An Examination of the 2008 Healthcare Executive Survey On Supply Chain Management
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1 New England Society For Healthcare Materials Management 34 th Annual Dinner Meeting An Examination of the 2008 Healthcare Executive Survey On Supply Chain Management October 22, 2008 Randolph, MA Presented by Jamie C. Kowalski MBA, FACHE, FAHRMM Vice President, Business Development Owens & Minor, Inc. 1
2 Survey Objectives Build upon findings of 2007 Survey of C s Understand and compare perspectives of C-suite, Supply Chain Execs. Facilitate dialogue between both groups; optimizing supply chain performance. Identify baseline status and opportunities that lead to successful supply chain strategy and action. Share insights 2
3 Survey Team Owens & Minor Sponsor, Author AHRMM Co-Author, Contributor, Provider of Membership List & Presentation Venue AHA Provider of Membership List & Presentation Venue Marquette University Center for Supply Chain Management Survey Development & Production 3
4 Respondent Profile 250 Total Respondents 30% C-Suite Execs 70% Supply Chain Execs Diverse Demographics Large, Medium, Small Organizations Urban, Rural, Suburban Not-for-Profit, For-Profit Single Hospital, Multi-Hospital, IDN 4
5 Inspiration for 07 & 08 Surveys Compelling healthcare trend analysis by industry sources (e.g., FutureScan ) Observed Challenges and Threats to healthcare providers, engaging executives Business Issues with solutions linked to Strategic Supply Chain Management 5
6 Severe Upward Growth Trend U.S. National Healthcare Expenditures By 2010: CAGR = 8.4% CAGR = 7.4% $2.9 Trillion = Overall Healthcare Expenditures 18% of GDP = Healthcare Expense $1.4 Trillion $1.6 Trillion $1.9 Trillion $2.2 Trillion $2.5 Trillion $2.9 Trillion % U.S. Population: Age 60 & Above Source: Center for Medicare & Medicaid Services; industry reporting; Pipal Research 6
7 Consumables Expenses Growing Fastest Consumable Products Expense Increasing 64% faster than Salary Expense Benefits Expense Total Operating Costs Source: The Advisory Board Company, 2005 Expense Growth Rates
8 Supply Chain Expense; From A Large Slice of the Pie Total Supply Chain Expense as a Percentage of Total Hospital Expense Other Hospital Operating Expense 55% to 65% Supply Chain Management Expense 35% to 45% 8
9 To a Tipping Point Slice; > 50% Total Cost Incurred by Hospitals 15% 15% Others 25% Logistics & Distribution 100% Clinical & General Labor, Other 45% Supplies Supply Chain Management Total * Figures based on HFMA estimates. Labor cost includes salaries, wages and benefits based on average of leading hospitals in the U.S. and Others is inclusive of profits to the hospitals. Source: S&P Industry Surveys: Healthcare Facilities; HFMA; industry reporting; Pipal Research analysis. 9
10 Breadth, Impact of Total Supply Chain Not Universally Recognized Comprehensive, Interdependent, Complex Evaluate Contract Order Pick Ship Receive Inventory Pick Deliver & Select & Pay & Store Use & Charge PROVIDER / MANUFACTURER / PROVIDER / CUSTOMER DISTRIBUTOR CUSTOMER Dispose or Reprocess 10
11 08: Provider Challenges MAJOR CHALLENGES Clinical performance and outcomes/patient safety Overall operating costs Qualified staff particularly nurses Increasing margins OTHER CHALLENGES Fostering physician relationships and loyalty Obtaining and deploying technology Overseeing supply chain management Responding to public reporting C-SuiteSuite SC SC Execs Execs Access to capital funds Dealing with governmental policy and regulations 11
12 07: Improving Profitability Revenue, Margin Top Choices CEO 8% 6% 40% 46% CFO 6% 15% 40% 39% Reducing SCM costs Improving margins Reducing labor costs Increasing revenue 12
13 08: Improving Profitability Top Strategies; Not SC WAYS to IMPROVE FINANCIAL PERFORMANCE C-SuiteSuite SC SC Execs Execs Increasing revenue Improving margins via expense reduction Reducing labor costs Reducing total spending on supplies and all consumables Reducing total supply chain management expenses (e.g., infrastructure, inventory, labor)
14 Total Supply Chain Improves Bottom Line Best Choice? Example: Average, private sector, not-for-profit hospital with margins <1% Objective: Improve bottom line by $500K Pick Most Feasible Option: - Reduce supply chain expense by $500K - Increase revenue by $50 million Source: HFM Magazine,
15 07: Profitability Via SC; Collaboration, Expense Management Enhancing collaboration w/ physicians in supply standardization & expense reduction Achieving minimum total expense for commodity supplies Achieving minimum total expense for specialty/physician preference supplies Increasing involvement of nursing and/or clinical staff in supply selection & cost effective usage CEO CFO 15
