Transcript No Slide Title

Mapping the Future
Supply Chain Transformation
Case Study: NSLIJHS
Donna Drummond, VP and Chief Procurement Officer NSLIJHS
Paul Hamilton, Managing Director, FTI Healthcare
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Introduction
North Shore Long Island Jewish Health System
North Shore Long Island Jewish Health System (NSLIJ) is an interrelated network of 16 hospitals, two clinical affiliate
hospitals, 300 physician practices and 16 long-term care facilities. NSLIJ is one of the nation’s largest IDNs and the
second largest healthcare system in New York State.
Economic Impact
• $5.7 billion annual operating budget
• 42,000 employees - the largest employer on Long
Island and the ninth largest in New York City
• 9,000 physicians
• 10,000 nurses
• 1,230 medical residents
• 772 medical students
• 3,900 nursing students
Facilities
• 16 hospitals
• 2 clinical affiliate hospitals
• 16 long-term care facilities
• Centers of Innovation
• Centers of Progressive Care
2009 Operating Statistics
• 25,100 babies delivered
• 278,000 hospital discharges
• 137,000 ambulatory surgeries performed
• 605,000 emergency visits
• 817,000 home health visits
• 67,100 ambulance transports
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Introduction
FTI Consulting, Inc.
Founded in 1982, FTI is the preferred services provider of healthcare performance improvement, corporate finance /
restructuring, transaction advisory, forensic and litigation consulting, and economic consulting. FTI has over 3,500
professionals, trades on the NYSE (FCN), and has an enterprise value in excess of $3.0 B.
Geographic Coverage
Service Offerings
Healthcare, Corporate
Finance & Restructuring
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•
Supply Chain Management
•
Productivity Improvement
•
Product Line Profitability
•
Clinical Resource Management
•
Clinical Documentation Integrity
•
Revenue Cycle Improvement
•
Clinical Throughput
•
Physician Practice Management
•
Interim Management
•
Strategic Advisory Services
•
Full Implementation Support
•
Financial Restructuring
Boston
Detroit
Cleveland
New York
Chicago
Pittsburgh
San Francisco
Denver
Los Angeles
Philadelphia
Washington DC
Nashville
Phoenix
Atlanta
Charlotte
Dallas
Houston
Miami
Discussion Topics
• Megatrends driving healthcare today
• Imperative for improved operational quality and efficiency
• Introduce North Shore / Long Island Jewish Healthcare System (NSLIJ)
• Discuss NSLIJ’s supply chain transformation
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Megatrends driving healthcare today
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•
Healthcare Reform
•
Demographic Changes
•
Technological Impacts
•
Physician Changes
•
Patient Safety & Quality
Healthcare Reform
• The Imperative Leading to Reform
• Stem skyrocketing costs; mitigate national debt
• Reduce unfunded liability; expand health coverage
• Tie quality outcomes to reimbursement
The Reconciliation Bill
was signed into law on
March 23, 2010
• Impact on Providers
• Coverage will expand
• Individual mandate & employer requirements
• Medicaid expansion
• Elimination of pre-existing conditions & lifetime limits
• Taxes on “Cadillac insurance plans”
• Taxes on drug makers, health insurers and medical device manufacturers passed to buyers
• Operating Assumptions
• Increased Medicare & Medicaid volumes reduces cost-shifting to commercial payers
• Must generate positive return on Medicare
• Benchmarking and controlling costs
• Pushing payers to increase/maintain rates (those that cannot may consider consolidation)
• Higher levels of collaboration with physicians to create and get paid for value
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Demographic Changes
The U.S. population is aging as the oldest Baby
Boomers1 are now turning 65. . .
. . However, the “cost bubble” does not maximize until Baby
Boomer cohort hits 75 when utilization peaks
Population Shift (2000 – 2020)
Hospital Discharges & Days of Care by Age (2006)
3,000
2,541
Discharges per 1,000 Pop.
2,500
Population
Days of Care per 1,000 Pop.
2,000
1,500
1,317
1,162
1,000
579
500
182
42
141
21 97
264
75
346
101
358
84
116
451
253
0-1
1-4
5 - 14 15 - 24 25 - 34 35 - 44 45 -64 65 - 74
Age
The percent of total U.S. population
that is 65+ is expected to grow from
13% in 2010 to 19% in 2030
1Defined
The 90+ age
cohort is the
fastest growing
Average age of hospital
inpatients was ~41 in 1970
vs. ~53 in 2006
as those born between 1946 and 1964
Source: U.S. Census Bureau; Claritas; CDC’s Health, United States, 2009; U.S. National Center for Health Statistics; Utilization statistics based on 2006 data.
