• A Cohesive Approach to Cutting Perioperative Supply Chain Costs

    Apr 19, 2011

    By Andrew Starr, Diane Karagory, and Craig Tangeman

    C-suite executives, surgeons, and supply chain staff at St. Luke's Hospital & Health Network collaborated to reduce perioperative supply chain costs through standardization and price negotiations. This effort resulted in the health system saving $3 million in a 12-month period.

    At St. Luke's Hospital & Health Network, a four-hospital health system based in Bethlehem, Pa., leaders knew they had an opportunity to take cost out of the organization's perioperative supply chain and go from "good to great" as an organization. They also knew they could encounter resistance by making changes to some physician preference items. To ensure success, health system leaders needed sound data and performance metrics that would help them benchmark supply utilization and pricing performance.

    Partnering with an outside consulting firm, St. Luke's took a deep dive into its supply-related data in late 2009, organizing and evaluating all available information related to contracts, supply costs, purchase history, inventories, physician preference decisions, and quality indicators. The health system was then able to identify opportunities for standardizing and utilizing supplies/medical devices while also improving pricing through vendor negotiation.

    The approach required engaging C-suite executives, surgeons, and the supply chain team in an effort that ultimately saved the health system more than $3 million in perioperative supply chain costs.

    A Four-Step, Cohesive Approach

    St. Luke's identified almost 50 supply chain initiatives, each with the potential to save $10,000 to $200,000 in recurring annual savings. Some of the initiatives included:

    • Introducing a sterile reprocessing program
    • Eliminating waste in custom procedure packs
    • Standardizing surgical mesh products
    • Improving total joint pricing
    • Standardizing and improving pricing for orthopedic trauma products

    All the initiatives followed a similar collaborative, data-driven value analysis approach. Value analysis is a process to evaluate products and services based on clinical effectiveness, patient safety, and cost. The four-step approach is illustrated below, using the surgical mesh team's experience.

    Step 1: Identify potential savings. For example, the surgical mesh project team identified opportunities for improvement in surgical mesh, both in pricing and standardization. Not only had St. Luke's been paying higher-than-benchmark prices, but it could standardize on product choice to achieve better pricing.

    Step 2: Share data. An internal meeting was held to share data with key surgeons and executives.

    Step 3: Meet with vendors. Stakeholders met with multiple vendors to determine opportunities regarding cost and clinical measures.

    Step 4: Agree on next steps. After internal discussions between clinical and financial stakeholders, a decision was made to switch vendors for surgical mesh. While not everyone was in agreement-some clinicians asserted there were unique situations that benefited from a product targeted for elimination-a collaborative approach led to a compromise that still created significant value. The group decided to continue using two out of the five surgical mesh products that were originally being used. One product will be used for the majority of patients. The other product will be used to meet the special needs of a subset of the patient population. Savings from the switch exceeded $20,000, with no supply chain interruption or clinical impact.

    Project Results

    After six months, all 50 initiatives had met or exceeded their goals. After 12 months, more than $3 million in recurring annual savings were achieved.

    The success of the effort in perioperative services led to improvements beyond the operating room, including the utilization of medical surgical supplies (such as infection control Foley catheters), standardization of orthopedic soft goods in the emergency department, and the elimination of duplicate inventory. An additional savings of nearly $13 million were achieved, allowing St. Luke's to maintain its operational priorities and continue to make capital investments, as well as fund other important projects.

    Three Keys to Success

    The initiative to reduce perioperative supply chain costs was successful for three reasons:

    Defining C-suite and senior leadership roles in the process, ensuring accountability, and removing ambiguity. C-suite and senior executive sponsorship of and involvement in the project was crucial. An executive steering committee-comprising the CFO, COO, associate vice president of finance, and assistant vice president of service line administration-was formed to provide leadership oversight for the initiative.

    Involvement on a granular level, including key kickoff meetings, was essential for setting the right tone for the project. Setting up an accountability structure for the steering committee also ensured that senior leadership heard about issues before they escalated. They empowered the team to identify and implement solutions that improved the process.

    Educating and engaging surgeons. At St. Luke's, fewer than 25 percent of the surgeons are employed. Many strategies were used to engage key physicians in the process, but a key step was to initially bring surgeons and executive sponsors together for a data-driven discussion around the escalating costs of perioperative supplies and the many approaches available for reducing costs without impacting care quality.

    With surgeons, it was important to maintain transparency in terms of goals and data, while being assertive in pursuing cost-reduction opportunities. Keeping surgeons engaged by assigning them leadership roles on specific initiatives and having them take part in vendor discussions created a deeper level of understanding, involvement, and ownership that helped ensure success.

    Defining and refining the value analysis team process. St. Luke's value analysis process needed to be better defined, with more transparent roles, goals, and processes to create clear benefits. As in any organization, St. Luke's value analysis team needed to meet regularly and use metrics and evidence-based data in its reviews to maintain credibility and effectiveness.

    The perioperative supply chain experience has helped the health system reframe its approach to all value analysis initiatives. Benchmark data and metrics are now a routine part of the process.

    In addition, the chief of surgery is now part of the value analysis process, and ad hoc surgeons are involved as needed for particular supply reviews. The group meets regularly to review new supply request forms that must be submitted by a surgeon for all preference items. This team is now an integral part of maintaining and building on savings gained during the project.

    Benefits Beyond the Bottom Line

    Creating the opportunity for executives and clinicians to work together toward a common goal paid both financial and operational dividends for St. Luke's. Both groups report they have gained a new appreciation for each other's roles and feel empowered to bring ideas to the table and make changes.

    The project will also continue to provide benefits as staff members have an increased awareness of product costs-and are, therefore, more focused on eliminating waste. The strength of the value analysis team will help St. Luke's continue on the path of being a top performer in both financial and operational measures.

    Andrew Starr is COO, St. Luke's The Woodlands Hospital, The Woodlands, Texas, and former assistant vice president, St. Luke's Hospital & Health Network, Bethlehem, Pa. (astarr@sleh.com).

    Diane Karagory is a director, Huron Healthcare, Chicago (dkaragory@huronconsultinggroup.com).

    Craig Tangeman is a director, Huron Healthcare (ctangeman@huronconsultinggroup.com).