16 08: Improving Profitability Via Supply Chain Collaboration SUPPLY CHAIN APPROACHES CONSIDERED or TAKEN to IMPROVE PROFITABILITY C-SuiteSuite SC SC Execs Execs Enhancing collaboration with physicians in supply standardization and expense reduction Identifying appropriate metrics to benchmark the organization s supply chain performance Decreasing direct/off-contract ordering Initiating a value analysis process Achieving minimum total expense for specialty/physician preference supplies (e.g., stents)
17 % Agree 07: Supply Chain Performance Impact on Key Provider Issues CEO (n=72) CFO (n=93) % Agree 93% 58% 35% Profitability 42% 53% 95% 89% 43% 46% High clinical service/patient safety 63% 31% 94% 88% 32% 56% Collaborative physician relations 58% 22% 80% 75% 25% 50% Patient satisfaction 58% 27% 85% 83% 33% 50% Nurse satisfaction, recruitment, retention 58% 21% 79% Somewhat agree Strongly agree Indicates a significant difference at the 95% confidence level. 17
18 08: Supply Chain Impact on Expense; Varied Views MOST IMPACT on SUPPLY CHAIN EXPENSE C-SuiteSuite SC SC Execs Execs Degree of product standardization Quality of purchasing contracts (pricing & terms) Product pricing Efficiency of supply chain processes Physician engagement and cooperation with product selection and management Supply utilization and cost per procedure
19 08: Supply Chain Impact On Providers Top Issues SC Leaders Executives 30% 64% Higher margins 57% 37% 94% 94% 50% 82% 32% Nurse Satisfaction 29% 81% 52% 43% 93% 50% Collaborative physician relations 35% 86% 51% 50% 81% 31% Patient Satisfaction 25% 74% 49% 43% 52% Quality Care 43% 45% 95% 88% Strongly Agree Agree 19
20 08: Accountability Not Aligned Supply Spending/Expense C s say: Clinical Leaders 57%; SCLs 25% SCLs say: Clinical Leaders 28%; SCLs 57% Total Supply Chain Expense C s say: Clinical Leaders 22%; SCLs 48% SCLs say: Clinical Leaders 23%; SCLs 63% 20
21 07: Clinical Departments Lack Incentive Compensation CEO, CFO, COO, CNO, CMO SC leadership team Clinical & service managers (Cath, OR) 71% 62% 67% 54% 43% 27% % Where Supply Cost Reduction is a Significant Part of Performance Metrics and Annual Incentive Compensation None of the above 6% 24% CEO CFO Don't know 3% 0% 21
22 08: Clinical Service Managers Still Lack Incentive Comp 22
23 08: Rating Effectiveness Executing SC Initiatives Implementing self distribution across my organization Developing supply chain management as an organization wide core competency Enhancing collaboration with physicians in supply standardization and expense reduction Providing or enhancing information technology tools that provide visibility of and analytics for total supply Achieving minimum total expense for specialty/physician preference supplies (e.g., stents) Identifying appropriate metrics to benchmark the organization s supply chain performance Reducing time that clinical personnel spend on supply chain activities Decreasing direct (off contract) ordering Increasing involvement of nursing and/or ancillary clinical staff in supply selection and cost effective Achieving minimum total expense for commodity supplies (e.g., gloves and trays) Indifference? Mediocrity? Doing Well = Very Effective, 3 = Neither Effective/Ineffective, 5 = Very Ineffective 23
24 08: What s Working Best? Purchasing RANKED PERFORMANCE of SUPPLY CHAIN COMPONENTS 1. Contracting / Competitive Pricing 2. Purchasing / Buying 3. GPO Relationship 4. Managing Supply Evaluation & Analysis (Value Analysis) 5. Managing Annual Consumption & Total Expense 6. Managing Storeroom Inventory 7. Managing Clinical Specialty Department Inventory 8. Internal Supply Distribution 9. Distribution Partner Relationship 10. Revenue Capture 11. Reprocessing 12. Internal Transporting of Supplies 24
25 08: Operations Performance; Satisfactory Agreement Executives SC Leaders 60% 55.4% 56.2% 40% 71-76% 34% NOT 20% 16.9% 20.0% 16.9% 16.8% 10.8% 7.0% 0% Very Satisfied Satisfied Niether Satisfied/Dissatisfied Dissatisfied 0.0% 0.0% Very Dissatisfied 25
26 08: SC Leaders See More Ops Improvement Last 2 yrs Than Execs Executives SC Leaders 80% 60% 40% 20% 13.9% 41.6% 63.1% 44.9% 21.5% 11.9% 0% 1.5% 1.6% 0.0% 0.0% Much Better Better About the Same Worse Much Worse 26
27 07: Agree Overall Satisfaction with Performance is High PERFORMANCE & LEADERSHIP RATINGS CEOs CEOs CFOs CFOs Performance better 98% 90% Performing Better Overall leadership performance improving 96% 95% Seeing Improvement 27
