By Michael Louviere
Like so many integrated delivery networks (IDNs), Baptist Health System has been challenged by supply and distribution issues for its 46 physician clinics, which are scattered throughout north and central Alabama.

Around 2004, BHS tried without a great deal of success to standardize physician supply purchases with a former distribution partner.

In 2008, however, we had plenty of motivation and a window of opportunity.

The clinics were ordering products from multiple distributors, and routinely paying widely varying prices for the same items through a multitude of ordering methods. Delivery costs were extraordinarily difficult to forecast or manage as there was no established formulary. To exacerbate matters, manufacturers were imposing as much as five percent price increases in early 2009.

My team and I realized the time was right to make a change when BHS brought in a new president for Baptist Health Centers. We were very fortunate that the new president understood value. He was instrumental in putting together a strong physician strategy to manage the clinics and one of those components was the distribution.

Like other leading IDNs across the country, BHS came to the conclusion that we needed to partner more with our physicians in order to reign in supply costs. We felt we needed to start doing something. Using BHC’s current base of 80 docs, we got to work on a plan to pitch the idea of aggressive standardization and a future agreement to work with one distributor.

The value proposition was simple:

• provide standardized products and processes across all BHC clinics (including better tier levels on contracts),
• explore lower cost alternatives,
• provide the best technology solutions to order product (in this case, electronic ordering),
• manage inventory (using best practices) and
• review what was purchased in quarterly audits and review with key clinic management.

The ultimate goal? Better patient care.

In presenting my objectives to the BHC board in late 2009, I told the group, “Your primary objective is the best quality patient care. Your clinics are the primary source of medical care for my department and many BHS employees.” And then came the clincher: “We have a potential early Christmas gift for you – $400,000 in supply savings.” The group was told the plan would mean they would have to agree on a strict formulary of the top 200 most commonly ordered products and move to one primary distributor, a plan that would also provide incentives for both BHC and the distributor to improve operations.

But I knew it wasn’t going to be an easy sell to physicians. There would be changes, some of them emotional, involving processes and routines, new roles for staff, new technology, and different vendors and sales reps.

I tried to gauge the BHC board’s tolerance for change. “The questions I posed to them were, ‘Is it worth $400,000 to you? Are we ready to take control of our supply process and costs?  Can we embrace automation and move into the electronic age?  Can we eliminate price variations?  Can we make process improvements, and simplify inventory management and product ordering at the same time?’” Fortunately the answer was yes.

The goal was to reduce costs in the first year by five percent. Much of that entailed finding the right partner and willingness on both sides to standardize. And of course, they blessed it. Why wouldn’t they? If we lowered costs inside the clinic, the savings would go back into their practice.

One of my first steps was taking the plan on the road, visiting the clinics to discuss their expectations, needs and wants. I knew our physicians were ordering 10,000-plus different products, and explained that if we could standardize down to 5,000, they wouldn’t have to keep that entire inventory and the lower cost would inevitably help them manage their practices better.

Next, we looked at potential distribution partners. We wanted someone who could bring us good pricing and help us standardize, which means where we go, they go, and we sell physicians and nurses at the same time to move and standardize products. And then, of course, we needed good service. We wanted to be able to buy equipment; we wanted service on equipment; and because of the constraints of cost, we wanted someone willing to take the risk with us to lower our per-patient-visit supply cost.

Before we sent out requests for proposal for an exclusive physician distribution agreement, I assembled a small team of five clinic representatives (one of whom had prior materials management experience) to finalize our objectives. I told the group, we want to go after one distributor, and we want to start thinking how that distributor can help lower your costs. If, together, we can begin to look at a formulary, it’s going to be a win for everyone.

With the plan in place before the end of 2009, BHS entered into a distribution agreement. One of the major pendulum swings in choosing was the willingness to partner with BHS to lower its BHC clinics’ supply and distribution costs. And that meant guaranteeing some things in writing. With our new agreement, we saved $400,000, and we accomplished that in one fiscal year.

BHS anticipates even greater long-term savings that are sustainable as the agreement continues. And the savings are not the only benefit.  Supply cost per patient visit was reduced from $8.22 to $6.96 in one year and there is increased physician productivity.

Michael Louviere is VP Supply Chain, Baptist Health System.