With all the news of a grim financial outlook ahead for health systems, and especially the acceleration of cost growth, value management leaders are confronting the need to rein in spending in a meaningful way. This need is annual—and repetitive.
Many organizations already have taken a first pass at locally renegotiating supply contracts at the system level, outsourcing and centralizing some purchased services, and at times pushing on the financial aspects of their group purchasing organization relationships. These efforts can be effective but exhausting, especially to physician and clinical leadership. Today, despite all the success of prior work, cost pressures are higher than ever.
Continuous cost accountability requires weekly effort and discipline. And in times of rapid change, this process can become even more challenging, as was the case with Penn Medicine, an academic medical center based in Philadelphia.
Building on Sophisticated Value Management
In early 2017, Penn Medicine was getting bigger, having grown from a network of Philadelphia inner-city hospitals to a multistate, regionally integrated delivery system. The organization had successfully executed several cost management initiatives, achieving supply pricing that was among the best in the nation and negotiating a few key purchased services contracts for better terms.
As the organization continued to grow—expanding outside of the city with the acquisition of Chester County and Lancaster General Hospitals, and more recently hopping across state lines to acquire Princeton Health in New Jersey—Penn Medicine leaders saw new opportunities and challenges.
The larger organization’s new buying power and efficiency potential that came with growth also became more complicated. With the acquisitions came a much broader and more diverse geography, as well as a wide array of existing organizational cultures and personalities to manage.
Start with Collaboration
Penn Medicine leaders recognized the need to do things differently within this new context. Thus, in early 2017, Penn Medicine approved a new blueprint for enterprise value management after months of collaboration with physicians and members of multiple hospital C-suites. This collaboration came from across the newly expanded Penn Medicine Enterprise, inclusive of existing system leadership, individual system leadership both new and old, and plenty of physician input. Its value came not only in gathering valuable input but also managed change. With all of that well-managed participation, critical stakeholders began to feel ownership of the process.
Their blueprint mapped out a redesigned and reinvigorated organizational governance structure built around existing enterprisewide disease teams, full representation of CFOs across the system, multiple representatives from physician leadership, and plenty of preserved individualism. Physicians and newly integrated system leaders felt listened to. When building plans for future system integration, there was also al focus on finding individual pockets of warranted variation. This helped preserve specific local best practices while also building trust among those involved.
This new structure was charged with overseeing a dual-pronged strategy on an ongoing basis. One part of that strategy was a focus on identifying and achieving savings in the most promising supply and purchased services opportunity areas (e.g., physician preference items and cross-system commercial service cost centers) all across their newly expanded system—whether locally or across the enterprise. The other was about driving an iterative approach to key spend category strategies, moving well beyond simple price point reductions to broader and more holistic and longer-term cost strategies.
Execution and Communication
Penn leaders managed every painstaking detail of their collaboration on a weekly basis. They established centralized accountability and direction for value management strategy through a Network Supply Chain council (NETSC). They maintained monthly top-level transparency and support for all managed cost savings initiatives. This group, comprising health system CFOs and supply chain leadership, established top-down savings goals and held themselves accountable for those goals, with heavy clinical-level strategy and physician involvement.
Set up Successful Second Year
Penn Medicine set out to save $8-10 million across 2017 and achieved approximately $9 million. Those results helped bolster confidence as the health system began its second year of cost savings strategy implementation. In the very beginning, executives and physicians of the NETSC sat at the table with perhaps less than fully enthusiastic receptivity to value management. Following a year of hard work and deliberate collaboration, those were the voices leading the charge to do the more progressive work.
The fact is that getting physicians and hospital executives to think about cost reduction, no matter how progressive, is tough. The system’s efforts to build a shared sense of trust, and willingness to work hand in hand in a deliberate way, are not only effective now but will be for years to come.
Rick Conlin is Partner at Optum Advisory Services, Pittsburgh.