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CASE STUDY:

Supply Chain Challenges & Improvements In A Rural Hospital

Mike Goebel, MBA, CPA Chief Financial Officer Regional West Medical Center Scottsbluff, Nebraska John Siedlinski, MHA, RT(R) Senior Associate Healthcare Logistics Services Naperville, Illinois

Background

Regional West Medical Center, a 267-bed facility, is located in Scottsbluff, Nebraska · 1,100 Employees, 960 FTE's · 80 Active Members of the Medical Staff, representing 23 specialties · Active Cancer Treatment Center · Only Hospital in Town

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Geographics

Scottsbluff, NE is a city of 14,732 ­ Largest city in Western Nebraska Panhandle Region Denver, CO pop. 554,535; 210 miles away Cheyenne, WY pop. 53,011; 103 miles away Rapid City, SD pop. 59,607; 180 miles away Fort Collins, CO pop. 118,652; 150 miles away Greeley, CO pop. 76,930; 180 miles away Lincoln, NE is 396 miles away Omaha, NE is 452 miles away

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Supply Chain Challenges

High Director of Materials Management turnover; no support No strategic direction for Supply Chain Sales Reps wandering the hallways Just about anybody could order just about whatever they wanted Known as the "Salesman's Hospital" Controls out of control; Inventories were too high Nobody understood what an optimized Supply Chain functioned like

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We Needed Some Interim Leadership

Needed a qualified, experienced fresh face; no clouded history; no baggage Needed a Firm and a Consultant who could run Materials Management effectively & identify cost savings without breaking the bank Identify bottlenecks in the entire Supply Chain process; see things in a different light Able to bring Peer Hospital data, i.e. PYXIS usage, Contract compliance, GPO usage Someone who could fit in to the organization and effectuate change Signed a 6-Month Interim Management agreement with Healthcare Logistics Services of 7 Westlake Village, CA

What HLS Identified & Implemented

Over $800K in identified savings; $600K implemented Increased Novation contracts compliance Reviewed all P & P's; suggested improvements Kicked some Sales Rep booty, where & when needed Made Suppliers accountable to RWMC's bottom line Identified issues with PYXIS machines & contracts Reviewed & further negotiated savings for all capital equipment purchases Department leadership was lacking; change was difficult to accept & implement Assisted with replacement Director interviews & on-site orientation process Improved credibility of Materials Management Deptartment Extended original Interim Management agreement by 3 months to accomplish additional cost savings 8 Sterile Processing Catalog

Savings Opportunity: Convert from US Surgical to Ethicon Suture & Endomechanicals Financial Impact Annual cost savings would be $327,894 Allowed additional rebates on Novation's Spectrum II Program (participated in 9 of 11 purchases) Additional rebates from use of Neoforma Made sense financially

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Associated Pro's / Con's High physician preference Long tenure Docs really liked the Sales Rep High customer service Was always told that US Surgical pricing beat Ethicon's

Savings Opportunity: Convert from Broadway Office Supplies to Corporate Express Financial Impact Annual cost savings would be $39,230 Additional savings on recycled toner & inkjet cartridges of $4,319 Would take RWMC from minimal participation to 100% Made sense financially

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Associated Pro's / Con's Local supplier; long tenure Competition from Staples & national contracts/GPO's Broadway Pres. Is well-connected Same or next day service Occasional "freebies"

Savings Opportunity: Convert from Local Contract to Novation agreement for Medical Gases Financial Impact Annual cost savings would be $11,662 Additional cost savings of $60 $70,000 on cylinder refills & demurrage payments Additional rebates from use of Neoforma Made sense financially

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Associated Pro's / Con's Would entail switching out Liquid O2 Tanks Long tenure; local supplier Needed to conduct a physical inventory Very competitive environment

Savings Opportunity: Convert from Bulk Syncor to Bulk Nycomed Radiopharmaceuticals Financial Impact Annual cost savings would be $60,605 Includes Novation rebates for additional Nycomed business Includes PC & Unit Dosing software at N/C Made sense financially

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Associated Pro's / Con's Not politically sensitive Current patient unit dosing software & PC are out of date No local source for replacing Bulk RP with Unit Dose RP Very competitive environment

Savings Opportunity: Convert from Cardiolite to Myoview Thallium for Nuclear Med. Scans Financial Impact Annual cost savings would be $103,418 Additional incentive savings from manufacturer Additional rebates from use of Neoforma Made sense financially

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Associated Pro's / Con's Cardiolite is "Gold Standard" Nuc. Med. Radiologist not convinced of Myoview's clinical viability Nycomed's "all or nothing" approach Performed Internet searches/talked to users Very competitive products

Savings Opportunity: Recycling Nellcor Oxisensors at 90% Rate Financial Impact Annual cost savings would be $15,558 Can use O & M to track, store & distribute recycled products Additional rebates from use of Neoforma Made sense financially

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Associated Pro's / Con's Formerly recycled Nellcor not a big fan Recycling is easy May be replaced with another technology Novation agreement Queue was built up Very competitive products/technologies

Savings Opportunity: Reorganize the Storeroom Financial Impact One-time cost savings would be $42,000 Supplies were double-handled to the Dietary, Housekeeping, Radiology & Office Supplies Now: Direct-ships to these locations Made sense financially

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Associated Pro's / Con's Big Storeroom; used to having it filled Things had not changed in quite some time Once Storeroom PAR levels & on-hand's were reduced, reorganization was enabled Next step ­ bar code maintenance

Additional Cost Saving Opportunities Identified

EDI orders to Philips/Marconi=$2,634 Owens & Minor overcharges on Allegiance Custom Sterile Packs and other Allegiance products=$4,019 Stryker Sagittal Saw Capital Agreement cost savings & cost avoidance=$24,531 Return & credit of extraneous SupplyStation PYXIS Units / Cancellation of these Units from Contract=TBD Reduction of PAR levels/Elim. of slow-moving stock=TBD Cost avoidance savings achieved through purchase of 4 Abbott Aim Plus Pumps=$7,620 Renegotiation of Owens & Minor Novation Mark-up x $2.25M, Effective 10/1/02=$11,250 Conversion to Sterile Disposable O.R. Towels=$25,000 (estimated)

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Supply Chain Challenges

Identified where savings are; this is ongoing process Attacked some of the "Sacred Cows" Had to talk to the Docs in their environment Change is inevitable & constant Board weighing cost savings vs. "Community Interests" Our geographic location forces us to hold 10 20% more supply inventory No JIT/No back-up inventory or local Hospital to rely on for Emergency supplies Our distance from a major, metropolitan city forces us to pay increased transportation costs

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Supply Chain Next Steps

Continue to pound away at the savings

Howmedica & DePuy orthopedic prostheses Ideal Linen savings Office Supplies Primary Distributor Deal with PYXIS

Work the "Front Range" advantage to our credit (i.e., Owens & Minor markup reductions, product standardization/supplier consolidation opportunities, regional meetings, etc.) Department Mgrs. educational effort Potential Value Analysis Teams Explore additional Neoforma transactions (EDI, Neoforma vendors, EFT, etc.) Use our HBOC MMIS to maximum benefit

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Lessons Learned

Don't assume anything! Can save a lot of $Big Bucks$ by examining & improving your Supply Chain Consider the little things for savings Need to explore all options Cost-benefit documentation is vital before presenting to the Docs or the Board Local Business support is critical Educational effort, at all levels, is a key Get everybody on the same page! Not everybody understands the bottom line We did it - you can too!

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CASE STUDY: Supply Chain Challenges & Improvements In A Rural Hospital

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