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75+
Technological Impacts
Technological innovations in healthcare over the past 20 years are generally characterized as:
Less Invasive
Traditional Invasive
Less Invasive
Non-Invasive
Open Cholecystectomy
One 10-18 cm incision
Laparoscopic
Cholecystectomy
Three to four 1 cm incisions
Single Incision
Laparoscopic
Cholecystectomy
One 1.5 – 2cm incision
Having a Shorter Life Cycle
Open heart surgery
Angioplasty


25-30 years
10-15 years
Bare metal stent
Drug-eluting stent


7-10 years
3-6 months
Increasingly Costly
Cardiac Balloon Catheter ($500)
X-ray machine ($175,000)
Open Surgery Instruments ($10,000)
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


Stent ($2,300)
CT Scanner ($1MM)
Laparoscopic Surgery Set ($15,000)



Treated Stent ($5,000)
CT Functional Imaging w/ PET ($2.3MM)
Robotic Surgery ($1MM)
Physician Changes
•
The practice of medicine is fundamentally changing
•
Declining professional fees
•
Rising practice costs and malpractice premiums
•
Un-insured (today)  under-insured (tomorrow)
•
Conflicts over ED call coverage
•
Increased private capital dollars available for investment in equipment and facilities that
capture procedural and ancillary service revenue
•
Increasing sub-specialization and “turf” battles
•
Shift from “solo” to “corporate” practice with professional managers or full hospital
employment
Source: October 2008 ,The Physicians’ Foundation; Merritt Hawkins & Associates
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Physician Changes
Physician Practice Cost Inflation and Changes in Medicare Physician Payments
20.0%
18.0%
Cumulative Change Since 2002
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2002
2003
2004
2005
Actual Medicare Physician Payment Updates
2006
2007
2008
Practice Cost Inflation
Source:
2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds
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2009
Patient Safety & Quality
Improving total value within the delivery of care will be a prerequisite to survival. Leadership in the most innovative
health systems are proactively making significant financial and human capital investment to rethink clinical governance,
processes and measurement to ensure accountability around quality and cost imperative.
In a recent NBR broadcast, Dr. Toby Cosgrove, CEO of the Cleveland Clinic was asked “…What do you
think is the most important issue facing other hospitals as they adapt to the new health care law?”
“…Clearly we're going to see more patients and so I think one of the important things for the country so
we don't have health care costs go wild across the country is we need to become more efficient. And in
order to do that, we need to measure quality, as well as measuring costs, so we get maximum value for
our health care dollar. We also have got to be very concerned about our efficiency and driving down
costs and we need to have hospitals collaborate with hospitals, so you come together as a system, so
you don't repeat technology and back office sorts of things. We need to have doctors coordinate with
hospitals to drive the efficiency of the hospitals…”
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Establish Organizational Priorities
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NSLIJHS Supply Chain Strategic Imperatives
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Strategic Context
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The Challenges
• NSLIJ wanted to improve clinical quality, service excellence and strengthen
our financial position
• NSLIJ decided to respond to declining reimbursement by increasing patient
volume
• Overcoming the limited capacity at our hospitals would require large
facility investments
• NSLIJ could not provide superior quality care just by building newer facilities
with the latest technology - We needed to be able to attract and retain the
best people to care for their patients
The Goal
• Leverage supply chain to expand our debt capacity and afford salaries for top
talent
• Improving supply chain cost performance also represented a golden
opportunity to reduce cost and improve patient safety by reducing unwanted
variability in the delivery of care
• Supplies account for roughly 25% of a typical hospital’s operating
budget
• Adding labor and logistics to this jumps to 35 to 45%
• Unnecessary variation in the patient care environment leads to
increased risk and waste
Our Strategic Imperative
• The Imperative was established in November, 2006 as “Project 100”
•
•
Patient Focused Care
•
Simultaneously drive out waste and improve patient safety by eliminating unwarranted
variation in the delivery of patient care
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Focus standardization on the development of clinical standards selection and the
appropriate supply support
Investing in People and Technology
•
Leverage operational efficiency – including the supply chain to sustain our ability to pay
for the best talent available
•
Expand our ability to afford important life saving technologies
• Operating Assumptions
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•
