When Procurement Changes Meet Measurable Results

Gary Foster explains how he helped dramatically improve Highmark Health’s procurement process and discusses innovations making a meaningful impact in healthcare purchasing

The origin of the phrase “may you live in interesting times” has been passed down for generations.

Perhaps no other industry today is better associated with that phrase than healthcare, and in particular the procurement process within the industry. In recent years, the number of new suppliers entering the healthcare industry has been substantial. According to the Centers for Medicare and Medicaid Services, healthcare spending in the United States reached roughly $3 trillion in 2016. Additionally, major technology companies such as Google, Apple, Amazon, IBM, Microsoft, and countless start-ups are looking to become part of the healthcare market accounting for record spending compared to years past.

So, to say it has been an interesting time for Gary Foster is putting it lightly. His years of expertise in procurement span a multitude of industries, including energy, technology, entertainment, and food and beverage, including Anheuser-Busch—the largest brewer in the world.

Gary Foster, Highmark Health

“Gary has been a successful leader of change, transforming procurement methods through process optimization, data-driven decisions, and automation,” says Chris Simchick, founder and CEO of SDLC Partners, L.P. “Through our work as a business partner, we’ve seen how he propelled and enhanced business relationships, Highmark’s culture, and business results through collaboration and strategy.”

From his perspective as vice president of procurement at Highmark Health, Foster says the procurement process has some universal similarities across industries, but the rapid evolution of healthcare in the past few years has created complex processes. Contributing factors include multiple layers of regulations at both the state and federal level that are constantly changing along with growing concerns over data security and privacy. Further complications include new and major companies wanting to enter the market, as well as a lack of standards for categorization of expenditures in the healthcare industry.

“If you like to create new solutions and solve problems, then this is a great industry and a great profession to be in because there’s so much change and there’s so much volatility,” Foster says. “But at the same time, there are tremendous opportunities to introduce some new approaches that may not have been done before and to create partnerships with suppliers that haven’t been forged before. The adage in the healthcare industry that ‘We won’t solve tomorrow’s problems with yesterday’s solutions’ is probably truer today than ever.

It’s a mantra that Foster takes to heart, and that his peers are also recognizing.

“Highmark Health has consistently been on the leading edge of improving health outcomes and payer-provider collaboration, and Gary has played a crucial role in this effort by establishing strong, valuable business relationships that improve quality and enhance patient care,” says Dr. Emad Rizk, president and CEO of Verscend Technologies. “Verscend is honored to partner with Highmark Health to continuously improve healthcare.”

Foster spoke with American Healthcare Leader to discuss some of the key strategies he implemented, the improvements he’s observed, and the future of procurement in the healthcare industry.

One of the reasons you were recruited to Highmark Health a little more than a year ago was specifically to improve the procurement process. How did you go about doing that?

Having moved here from Texas, I can say this is not my first rodeo. My assessment of the department’s current state was informed by my experience in various industries. One of the first steps you have to take is a solid accounting of what the current process is, gather data on it, examine where the problems are, remove emotions and opinions, and look at the facts. You have to identify where the business is going to benefit from doing things differently. If you’re really going to try to implement wide-reaching change, then you have to have a clear understanding of what the cause for action is and how it’s going to help the business, particularly if you’re talking about something that addresses procurement processes. It’s one of the few internal business processes that connects with nearly the full spectrum of the enterprise. It spans the strategic business planning, marketing, technology, compliance, legal, and financial functions, among others.

Another thing that we introduced was Lean Six Sigma improvement concepts borrowed from the manufacturing industry. We applied them to the healthcare procurement processes. I’m not aware that this is common practice in healthcare, but I can tell you that the results are very enlightening to everyone involved.

The third piece of the puzzle is that it’s hard to change internal processes. I met with senior leaders regularly to explain the vision and how the new model would align with their business strategies.

Did you recognize any areas in the process that could be immediately addressed?

