Intermountain Healthcare Supply Chain

Brent Johnson

March 11, 2014

Our Purchased Services JourneyIntermountain Healthcare

Joe Walsh, AVP Procurement

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Greenland Gold Rush

Changing Environment (ice retreat AND healthcare reform)

Economic Incentives (high value of gold AND cost pressures)

Willingness to Overcome Obstacles (harsh landscape AND more challenging categories)

Last Frontier?

Next Wild West?

Agenda

Intro to Intermountain

Purchased Services Primer

One Approach: Intermountain

Q&A

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Intermountain Overview

• Headquartered in Salt Lake City: 34,000+ employees

• Created in 1975 when LDS Church donated its 15 hospitals and a secular nonprofit system was created

• $4.5 billion in Net Patient Services Revenue / $5.5 billion in Assets

• AA+ Standard & Poor’s Aa1 Moody’s

• Founders charge: be a “model” health system

Hospitals• 23 hospitals

• 2,800 beds

• 37% of Utah hospitals, 43% of beds, 57% of discharges

Insurance (1983)

• SelectHealth

• 550,000+ members

• ~25% of market -BCBS is largest in Utah.

Providers (1994)

• Medical Group

• 185 clinics

• 1,200 employed physicians

• 4,000 affiliated physicians

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Integrated System: Other Entities

• Homecare

• Central Lab

• Genetics Institute

• Community Benefit Department

• Rehabilitation Services

• Senior Services

• InstaCare, KidsCare, WorkMed

• Life Flight Air Medical Transport and Rescue Service

• Pharmacy Services

• Psychiatric Resources

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State Rankings: Health Status vs. CostC

ost

Health StatusSource: americashealthranking.org and statehealthfacts.org

Wo

rst

Bes

t

BestWorst

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“If all doctors practiced to the standard of Intermountain Healthcare in Salt Lake City,

Medicare would cost 40% less.”

Intermountain’s Clinical Programs

1. Behavioral Health

2. Cardiovascular

3. Intensive Medicine

4. Oncology

5. Pediatric Specialties

6. Primary Care

7. Surgical Services

8. Women and Newborns

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Intermountain’s Clinical Services

1. Imaging

2. Pharmacy

3. Case Management

4. Patient Flow

5. Rehabilitation

6. Nursing

7. Continuum of Care

8. Laboratory

9. Respiratory Care

10. Pain Management

11. Patient and Provider Publications

12. Food and Nutrition

13. Patient Safety

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Critical Success Factors

• Supply chain became a strategic focus by senior

leadership

• $3M initial investment and 25 new talented FTEs –

investments continue

• Empowering supply chain culture

• Centralized buyers and reporting relationships of the

warehouse

• Added couriers, travel services, publishing and central

laundry

• Earned trust of stakeholders: leadership & clinicians

Implemented effective strategies

Deliver on commitments ($280MM in last 6 eyars)

Solution provider AND service provider

• “Skate to where the puck is going to be”

Notable Recognitions

Garter’s 4th Best Supply

Chain in Healthcare

2013 AHRMM Innovation

Award

ECRI Healthcare Supply

Chain Achievement

Award

IntelliCentric’s 5-Rings

Award

How?

Our Supply Chain is One of the Industry’s Best

Agenda

Intro to Intermountain

Purchased Services Primer

One Approach: Intermountain

Q&A

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Purchased ServicesWhat is It?

Transcription

Diagnostic

Imaging

Support

Outsourced

Services

Consulting

Services

Contract

Labor

Temp Labor

Printing

Services

Auditing

Services

Travel

Services

Pharma

Services

Vehicle

Maintenance

SaaS

Solutions

Design

Services

General

Contractors

Architect

Services

GPO Services

Marketing

Services

Document

Mgmt

Services

Biomed

Services

Equipment

Maintenance

Furniture

Installation

Foodservice

Training &

Education

Building

Maintenance

Services

Grounds

Services

Investment

Services

Insurance

HR Benefits

Payroll

Services

Logistics

Services

Distribution

Services

Records

Storage

Telecom

Treasury

Services

Debt

Recovery

Clinical

Research

Services

Call Center

Services

Language

Services

IONM

How many

sacred cows

can you find?

Purchased ServicesHow is it Different than Anything Else?

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Source: Adapted from The Hackett Group

…and Exponentially More Challenging• Imprecise/changing requirements• Many acquisition channels• Non-commoditized• Demand driven (not supply driven)• Many decision variables• Few to no SMEs & disparate stakeholders• Sourcing never owns the category• High barriers to change• High emotions

Purchased ServicesWho are the Internal Stakeholders?

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Oh Yeah…Clinical Operations too

Stakeholders represent “demand”

Purchased Services represent the “supply”

Matching requires depth, breadth and expertise

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Purchased ServicesSo What?

On average, the healthcare industry

spends an estimated $100 billion per

year on healthcare purchased services,

exceeding supplies and physician

preference items (PPI).

Source: MD Buyline

Purchased services spend is a worthy

target representing, on average, 25%-

40% of the typical hospital’s budget.