28 08: Perceptions of SC Leaders; C s More Critical But Satisfied Executive Rating SC Leader Perception Very Dissatisfied 0.0% 0.0% Dissatisfied 2.7% 7.8% 21% Not Satisfied Niether Satisfied/Dissatisfied 8.7% 14.1% Satisfied 53.0% 50.0% Very Satisfied 28.1% 35.1% 0% 20% 40% 60% 28
29 08: Executives Improvement with SC Leader vs. 2 Years Ago Much Better Better The Same Worse Much Worse Don t Know Executives 29
30 08: SC Leaders See More Leadership Improvement Last 2 yrs than Execs Much Better Better The Same Worse Much Worse Don t Know SC Leaders 30
31 08: Executive Level Metrics; Lacking SC Leaders feel better than Executives about the metrics they have 31
32 08: Operations Level Metrics; Inadequate SC Leaders feel better than Executives about the metrics they have 32
33 08: Best Supply Chain Metrics Similar and Surprising SC Leader 1 Annual rate of increase in supply spend increase compared to medical consumer price index Executive 1 2 Annual rate of increase in hospital supply expense/spend 3 Supply expense per adjusted discharge 4 Supply expense as % of net revenue 5 Total supply chain expense as % of total operating expense 6 Supply expense per adjusted patient day 7 Supply expense as % of total operating expense
34 08: Reducing SC Expenses; GPO, IT, Education RECENT ACTIONS to REDUCE SC EXPENSES Total Respondents Expanded use of GPO contracts and/or other assistance Implemented new IT systems and tools Educated internal staff 77% 62% 52% Applied supply chain metrics and benchmarks Hired outside consultants Initiated value analysis Appointed physician executive to engage peers Selected new distributor Chose outsourcing to improve performance Hired supply chain management leader and/or staff outside of healthcare industry 42% 42% 38% 25% 22% 17% 10% 34
35 08: SC Issues; Agree or Disagree? Missing Big Ones 1 = Strongly Agree, 3 = Neither Agree/Disagree, 5 = Strongly Disagree 35
36 08: Physician Relationships About 50% of Hospitals Employ Primary Care and Specialty MD s 17% Rated Relationship as Adversarial 56% Rated Relationship as Collaborative [Combined Responses] 36
37 08: How Physicians Impact SC 1. Demands for specific clinical preference items 2. Acceptance of standardization and utilization policies 3. Relationships with manufacturers 4. Lack of data/information 5. Indifference to the costs 37
38 08: Reducing PPI Expenses; Priorities RANKED IMPORTANCE of WAYS to REDUCE PPI EXPENSES 1. Manage physician preference item (PPI) usage 2. Manage new product technology introductions 3. Improve product evaluation and selection 4. Provide product choice to physicians 5. Modify and manage physician relationships with suppliers 6. Improve charge capture and revenue enhancement 38
39 08: Clinical Supply Chain Still a Need and Focus Clinical Supply Chain Complies with Regs (2.09 = Somewhat Agree ) PPI s Fastest Growing Expense Category (2.21 = Somewhat Agree ) Infrastructure Needed to Manage CSC Needs Improvement (2.63 = Somewhat Agree ) 39
40 08: Effectiveness of SC Technology Tools Basics Are Acceptable Clinical Supply Chain Management Needs Improvement Physician Procedures Profitability Management Inadequate 40
41 08: Top Tactics Used Evaluated the relationship with the current GPO in the last 2 years Developed and are implementing an enterprise-wide supply chain strategic plan Changed to a different GPO in the past 2 years 41
42 08: Value Analysis Focus Expanding 42
43 08: SC Leader Attributes; Execs & SC Leaders Agree Executive Rating SC Leader Perception Previous hospital based supply chain experience Healthcare industry experience Association for Healthcare Resource & Materials Management (AHRMM) / AHA-CC certification - CMRP Clinical background or education (RN, RPh, other) MBA HFMA membership and certification ACHE membership and certification Non-healthcare industry experience = Very Important, 3 = Neither Important/Unimportant, 5 = Very Unimportant 43
44 Summary of Themes Inconsistent Views of SC; Definition, Impact, Performance, Accountability Accountability, Performance Comp Need Review Metrics Inadequate for C s PPI Management Still Biggest Challenge Technology Gaps Continue 44
45 Call to Action Supply Chain A Strategic Aspect of Providers Business, Success Supply Chain Optimization Imperative SC Leader Must Facilitate Future Vision, Strategic Plan, Education, Communication, Metrics, Achievement Executives Must Recognize, Understand, Promote Supply Chain Opportunity, Impact, Role 45
46 Questions, Discussion THANK YOU! 46
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