There were a lot of problems in role clarity—who’s supposed to do what at what point in the process. The way things were happening evolved over time, and people were interjecting themselves into the process without any planned rigor. There was valid perception of bureaucracy and lack of clarity in procurement. We hadn’t done a good job of laying out a streamlined approach, nor educating employees and reinforcing it.

One of those strategies you implemented involved category management, which is fairly unique to the healthcare industry. What was the result of that?

Using category management is a very successful approach for procurement in other industries I’ve been in. The concept is built around a thorough analysis of the annual spend across the enterprise. You take all of the third-party expenditures, and you put them into logical subgroups—not by business unit and not by supplier. That’s important, particularly in complex organizations, because you could have multiple business areas that are buying similar products or similar services and from the same or similar suppliers. That’s where you are looking to try and find the opportunity to achieve synergies and to manage spend at the enterprise level.

Then, individual procurement professionals are assigned to one or two categories of spend to study and immerse themselves into that specific market. They also study the company’s expenditure patterns, as well as the drivers and trends, because we ultimately want these sourcing category experts to begin formulating a view of how can we optimize our spend across the company in each specific category. For example, marketing, IT security, and risk revenue services. These are multiyear perspectives that have to be communicated and bought into by the key executives of the business.

What has been the effect of these new procurement strategies?

The recommended changes were implemented faster than I had originally anticipated. One factor that helped accelerate this was collaborating with a unique internal team at Highmark Health that specializes in internal organization optimization, formed through hiring consultants from major firms and insourcing that expertise in the company. So, when we combined my vision for the target state of procurement with those consulting methodologies, we were able to quickly create a solid business case. That really became a tremendous catalyst for pursuing implementation and getting buy-in all the way up to the C-suite.

Another major factor was the excellent reception that I received from Highmark Health business leaders and executives. They were genuinely eager for us to raise our level of sourcing expertise, which in turn increased support for their teams and helped them execute their business strategies.

And I can tell you that it’s working. It’s our first year of operations utilizing the new model, and we exceeded the historical financial performance of the procurement function by nearly 50 percent. Our plan for our second year is to deliver another 33 percent improvement on top of the first year’s progress. We’re proud of that, and I’m extremely grateful for the willingness of my team to fully embrace and implement our new business model. They’re an outstanding group, and I’m really proud to work with them.

Another factor in successfully improving procurement was aligning several different functions of Highmark Health. How did you go about breaking down those silos?

Throughout this implementation, we continually met face-to-face with business leaders and said, “Here’s what we see in the current state. Here’s where the problems are. Here’s a vision of where we want to go. Here’s how this is going to benefit you.” We were always focused on what’s in it for them because they are our clients.

And timing is everything. Just as we were creating the business case and preparing for the implementation, Highmark Health was adopting a new set of core behaviors to drive an enterprise-wide culture change built on four areas: customer-first, purposeful execution, trust in working together, and transformational leadership. The target state of the new Highmark Health procurement function was aligned perfectly with these new four core behaviors.

The Future of Procurement in Healthcare

Over the past few years, the city of Pittsburgh has become a hub for robotics and technology. But there’s another area of robotics that Gary Foster, vice president of procurement at Highmark Health, has observed that will be particularly important for the future of procurement: digital transformation tools and techniques including robotic process automation (RPA), blockchain, machine learning, and artificial intelligence.

There are a few RPA pilots underway at Highmark Health, but Foster believes nearly every transactional process will be revamped with some variety of digital transformational technologies and techniques over the next several years. That includes purchase order conversions, invoice and purchase order reconciliations, entry processing, and similar data review and entry processes.

“Imagine taking business requirements for a product or service and electronically pushing them into an auction tool, and then connecting up prequalified suppliers with their ordering processing computers and enabling this group of technologies to communicate with each other,” Foster says. “This isn’t science fiction. I also think that there’s opportunity for artificial intelligence and big data to do procurement contract document optimization. It’s an exciting time.”

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