Source: The Advisory Board

Supplies19%

Pharma9%

Direct Labor29%Bundled

Service Contracts

5%

Purchased Services

24%

Self Perf Services

14%

Total Hospital Budget

Purchased ServicesSo What?

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Complex services categories have historically been difficult for procurement

to penetrate

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Purchased ServicesSo What?

Current

Situation

Cost Reduction

Initiative

Revenue

Initiative

Revenue

Cost

Net Results

$4,500,000,000

$4,275,000,000 95%

$225,000,000 5%

$4,500,000,000

$625,000,000 14%

$3,875,000,000 86%

Reduce costs structure

by 9 pointsTo generate incremental $400M in NOI:

$12,500,000,000

$625,000,000 5%

$9,500,000,000 95%

Increase revenue 177%, which

is 20X the cost reduction!

- OR -

Change Drivers Imperatives

Purchased ServicesWhy Now?

“When the rate of change inside an organization is less than the

rate of change outside, the end is in sight.” Jack Welch , former CEO, GE

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Agenda

Intro to Intermountain

Purchased Services Primer

One Approach: Intermountain

Q&A

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Purchased ServicesNow What?

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Executive Support

Talent & Structure

Process

Governance

Metrics

Time & Maturity

Infl

uen

ce,

Sco

pe

& V

alu

e

Our Journey to Purchasing Services Proficiency

Case Study

Our Purchased Services Spend Profile

Leverage

• $27M Marketing Services

• $23M Temp Staffing

• $3.5M Supply Chain Services

• $3.3M Distribution Services*

• $3.3M Facility Services

Strategic

• $94M Financial Services

• $20M Clinical Services

• $6.7M HR Services

• $6M Outsourcing Services

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Doesn’t Include:Energy Services

Construction ServicesConsulting Services

Travel ServicesMany Others!

Total Addressable Spend: $300-350MM

Case Study

Our Key Strategies

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• Executive Support Gained CFO support within first month in role

“5% letter” helped gain foothold

• Education and Competency Development Set Expectations with Policies, Procedures and

Road Shows

SOPs and too many procurement education efforts to list

• Analysis Planning Established Taxonomy to Classify Expenditures

Ongoing Spend Analysis

Gained Access to Departmental Budgets

• Engagement Models for Stakeholders & Suppliers New structure and new processes

• Job Aids & Contract Templates MSAs

SOWs

Local/Low Complexity Agreements

• Broad Range of Category-SpecificStrategies

• Leverage GPO Where Appropriate Coverage for “supply-driven” services

Exclusive relationships

Case Study

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Talent & StructureStakeholder Engagement, Sourcing, Purchasing and SRM are All Integrated Case Study

31 Team members

Organized around spend types

Diversity of experience (Supply Chain, Nurse, Doctor, IT etc.)

Majority are masters prepared

Equipment and

Maintenance

Software and Services

Products

Specialists Pool

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Mission: Provide high quality, stakeholder-integrated and integrated spend management services

Talent & StructureSpecialization Has Driven Efficiencies and Effectiveness Case Study

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• Software/IT Sourcing Manage $125M

Support IT, financial, clinical software

• Services Manage $240M*

Support all but marketing and legal services

Jeff Hall: Masters degree, CPSM certified, 25 years supply chain

Scott Palfreyman: Masters degree, CPSM Certified, 12 years IT sourcing

Justin Horsley: Masters degree, CPSM, 9 years Services

Matt Clark: Masters degree, CPSM, 12 years IT

Talent & StructureSoftware & Services Team Case Study

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• Manage $700M; 16 Categories & 196 Sub-categories

• Support clinical programs sourcing and contracting Clinical commodities

Implants

Pharmacy

• Support non-clinical product sourcing Food

Linen

EVS

Trent Gee: Masters degree, CPSM, Clinical sourcing

Jeromie Atkinson: Masters degree, CPSM, pharmacy sourcing

Vince Oda: RN, Masters degree, CPSM, implants

Brent Strong: Masters degree, CPSM

Rob Kurtz: Masters degree, CPSM

Hyde Frederickson: Masters degree, CPSM

Talent & StructureProducts Team Case Study

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• Manage $185M annual capital plan Plan, bundle and bid

• Support capital equipment evaluations and roadmap

• Construction and facilities sourcing

• Asset lifecycle management

• Equipment planning

• Value Optimization Team

• Reprocessing Program

• Custom Packs Program

Scott Schofield: Masters degree, CPSM certified, Finance and sourcing background Julia Gasperini: MD, podiatrist runs our reprocessing and custom pack initiatives

Mark Christensen: Masters degree, CPSM, imaging sourcing

Trent West: CPSM, 20+ years clinical engineering, bundled bids, equipment evaluations

Talent & StructureEquipment & Maintenance Team Case Study

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• Service Request: An initiative for internal stakeholder that is low $$ and low complexity

• Also work with Strategic Sourcing and Solutions team to manage the contract churn

• Helps us develop bench for future sourcing manager roles

• Kellen Switzer, Scott McAlister, Brady Roghaar, Janet Livingston, Royce Bitter, Steve Isakson, Jan Boyer

• Troy Larsgard, Travis Christensen, Riley King, Cole Smith

Talent & StructureSourcing Specialist Team Case Study

SER

VIC

ES

PR

OD

UC

TSStrategic Sourcing ProcessProducts and Services have Little in Common

Attributes• Tangible

• Recurring

• Historical purchases

• Inventory considerations

• Logistics considerations

• Robust decision rights

Sourcing Approach• Source to attribute

• Source to specification

• Value analysis

• Value engineering

• Leverage competition (generally)

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Attributes• Intangible – service, people, expertise!