Standardize to best patient care practices
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Reduce over/unnecessary utilization
•
Improve financial performance
•
Reinvest in our infrastructure
NSLIJHS Supply Chain Approach
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Supply Chain Optimization Strategy
Two-prong approach: Identify potential supply expense reductions, implement targeted opportunities and
simultaneously design processes and systems to ensure sustainability
1) EXPENSE – REDUCE SUPPLY EXPENSE
Identify Clinical Expense
Reduction Opportunities
Supply Chain Approach
Reduce Supply Expense
Adopt Best Practices
Redesign Processes
Identify Pharmacy
Expense Reduction
Opportunities
2) INFRASTRUCTURE – ADOPT BEST PRACTICES
Identify Process Gaps
and Interventions
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Identify Non-Clinical
Expense Reduction
Opportunities
Identify Structural
Changes
Identify System
Enhancements
Approach – Supply Chain Philosophy
Definition
• Our approach to supply chain management reflects an emphasis on
alignment of core business processes, workflow (procurement, distribution,
inventory management, etc.) pricing, contract management, value analysis
and product standardization through a clinically focused team environment
Objective
• Reduce supply expenditures through collaboration with physicians and
stakeholders
• Tighten utilization management and standardization of products
• Design processes and systems to ensure sustainability.
Requirements
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• Clinical collaboration to focus on the patient while building transparency in
product decisions and practice patterns
• Shift organizational core values away from total physician autonomy towards
clinical teamwork by encouraging decision-making through the use of clinical
protocols/standards, data analytics and organization around product
decisions
Approach – Coordination and Oversight
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Approach – Infrastructure Improvement
Example – Contract Management
We identified gaps in core supply chain processes and defined enhancements to people, process and technologies to
build a flexible system that would sustain the benefits and continue to yield improvements. FTI and NSLIJ defined and
standardized critical contracting activities. Here is an example
Process Redesign
Sample Contract Management Process
5. Procurement & Payment Control
Item master linked to PO
Invoice Matching Measurement
End User Requisitioning
Purchase Rebate Tracking
Early payment/discount management
Audit
4. Contract Administration
Approval tracking
Contract Communications
CAF, Corp Rebate & GPO Dividend.
Compliance Reporting
Cost performance metrics
Contract repository
Match PO price to contract
Data Management
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1. Spend Analysis
Spend Analysis – trending
Contract gap ID (non-contract)
Pricing Benchmark
Share of market analysis by category
Centralized Spend % of all
2. Opportunity Identification
 Estimate of financial impact
 Risk Identification
 Prioritization of effort with department
 (Vendor Score Card)
3. Sourcing & Selection
Stakeholder identification & needs (Spec)
Determine approach to market (Strategy)
Develop competitive offers (RFP)
Collaborative evaluation of offers (VAT or DM)
Approach – Infrastructure Improvement
Example – Defining Spend Analysis Critical Activities
This is an illustration of cross-functional workflow analysis that was created to support the definition of standard
procedures, coordinate contracting activities with the value analysis team cycle, identify control points and provide the
foundation for the contract management system.
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Approach – Physician Collaboration
Integrated Approach
Typical Approach
• Cost management approach
• Physicians make decisions as individuals
• Weak alignment of physicians with the
hospital’s interest in resource management
• Local system optimization – limited system
thinking
• Uncontrolled clinical variation
• Limited focus on throughput and other
identifiers that are issues of daily professional
practice
• Decreased emphasis on overall efficiencies
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Clinically Integrated Approach
• A common and compelling vision of new
“patient first” model
• Sustain or improve Quality / Outcomes
• Use relevant clinical science in conjunction
with associated resource consumption data
• Commitment to decision-making transparency
• Focus on development of clinical standards
and pathways to improve outcomes
• Identifying relative strengths and weaknesses
in the core Peri-operative processes
• Redesign core process as needed
Approach – Clinical Implementation Example
Example – Blood Management
Objective : Develop system-wide, data-driven, evidence-based Blood Management practice change to promote the
appropriate use of blood, blood products and alternatives, to improve patient outcomes, to eliminate unnecessary
transfusion and to lower costs associated with blood use.
