Achieving supply chain savings when you least expect it

Healthcare Purchasing News, August, 2004 by Dave Hesson

Clarian Health Partners is the largest healthcare provider in the state of Indiana. It is a 1,300-bed system consisting of Methodist, Indiana University and Riley hospitals. Clarian also has outpatient services outside the hospitals in more than 60 separate locations around Indiana.

Like all healthcare systems, a number of factors were putting a strain on our operating margins, including reduced government reimbursement, labor expenses and capital expenditures. As a result, administration implemented a system-wide cost saving initiative, which included reducing supply expenses throughout the system.

As part of the process, we were not necessarily looking to make a major change in our primary supply vendors but we were seeking to lower our costs in some of the major supply areas such as custom procedure trays. As a result of the evaluation, we went way beyond selected product acquisition cost savings to a major cost containment initiative.

Guaranteed savings

Our first priority was to examine our custom procedure trays to drive more savings in this high budget area. Another reason we were looking at this product area was that our current vendor was experiencing financial difficulty and we were concerned about the possibility of reduced service and product availability. To accomplish our cost saving goals, we needed to achieve several major objectives, including reducing inventory levels, lowering product acquisition costs and standardization.

After an exhaustive search process, we selected Medline Industries, Inc. One of the main reasons we initially went with Medline was because it had a reputation for manufacturing quality products and helping hospitals reduce their expenses. Medline also is very flexible in the way it distributes its products whether it is direct to the hospital or indirect through our primary distributor.

Although we started the evaluation of Medline on one product line, as soon as they showed us the cost saving and standardization benefits of their other self-manufactured products, our relationship quickly grew into a major cost management supply partnership, covering a large number of medical and surgical products.

What also made this relationship different was that Medline offered us guaranteed savings on products that were clinically acceptable.

As part of this supply chain initiative, we utilized our existing Value Analysis teams for each of the major product areas, including nursing, med-surg services, radiology, cardiac cath lab, wound care, anesthesia, obstetrics and gynecology. The teams consisted of doctors, purchasing staff, clinicians and nurses and their main responsibility was to conduct product evaluations to determine which products to convert to the Medline brand.

Broad product line

Following are the results from some of the major product areas that were implemented in the first year of our cost management partnership with Medline:

Surgical Packs--As mentioned, the first product category we examined was surgical packs. We had a number of custom packs throughout our system and were spending in excess of $3.8 million. In con junction with our Value Analysis Teams, Medline's team of sales representatives, O.R. products specialists and clinicians conducted a thorough analysis of our packs, their contents and usage. We agreed upon a comprehensive two phase program for converting and standardizing our packs. The first phase involved converting products in the packs to Medline brand products that were clinically accept able. This helped to reduce our budget by 10% to approximately $3.4 million. The second phase, which will he implemented soon, consists of analyzing which custom packs can be converted to standard packs and improving our utilization. This phase should also help us reduce our costs dramatically.

Surgical Gloves--The next major area we looked at was surgical gloves. Our glove budget was over $850,000 and consisted of several different products and vendors. We perform over 50,000 procedures a year in 110 O.R. suites in our health system. This process helped us standardize the majority of our glove purchases and significantly reduce our budget. However, we still carry several other gloves to accommodate the various preferences of our O.R. staff.

Surgical staff at Clarian Health was among the first in the country to begin using a surgeon's glove coated on the inside with aloe vera, a substance that helps moisturize and soften the skin. Medline's exclusive Aloetouch surgical glove was developed to help gently moisturize and soothe healthcare professionals' hands and at the same time provide unparalleled protection. Moreover, the conversion to Aloetouch and Medline's Triumph glove lines saved us 15%, or more than $127,000 on our surgical gloves alone.

Exam Gloves--The Value Analysis Team and Medline next analyzed our exam glove usage as well as the kinds of gloves we use. Medline's product and clinical teams helped us to consolidate our purchases and standardize on the kinds of gloves we were using across the system. We are now using system-wide a superior glove to the one we had previously, without dramatically increasing our budget. Medline's Aloetouch exam gloves, like the surgical gloves, have helped to improve our clinical staff's skin quality.