Healthcare supply-chain operations rarely get much outside attention. Like light switches and car engines, they usually aren’t noticed unless something goes wrong. However, in an age of changing reimbursement structures and shifting clinical models, well-managed supply chains can be sources of unexpected financial solutions and added business value.
None of this comes as a surprise to Miguel F. Machado, director of supply chain management at Baylor College of Medicine (BCOM). He manages annual spending of more than $200 million on everything from office supplies to equipment costing thousands of dollars.
“I found that I really enjoy building relationships with suppliers and departments and using those connections to deliver value through cost savings,” Machado says. “It’s very satisfying knowing that negotiating competitive, sustainable contracts helps save millions of dollars at an enterprise level.”
Machado points out that this is even more meaningful when BCOM is facing tight regulation and standardization of what can be charged for patient care. The typical institutional response is to reduce staff or push clinicians to see more patients to compensate for reduced margins. The problem with that, Machado points out, is that “there are limits to how many patients you can see in a day before the quality of care suffers. By using supply-chain solutions to reduce acquisition costs, we maximize purchasing dollars and margins, comply with billing regulations, and still deliver consistent levels of patient care.”
BCOM is home to numerous research studies, which presents Machado with a variety of spending challenges. If he has negotiated pricing for plastic lab supplies, for example, but a research project is already underway with supplies from a different, more expensive source, cost savings have to wait since a slight performance difference between the two products can have a huge impact on research results.
Machado also has to accommodate physician preference items (PPIs), which can potentially undercut existing negotiated savings. These can be related to the feel of particular brands of surgical gloves or a technician’s preference for which side of an X-ray machine the controls are located.
One way to address these preferences is through value analysis teams (VATs). Led by the supply-chain department, VATs include physicians, nurses, and department administrators who help make PPI-related purchasing decisions.
“I can’t convince the physicians to use a particular product, but their peers who understand clinical operations and what’s best for the organization can,” Machado says. “VATs also help eliminate departmental siloes and maintain a macro view of institutional spending.”
Staying flexible has helped overcome pockets of resistance to supply chain managing departmental expenditures. In response to objections such as, “You don’t understand our research,” “These are specialty items,” and, “You can’t get better prices than we do,” Machado first tries to demonstrate how departments will be able to stretch their research dollars if he is successful in maximizing their funds through the use of competitive contracts.
“Being flexible can not only save money in the short term; it builds good will with the departments.”
But there have been departmental objections that were accurate. In one instance, glucose strips were being purchased using the departmental procurement card (a card authorized for purchases less than $3,000). The quantities were so small that Machado could not, in fact, negotiate a better price. There have also been projects that needed a small piece of equipment for a short period of time that could be purchased as a used item on eBay. After conferring with the vice president of research, the decision was made to allow the online purchase since buying the same item new would have raised the price higher than could be justified for the intended use.
“Being flexible can not only save money in the short term; it builds good will with the departments. And since we’re a ‘nonmandate’ organization. I go by the 80/20 rule: if they comply 80 percent of the time, we still gain tremendous value, so I can look the other way on the other 20 percent,” Machado says.
The Affordable Care Act and other restructuring initiatives have spurred innovative approaches to creative supply-chain management. BCOM is a member of the MedAssets group purchasing organization, which produced approximately 25 percent savings over a two-year period and resulted in BCOM receiving the 2014 Performance Award for Cost Management.
Machado’s relationship with a major pharmaceutical distributor has been another productive partnership. He utilizes the company’s tools for assessing oncology medications that can cost up to $5,000 for a single vial of medicine, depending on the drug. The tools evaluate acquisition costs for generic alternatives and their efficacy according to manufacturers’ study results. This has led to physicians discovering cost-saving alternatives they would not have known about otherwise.
The practice has led to the evolution of Machado acting as clinical liaison when administrators are approached by new vendors and manufacturers. He evaluates their proposals, consults clinicians, compares with what existing suppliers already offer, and then negotiates further if the source is providing a new benefit.
“By working more collaboratively, our specialists can focus more on clinical responsibilities while supply chain handles the business side of things,” Machado says.
Machado also volunteers on the Texas Medical Center’s Procurement Leadership Council, which provides a platform for small businesses to meet and learn how to do business with more than thirty different healthcare organizations. Many of the businesses are technology companies, which have developed applications that Machado is considering for possible use by BCOM’s VATs to evaluate new products.
“We’ve come a long way from when supply chain was often viewed as taking away departments’ freedom to purchase what they needed,” Machado says. “Now, they recognize us as fiscal stewards of the organization that can help them do more with the funds they have.” AHL