kaufman Hall reported 95 transactions in 2014 and 112 in 2015, but the breakdown was not available.)

Source: The New York Times http://www.nytimes.com/interactive/2013/08/13/business/A-Wave-of-Hospital-Mergers.html?_r=1&

IDN Session

The future of IDNs in the U.S?

• IDNs will continue their brisk pace of consolidation

What impact will that have on healthcare and subsequently on the textile services industry?

• Provider consolidation poses a number of threats to suppliers:• Suppliers at greater risk for being on the outside looking in• Providers have greater clout and put downward pressures on

prices• Suppliers have to become more sophisticated in how they

manage and staff resources to meet the needs of the IDNs and how they target and cover IDNs

IDN Session

Will the IDN follow the lead of the GPO they belong to and adhere to their service contracts for services such as laundry processing?

Curious: What does the audience think? Let’s have a dialogue…..

IDN Session

Will the IDN consolidate their service contracts for laundry services to one laundry provider if possible?

Today, IDNs are more focused on purchased services and over time there will be more movement toward standardization to fewer suppliers should that be practical or possible given the geographic reach of the IDN.

IDN Session

Will the IDNs have a need for a GPO in the future?Yes, many suppliers often forget about the role that GPOs play outside of traditional medical/surgical and purchased services areas…..namely, pharmacy.

For example, Vizient’s estimated annual volume is roughly $100 Billion, of which roughly $40 Billion is pharmaceuticals. Vizient as a company has revenues in excess of $1B.

IDNs cannot easily replicate the services that GPOs offer in the area of pharmaceuticals.

Additionally, GPOs are really now integrated (again) backinto larger organizations (Premier and Vizient)

IDN Session

Will the IDNs have a need for a GPO in the future, (part 2)?Will regional GPOs return?

Yes, in fact, some regional systems are creating powerful regional purchasing systems such as Ascension’s The Resource Group and Mercy’s ROI.

UPMC has joint ventured with IBM’s Watson technology to form Pensiamo.

IDN Session

Are the IDNs considering out of the box thinking in terms of contractual relationships with textile suppliers and laundry providers?

As IDNs grow in scope and scale, the talent that they attract is becoming increasingly sophisticated and not necessarily just from within health care. As just one example, Providence (Seattle-based) has executives with experience at Microsoft and Amazon.

As a result of these forces, IDNs are changing their business models and I do believe they are open to “out of the box” approaches.

IDN Session

“How GE is Disrupting Itself”By Jeffrey Immelt, Vijay Govindarajan “VG” and Chris Trimble

Harvard Business Review October 2009

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Article Summary

• For decades, GE sold modified Western products to emerging markets. Now, to

preempt the competition, GE is doing the opposite (reverse innovation).

• This entails developing products in emerging markets and distributing them globally.

• One of many key findings is that technologies developed for emerging markets have

found their way into established markets such as the US, in a Big Way!

• Also, GE found that this stifled some international competitors from bringing in low

cost innovations into established GE markets.

• Built new offerings from the ground up…a new $1,000 handheld EKG device and a

new low cost ultrasound from GE China became $278 M product six years after

launch

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IDN Session

IDN Session

Follow-on Article in April 2012 HBR

A Reverse Innovation Playbook

by Vijay Govindarajan

IDN Session

Follow-on Book Now Published:

Reverse Innovation: Create Far from Home and Win Everywhereby Vijay Govindarajan and Chris Trimble

Competing to be the Best Competing to be Unique

ACTIVITIES Perform SAME activities as rivals, execute better

Perform DIFFERENT activities from rivals

VALUE CREATED Meet same needs at lower cost Meet different needs and/or same needs at lower cost

ADVANTAGE Cost advantage, but hard to sustain Sustainably higher prices and/or lower costs

COMPETITION Be the BEST, compete on EXECUTION Be UNIQUE, compete on STRATEGY

IDN Session

Competitive Positioning: Many Companies Compete to be the Best….But Competing to be Unique is better.

IDN Session

• Value Proposition

– What is my offering and how should the company resource its sales

efforts to that offering?

IDN Session

Is there a trend to outsource Housekeeping and Environmental Services? If so, what benefit does that provide?

Yes, the trend seems to be continuing. As you well know, running these functions can be very complex and external companies bring specific capabilities and expertise.

For the IDN, it permits focusing on the core which is the delivery of clinical services to the patient. Hospitals like to outsource non-core services, in general.

As hospital systems grow, some do look to in-source some services if they believe they can perform the services in an equally efficient way. In addition, some larger systems are offering their services to smaller hospitals.

I think we will continue to see flux and oscillation in a number of key areas.

