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When a health system acquires non-acute facilities, materials management has a challenge on its hands. Adapting processes designed for acute-care hospitals to the unique needs of ambulatory care facilities requires flexibility and often, a willingness to change course.
That’s what Chris Voorhees, CMRP, discovered recently when she helped steer Hunterdon Medical Center away from self-distribution to outsourcing.
Like many hospitals and health systems, Hunterdon Medical Center – a 178-bed teaching hospital in Flemington, N.J. – has been rapidly building its non-acute-care presence. Hunterdon Healthcare System has 27 physical locations in four counties in addition to the main hospital campus. These ambulatory sites house 77 different cost centers and more than 1,000 full-time employees. Their services include family practice, pediatrics, wound care, specialty care, ambulatory surgery, home health and hospice, health and wellness centers, integrated medicine, child care, physical and occupational therapy, behavioral health, mobile intensive care and urgent care.
Last year alone, Hunterdon Medical Center brought on 14 medical practices.
For years, Hunterdon Medical Center had been self-distributing equipment and supplies to its nonacute- care sites, explains Voorhees, administrative director, materials management. The ambulatory sites would log onto Hunterdon Medical Center’s EHS materials system (or pick up the phone) and order products and equipment. Supplies would be maintained in a central warehouse. The medical center’s acute-care distributor would drop off those products at the hospital’s receiving dock. Hunterdon Medical Center’s materials staff would then stock them, pick them, load up the vans and truck them out to the non-acute sites.
The system got more complicated as Hunterdon Medical Center acquired and opened more ambulatory sites.
The distributor’s truck would arrive at the dock at around 6 a.m., at which time receiving would begin stocking items in Hunterdon Medical Center’s storeroom. By about 9:30 – before all the items were stocked – distribution would begin picking and loading the vans for delivery to the non-acute-care sites.
“We started to monitor what items were coming in almost every day from our primary distributor, and how fast we were turning them around to place them in our courier vehicles to redeliver to the ambulatory sites,” says Voorhees. “It was not making sense.”
To maintain order, materials limited Hunterdon Medical Center’s ambulatory sites to one order per week. “But the orders got to be so big, our folks had trouble managing the workload,” so once a week became two or three times a week, she says. Given the rapid growth of ambulatory sites, “we could not keep up with the picking and delivering of orders. Staff was unable to complete their work.”
The materials staff had created some general catalogs, specialty catalogs and a sticker catalog (for kids’ items), from which buyers at the non-acute sites could electronically order supplies. But the system wasn’t easy to learn or use, says Voorhees. And whenever one buyer or office manager resigned, the materials staff would have to go to the site and train his or her replacement on the system. Training became a full-time job. “It took a lot of work to get everybody on the same page,” she says.
In the midst of all the activity, Hunterdon Medical Center was missing opportunities to standardize products and lower non-labor costs, says Voorhees. The ambulatory sites were using some items contracted for the acute-care hospital, even though less expensive ones would work just as well in the non-acute setting. Given that space in the storeroom was at a premium, the materials staff simply didn’t have the space to store two or more sets of similar items. “We knew we needed to streamline our process.”
“We began discussions internally and realized how many times we were handling products, from processing orders, to picking them, to handing them off to a courier, etc.,” she says. “We knew many of those steps could be eliminated. And we wanted to explore low-unit-of-measure with a partner.”
What’s more, Voorhees had reached the point where her department would have to hire additional staff to manage the growing nonacute- care workload. “The courier vans were full, and my staff was feeling over-burdened,” she says. Given these things, administration was open to a discussion about outsourcing non-acute distribution.
McKesson Medical-Surgical was already familiar to Hunterdon Medical Center. The company had been servicing the health system’s surgery center and home health/hospice operations for some time. Moreover, some of the newly acquired physician practices had worked with McKesson, and were pleased with the service. A new manager in purchasing – Don Donofry – had come from a larger system that used the distributor for non-acute-care distribution. “He shared his experience with us, and we started to explore it,” says Voorhees.
