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Supply Chain Transformation Case Study: NSLIJHS

Donna Drummond, VP and Chief Procurement Officer NSLIJHSPaul Hamilton, Managing Director, FTI Healthcare

Mapping the Future

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

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

Facilities•16 hospitals•2 clinical affiliate hospitals•16 long-term care facilities•Centers of Innovation•Centers of Progressive Care

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.

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.

IntroductionNorth Shore Long Island Jewish Health System

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Service OfferingsService Offerings Geographic CoverageGeographic Coverage

San Francisco

Los Angeles

Chicago

Houston

Dallas

Atlanta

Washington DC

New York

Miami

Philadelphia

Detroit

Charlotte

Pittsburgh

Cleveland

Boston

Nashville

Denver

Phoenix

Healthcare, Corporate Finance & Restructuring

• 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

IntroductionFTI 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.

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.

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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• Healthcare Reform

• Demographic Changes

• Technological Impacts

• Physician Changes

• Patient Safety & Quality

Megatrends driving healthcare today

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• The Imperative Leading to Reform• Stem skyrocketing costs; mitigate national debt• Reduce unfunded liability; expand health coverage• Tie quality outcomes to reimbursement

• 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

Healthcare Reform

The Reconciliation Bill was signed into law on

March 23, 2010

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. . However, the “cost bubble” does not maximize until Baby Boomer cohort hits 75 when utilization peaks

The U.S. population is aging as the oldest Baby Boomers1 are now turning 65. . .

Demographic Changes

The 90+ age cohort is the

fastest growing

The percent of total U.S. population that is 65+ is expected to grow from 13% in 2010 to 19% in 2030

Hospital Discharges & Days of Care by Age (2006)

1Defined as those born between 1946 and 1964Source: U.S. Census Bureau; Claritas; CDC’s Health, United States, 2009; U.S. National Center for Health Statistics; Utilization statistics based on 2006 data.

Population Shift (2000 – 2020)

Average age of hospital inpatients was ~41 in 1970 vs. ~53 in 2006

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Technological innovations in healthcare over the past 20 years are generally characterized as:

Technological Impacts

Open heart surgery 25-30 years

Angioplasty 10-15 years

Open heart surgery 25-30 years

Angioplasty 10-15 years

Cardiac Balloon Catheter ($500) Stent ($2,300) Treated Stent ($5,000)X-ray machine ($175,000) CT Scanner ($1MM) CT Functional Imaging w/ PET ($2.3MM)Open Surgery Instruments ($10,000) Laparoscopic Surgery Set ($15,000) Robotic Surgery ($1MM)

Cardiac Balloon Catheter ($500) Stent ($2,300) Treated Stent ($5,000)X-ray machine ($175,000) CT Scanner ($1MM) CT Functional Imaging w/ PET ($2.3MM)Open Surgery Instruments ($10,000) Laparoscopic Surgery Set ($15,000) Robotic Surgery ($1MM)

Less InvasiveLess Invasive

Having a Shorter Life CycleHaving a Shorter Life Cycle

Increasingly CostlyIncreasingly Costly

Bare metal stent 7-10 yearsDrug-eluting stent 3-6

months

Bare metal stent 7-10 yearsDrug-eluting stent 3-6

months

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• 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

Physician Changes

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Cum

ulati

ve C

hang

e Si

nce

2002

Physician Practice Cost Inflation and Changes in Medicare Physician Payments

Source: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance And Federal Supplementary Medical Insurance Trust Funds

Physician Changes

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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.

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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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

Strategic Context

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• 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

• 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

• Standardize to best patient care practices

• Reduce over/unnecessary utilization

• Improve financial performance

• Reinvest in our infrastructure

Our Strategic Imperative

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NSLIJHS Supply Chain Approach

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Supply Chain Approach

Reduce Supply ExpenseAdopt Best PracticesRedesign Processes

1) EXPENSE – REDUCE SUPPLY EXPENSE

Identify Clinical Expense Reduction Opportunities

Identify Pharmacy Expense Reduction

Opportunities

2) INFRASTRUCTURE – ADOPT BEST PRACTICES

Identify Process Gaps and Interventions

Identify Structural Changes

Identify System Enhancements

Identify Non-Clinical Expense Reduction

Opportunities

Supply Chain Optimization Strategy

Two-prong approach: Identify potential supply expense reductions, implement targeted opportunities and simultaneously design processes and systems to ensure sustainabilityTwo-prong approach: Identify potential supply expense reductions, implement targeted opportunities and simultaneously design processes and systems to ensure sustainability

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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

• 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

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Approach – Coordination and Oversight

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Approach – Infrastructure ImprovementExample – 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

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

2. Opportunity Identification2. Opportunity IdentificationEstimate of financial impactRisk IdentificationPrioritization of effort with department(Vendor Score Card)

1. Spend Analysis1. Spend AnalysisSpend Analysis – trendingContract gap ID (non-contract)Pricing Benchmark Share of market analysis by categoryCentralized Spend % of all

3. Sourcing & Selection3. Sourcing & SelectionStakeholder identification & needs (Spec)Determine approach to market (Strategy)Develop competitive offers (RFP)Collaborative evaluation of offers (VAT or DM)

4. Contract Administration4. Contract AdministrationApproval trackingContract Communications CAF, Corp Rebate & GPO Dividend.Compliance ReportingCost performance metricsContract repositoryMatch PO price to contractData Management

5. Procurement & Payment Control5. Procurement & Payment Control Item master linked to POInvoice Matching MeasurementEnd User RequisitioningPurchase Rebate TrackingEarly payment/discount managementAudit

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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.

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.

Approach – Infrastructure ImprovementExample – Defining Spend Analysis Critical Activities

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Approach – Physician CollaborationIntegrated Approach

Typical Approach Clinically Integrated 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

• 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

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

Approach

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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.

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 – Clinical Implementation ExampleExample – Blood Management

Sample Blood Management Dashboard

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Approach – Results TrackingExample – Blood Management Example

NSLIJHS Progress to Date

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OutcomeNSLIJ 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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OutcomeSupply Expense Metrics

Solucient Compare Group: Standard Major Teaching Hospitals 4Q2009 Solucient Compare Group: Standard Total Beds 200-300 4Q2009

Peer group

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.

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.

Peer group

OutcomeConsolidated 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

•Break-even after 3 Years

•Positive Return on Investment

IDC

Quality

Operation

s

Financi

al

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• 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

OutcomeGroup Purchasing Organization

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• Three sources of financial impact

• Price reduction opportunity analysis

• CAF opportunity analysis –

• Corporate rebate – evaluate our market position with each supplier

OutcomeDefined Approach to Contracting

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• 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

OutcomeContract Management Software

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