IDN Session

Do the IDNs make a concerted effort to compare the cost and benefits of reusable textiles versus disposables?

Yes, in general they do…but to some extent, this depends upon the capabilities in house and how one approach or another fits in the context of internal capabilities.

James G. Wetrich, FACHECEO – The Wetrich Group of Companies

Thank you for your time

“BE THE LEADERS, FIND THE LEADERS, CREATE THE LEADERS”SM

The Wetrich Group LLC

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Our ServicesSuccess in the health care marketplace is influenced by countless variables, thereby making it difficult to target any one issue that, once resolved, could revolutionize a business. At The Wetrich Group, we harness our extensive hands-on experience by identifying problem areas in organizations in order to make strategic recommendations and implement tactical solutions that generate significant, measurable results. Our advisory services span across many sectors of the industry and are capable of addressing health care's evolving environment. Approaching each challenge with enthusiasm, we collaborate with our clients to assist with overcoming obstacles and optimizing top and bottom lines.

The Wetrich Group LLC

The Wetrich Group LLC is a health care management consulting firm founded by James G. Wetrich in 2001. Wetrich and the firm's senior associates bring over 25 years of experience in a variety of health care positions, which allows the firm to offer comprehensive advisory support and influential networking resources to its partner clients.

By leveraging our expertise, we provide our clients substantive and thorough strategic and tactical guidance, rooted deep in sound execution. Utilizing our extensive backgrounds and prestigious network of health care influencers, our support helps businesses and hospitals achieve goals and procure significant results.

Senior associates each with more than 25 years of experience impacting health care while building an unparalleled network.

Visit us at:www.wetrichgroup.com

Or check us out on social media:

info@wetrichgroup.com

Peter F. DruckerPeter gave one of his last interviews in November of 2004 to a writer from Forbes magazine. The topic was leadership and here are some of the notes from the interview.

What Needs to Be DoneSuccessful leaders don’t start out asking, “What do I want to do?” They ask, “What needs to be done?” Then they ask, “Of those things that would make a difference, which are right for me?” They don’t tackle things they aren’t good at. They make sure other necessities get done, but not by them. Successful leaders make sure that they succeed! They are not afraid of strength in others. Andrew Carnegie wanted to put on his gravestone, “Here lies a man who knew how to put into his service more able men than he was himself.”

For more on Peter F. Drucker and other inspiring leaders, visit our website’s newsroom at www.wetrichgroup.com

“The best way to predict the future is to create it.”

Peter F. Drucker (November 19, 1909 – November 11, 2005) was an Austrian-born American management consultant, educator, and author, whose writings contributed to the philosophical and practical foundations of the modern business corporation. He was also a leader in the development of management education, he invented the concept known as management by objectives and self-control, and he has been described as “the founder of modern management

Tecumseh“So live your life that the fear of death can never enter your heart.Trouble no one about his or her religion;respect others in their view,and demand that they respect yours.Love your life; perfect your life; beautify all things in your life.Seek to make your life long and its purpose in the service of your people.Prepare a noble death song for the day when you go over the great divide.Always give a word or sign of salute when meeting or passing a friend, even a stranger,when in a lonely place. Show respect to all people and grovel to none.When you arise in the morning give thanks for the food and for the joy of living.If you see no reason to give thanks, the fault lies only within yourself.Abuse no one and no thing, for abuse turns the wise ones to fools and robs the spirit of vision.”

For more on other inspiring leaders, visit our website’s newsroom at www.wetrichgroup.com

Tecumseh (/tɛˈkʌmsə/ te-KUM-sə; March 1768 – October 5, 1813) was a Native American leader of the Shawnee and a large tribal confederacy (known as Tecumseh's Confederacy) which opposed the United States during Tecumseh's War and became an ally of Britain in the War of 1812.

ConfuciusOver the years, I have been most fortunate to have worked for many great leaders and managers as well as consulted with some great companies. I have seen that great leaders know what they do not know. It is one of the key ingredients to managerial success. Credibility and respect comes to those who admit what they do not know. More than ever, in today’s complex information rich environment, specialization is more important in a number of areas so it simply is not possible to have great depth and breadth. It is, as we know, the smart leader who surrounds himself or herself with people more talented than he or she; however, this necessitates an understanding and appreciation of personal weakness and gaps that need to be compensated and reinforced.

The good news is that with a variety of analytical tools and assessments such as 360 degree reviews, there is very little excuse for not understanding what you do not know.

For more on other inspiring leaders, visit our website’s newsroom at www.wetrichgroup.com

“True wisdom is knowing what you do not know.”