After approximately four months of studying and building a business plan, Hunterdon Healthcare switched from self-distribution to outsourcing with McKesson in July 2015. The savings were immediate. By bringing on all the nonacute sites, Voorhees and staff were able to create efficiencies that also lowered costs for the surgery center and home health/hospice operations. (That should come in handy when Hunterdon Healthcare opens its second surgery center in 2017, she says.) What’s more, Hunterdon Healthcare was able to achieve first-year savings by switching from branded products to McKesson’s private label brand when possible.
“The system was fairly easy to implement,” she says. “We have a predefined catalog and have been able to assure that our contracted items are loaded within McKesson. Training has been fairly simple. We have a Webex loaded on our hospital intranet site for end users to watch at their convenience.”
Staff is feeling less stress, says Voorhees, citing improved “employee engagement” numbers from performance measurement firm Press Ganey. “Our goal is to increase our employee engagement measurement, because we know that engaged employees serve our patients better, and overall help the healthcare system.”
End users are satisfied too. “They get better customer service from McKesson than we were able to provide,” says Voorhees.
Voorhees encourages her McKesson account manager to help the non-acute sites streamline their work processes and inventories. “We’ve started to provide and encourage the use of bar code scanners to our big practices, and we want to implement them throughout the system, so they can improve their ordering processes. The account manager knows that even though new products must undergo Hunterdon Healthcare’s value analysis process, Voorhees and staff expect him to suggest new savings opportunities.
“It is the right thing to do,” she says, speaking of the transition from self-distribution to outsourcing. Making the change has streamlined logistics for the nonacute sites and the materials staff. “And it has freed up time for the acute care setting to spend more time on contract negotiation, inventory management, and improving customer service.”
While each facility that makes up your health system shares a common goal of providing quality patient care, the business models and challenges differ greatly from one care setting to the next. This is especially evident when you compare the supply chain needs of acute care locations to those of non-acute sites. This complexity presents a challenge to materials managers, especially in health systems with self-distribution models.
“Health systems often find self-distribution to be more challenging than they expect, especially outside the hospital,” says Ben Helfinstein, director of business process improvement at McKesson Medical-Surgical. “The supply chain of a health system is designed around its hospitals, and a hospital’s needs are so different from the needs of a health system’s ambulatory clinics, of its long-term-care and home care assets, of its lab.”
Materials executives often find that the items they must stock for their non-acute sites do not match those they stock for the hospital, says Helfinstein. And they typically find it difficult to stock the entire breadth of products demanded by all the different specialties they must serve – ophthalmologists, pediatricians, obstetricians, oncologists, etc. As a result, fill rates can suffer.
Non-acute facilities find that ordering products from a hospital-operated warehouse and handling returns can be cumbersome. Rather than using the hospital’s aging materials system, they want a better ordering experience, which allows them to log on or punch out to a website, read detailed product descriptions, see images, and click to order.
Then there’s the issue of cost. Picking, packing and shipping small orders of slow-moving products means “incremental warehouse labor. A clinic’s orders are much costlier to pick than a hospital’s,” says Helfinstein. Transportation to far-flung clinics and offices is expensive.
“Even a big health system lacks the scale of a national distributor, which benefits from a large and sophisticated private fleet and negotiated rates with package delivery companies” he adds. “Health systems usually can’t achieve those economies of scale.”
There are greater back-office costs associated with self-distribution outside the hospital, including the phone calls and emails from facilities inquiring about order status, requesting returns, etc. “When you have small quantities of products but a high volume of transactions, it can get very costly to process.”
When you consider all these factors, outsourcing delivery of product to non-acute sites may actually be a more efficient solution than attempting to self-distribute. “But you can also ask your distributor for help,” says Helfinstein. “A great distributor should be able to provide you with insights and analysis about your spend and potential opportunities for greater efficiency in your supply chain.”