• Recurring AND Project Based

• History often doesn’t matter

• Relationship considerations

• Service level considerations

• Fractured/local decision makers

Sourcing Approach• Source solutions to problem statements

• Source to business requirements

• Source subject matter expertise

• Balance service and cost

• Use appropriate structure: fixed price, contingency, rate card

• Clear scope and SOW

• Evaluate relationship fit

Case Study

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Strategic Sourcing ProcessEarly Engagement & Rigor are Critical Case Study

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Strategic Sourcing ProcessCheckpoints and Stakeholder “Gates” Case Study

Program Management ProcessThe “Real Work” Begins Once Deal is Signed

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Source: Hackett Group

Case Study

GovernanceDecision Rights via 3-Tier Model

Responsible for executing sourcing projects.

Approve most sourcing decisions

Leadership

Sets priority for sourcing projects throughout company.

Escalation level for complex decisions.

Procurement Steering

Committee

Category Council 1

Work Team 1A Work Team 1B

Category Council 2

Work Team 2A

GOVERNANCE

Implemented Procurement Steering Committee

• Consists of Executive Leadership across the system

• Approve Sourcing Calendar

• Oversee Category Councils that Make Sourcing Decisions

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Case Study

GovernancePrioritization Model

• Model to prioritize and balance sourcing requests

• Utilize algorithm to score every potential sourcing initiative. Highest scored items are worked on first.

GOVERNANCE

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Case Study

GOVERNANCE

GovernanceCategory Councils Make Decisions

Category Councils

Aligned by expense category

Responsible for the following decisions and activities:

Supplier Selection Formulary Management Product Standardization Supply Utilization Supplier Collaboration

Note: These teams are high level and will often empower workgroups to make recommendations.

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Case Study

Metrics

• Use process-based metrics only where applicable “How” the supplier does its processes

Traditional SLAs

Assumes that you know exactly what processes are needed to achieve the outcomes (uncommon)

• Use outcome-based metrics where possible “What” outcomes are expected from services

Fully leverages suppliers for their expertise

Lean on industry benchmarks to set expectations

Tradeoff between cost and service is not linear

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Case Study

Recent Successes

• Revenue Cycle

Transcription services (medical group, hospitals)

Collections

Coding services

• IT

Data center outsourcing

Staffing/Staff augmentation

Software implementation

Consulting services

SaaS solutions

• Nursing

Translation services

Nursing flex services

IOMN services

Lithotripsy services

• Finance

Banking services, Treasury services

E-payables

• HR

Temp labor

Background checks

Executive recruiting

Leadership development services

• Facilities

Energy Management

Pest control services

Janitorial services

Elevator service

HVAC services

Print services

Mailing services

Linen services

Case Study

Agenda

Intro to Intermountain

Purchased Services Primer

One Approach: Intermountain

Q&A

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Joe WalshAVP, ProcurementIntermountain Healthcarejoe.walsh@imail.org801-442-3045

Let’s Stay Connected!

LinkedIn: http://www.linkedin.com/in/joewalsh/

Mazree: www.mazree.com

APPENDIX

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Consequently, the value created from these areas has been less significant

What’s Our Target?

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Why Procurement Isn’t Involved

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Key Success Factors

• Spend more time on stakeholder involvement with a focus on change management –Include key stakeholders in the decision process, have visible high-level support, educate

through training –Communicate objectives, requirements, and progress regularly

• Involve the suppliers early –Maintain perception of a competent and fair process with high-level, strategic relationship

suppliers –Hold pre-RFP meetings to ensure all supplier activities are incorporated in the bid and to

allow other users to become familiar with available capabilities

• Allocate additional time for a thorough, TCO analysis; review results (not calculations) with suppliers where prudent

• Focus on Risks less common in traditional sourcing (e.g., supply continuity, disaster recovery)

• Designate a final decision body; empower with the authority to enforce the decision

• Expect a higher percentage of savings from process and demand management • Implement a supplier performance tracking program to sustain savings• Being proactive in the initial stages will avoid significant barriers to success.

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Key Success Factors

• Collaborate and partner –always give credit to the business

• Pick your battles wisely –pick the right champion• Better, faster, cheaper (in that order) wins over

stakeholders• Learn the commodities –always bring something to

the table• Sole source relationships should be viewed with

additional rigor• Nail your Category Profile, Develop an effective

Supplier Relationship Model and Collaborate with all of the Stakeholders throughout the process…

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