Approach
Transformational
• For best practice organizations, contract enhancement represents an example of diminishing returns
• Reducing the cost of blood and related products is one-dimensional
• Reframing the approach with physician/surgeon collaboration, evidenced based guidelines assist in improved
clinical outcomes and cost savings
Outcomes
• Sustained overall reduction in process variation
• Monitoring and adherence to evidenced based guidelines and protocols for transfusion
• Reduction in blood and blood product utilization (Typically 5% to 10%)
• Improvement in outcomes – LOS, post-op infection rates, respiratory complications
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Approach – Results Tracking
Example – Blood Management Example
Sample Blood Management Dashboard
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NSLIJHS Progress to Date
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Outcome
NSLIJ Today
• Established a customer-friendly supply chain organization - capable of continued growth
• Reorganized the supply chain function - Appointed senior leadership; established Value Analysis Teams; and
developed new product introduction processes
• Created a central data repository for purchase information and contract data
• Implemented >$70M in recurring, annual, non-labor, expenses in supplies and purchased services
• The supply chain is much more agile and aligned
• NSLIJ is now able to respond to short-term changes quickly and effectively
• The transformation has helped foster a culture and a strong operational foundation
• Today, NSLIJ Supply Chain capabilities are strong enough to simultaneously:
• Begin consolidated warehouse and GPO operations;
• Implement contract management software;
• Execute a major product standardization initiative; and
• Begin integration of supply chain to clinical processes
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Outcome
Supply Expense Metrics
Working with our clinical leaders and department managers, we have achieved over $80M in annual, recurring cost
reductions. As a consequence, we were able to decease costs during a period when the average supply expense as a
percent of NPSR or on the basis of adjusted discharge increased dramatically due to inflation and new technology.
Supply Cost per Adj. Discharge Tertiary Hospitals
Supply Expense % of NPSR Tertiary Hospitals
$2,850
$2,650
$2,450
$2,250
$2,050
$1,850
$1,650
18.50%
17.50%
16.50%
15.50%
2006
Actual
2007
Target
2008
Stretch
2009
Threshold
Peer group
Solucient Compare Group: Standard Major Teaching Hospitals 4Q2009
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2006
Actual
2007
Target
2008
Stretch
Solucient Compare Group: Standard Total Beds 200-300 4Q2009
2009
Peer group
Threshold
Outcome
Consolidated Distribution Center
• The IDC currently in development will centralizes warehousing functions to improve service levels, increase
operational efficiency, and reduce total supply related costs
• Quality
• Reduce variability in the patient care environment
• Supports standardization of clinical practices across the System
• Improve management of stock and non-stock supplies
• Consolidate suppliers to best performers
• Operations
• Co-locate core supply chain functions
• Reduce required safety stock
• Financial
IDC
• Break-even after 3 Years
• Positive Return on Investment
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Quality
Outcome
Group Purchasing Organization
• Support affiliate network - extend local and 3rd party GPO agreements to affiliates
• Enhance revenue – create a annual revenue stream from contract administration fees
• Increase purchasing power – combined volume of an expanded network
• Defined approach to prioritizing contract opportunities
• Contract Management Software
• Track obligations
• Non-standard terms
• Manage Contract Administration Fee revenues
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Outcome
Defined Approach to Contracting
• Three sources of financial impact
• Price reduction opportunity analysis
• CAF opportunity analysis –
• Corporate rebate – evaluate our market position with each supplier
Baseline
Price
Analysis
Lowest
Price
Determine Cost
Impact by
Available From
Pricing
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CAF Analysis
Maximize
Revenue
Determine Net
Impact to
CAF revenue
Corporate
Rebate
Grow
Partnerships
Determine Net
Impact to
Corporate Rebate
Total Net
Financial Impact
Outcome
Contract Management Software
• Developing effective CLM practices & supporting technology will enhance the transparency and accountability
of the myriad of on-going financial transactions
• Contract management solution because facilitates standardized
• Contract processes to ensure a repeatable procedures,
• Approval routing or required escalation to the proper levels within the company
• Process performance tracking
• Required functionality include:
• Searchable repository – ideally digitized
• Standardized clause/template library
• Work flow management with event notifications
• Reporting/Analytics
• Executive Dashboard
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