Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases and Processes
Why Healthcare Businesses Must Efficiently Manage Their
Suppliers, Purchases and Processes
Transcript of a BrieﬁngsDirect podcast on how a major healthcare services company is
leveraging tools from Ariba to cut costs and improve efﬁciency.
Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP Company
Dana Gardner: Hello, and welcome to a special BrieﬁngsDirect podcast series coming to you
from the 2013 Ariba LIVE Conference in Washington, D.C.
We're here in the week of May 6 to explore the latest in collaborative commerce
and to learn how innovative companies are tapping into the networked economy.
We'll see how they are improving their business productivity and sales, along
with building far-reaching relationships with new partners and customers.
I'm Dana Gardner, Principal Analyst at Interarbor Solutions, and I'll be your host
throughout the series of Ariba-sponsored BrieﬁngsDirect discussions. [Disclosure:
Ariba is a sponsor of BrieﬁngsDirect podcasts.]
Our next innovator interview focuses on MedAssets, a healthcare industry procurement, spend,
operations, and supply-chain services company, which currently manages some $50 billion of
supply spend for its customers annually.
We'll learn how the healthcare sector has unique operational efﬁciency and regulatory challenges
and how MedAssets, in partnership with Ariba, an SAP company, has found ways to improve
health provider and supplier compliance, reduce costs, and develop better accuracy.
To hear how they did it, please join me in welcoming our guest, Rick Grodin. He is the Senior
Vice President of Product Management at MedAssets based in Alpharetta, Georgia. Welcome.
Rick Grodin: It's great to be here. Thanks for having me.
Gardner: We’re here at a very busy Ariba LIVE Conference, and one of the things that people
are dealing with is how to make their particular vertical industry and the particulars of their own
company work within an infrastructure and a networked economy. It’s sort of taking a big
picture, but applying a more narrow focus, to get the best results. I'm particularly interested in
the healthcare environment.
Rick, what's going on in healthcare and why is this such an important area for focusing on
innovation, productivity, and cost reduction.
Grodin: We manage spend on behalf of 3,000-plus providers, both on the non-acute care side, as
well as in the for-proﬁt and not-for-proﬁt acute care hospital community. The challenges that
they're facing are quite remarkable, both from an incremental-cost perspective, whether that be
supply cost or labor cost, as well as continued pressure on what are already razor-thin operating
margins -- typically between 0 and 3 percent.
With the Affordable Care Act coming down the pike, ofﬁcially passed and certainly soon to be
implemented, reimbursement per unit is going to come down materially for hospitals, and that’s
going to have signiﬁcant consequences on provider operations and ﬁnancial health.
As millions of new people come into the healthcare system, likely to be
reimbursed through the state exchanges somewhere between Medicaid and
Medicare rates, that’s going to have a signiﬁcant impact on that operating
margin, because hospitals are already losing money at Medicaid and Medicare
You're going to have a signiﬁcant inﬂux of new patient volume at lower
reimbursements. Therefore, the need for the healthcare community to take out substantial cost
over the next couple of years is just going to continue to intensify signiﬁcantly.
Anything that we can do, as a healthcare provider partner, to help them bring down those costs
from a back-ofﬁce operational efﬁciency perspective is going to be extremely important.
Gardner: How do we get those better efﬁciencies, not only from within an organization which
has been under way for sometime and will continue, but when you go outside your borders?
When you look towards supply chains, the networked economy, and cloud providers, what's the
control point? How do you exercise control and management, when these are outside the borders
of your healthcare-provider organization?
Grodin: For us, speciﬁcally at MedAssets, the supplier community is extremely important to us.
It’s not only about how we can improve the ﬁnancial health of our hospital customers, but also
our supplier partners. If we can continue to work with our supplier partners to bring down their
cost, they can then pass along those efﬁciencies and offer lower price points to our provider
customers. So it’s a win-win for everybody.
Today, through MedAssets eCommerce Exchange and transaction management services, we help
create a more efﬁcient operating environment, with respect to getting purchase orders to
suppliers. But because it’s through an EDI-based system, it’s basically just getting paper there
more quickly, as opposed to correcting and rejecting invoices that are wrong on the front-end, so
that they don’t need to be worked on the back end.
Creating a more efﬁcient operating environment with respect to that paper purchase order (PO)
or invoice, and basically enabling a provider and a supplier to conduct that commerce through
the cloud, our exchange, or a combination thereof, will create signiﬁcant operating efﬁciencies
on both sides of the house.
Now, all of a sudden, the AP clerk that’s sitting in a hospital doesn’t have to manage an
exception. Today, they're constantly struggling with whether the PO price is the same as the
contract price and the same as the invoice price. In many instances, it’s not.
So they need to circle back with the supplier to say, "The invoice is wrong, and you need to ﬁx
it." Or they need to circle back internally and ask why they're cutting a PO that doesn’t match the
contract price, whether it’s a locally negotiated contract or a contract through a group purchasing
So, it's the ability to catch those invoice exceptions upfront. All of that exception management
activity can be repurposed to value-add activities internally, whether that’s reinvesting
completely in patient care delivery or just repurposing those FTEs on
the back end to again do more value-added activities that are not
related to just managing an exception.
Gardner: I'd like to hear more about how Ariba and MedAssets work together, but let's learn
more about MedAssets ﬁrst. Tell us a bit about the history of your company, what you do, and
the size, so we have a better sense of how you ﬁt in this picture.
Grodin: We touch approximately 4,200 acute-care hospitals across the country, as well as over
120,000 non-acute care providers. We have two operating segments within the organization.
The one that I primarily focus on for product management is our Spend and Clinical Resource
Management group. Within this segment, we deliver value to providers through our group
purchasing organization, technology-enabled services, an analytics platform and procure-to-pay
solutions that are all aimed at reducing cost on behalf of our providers.
The other element that we bring to the table is through our Advisory Solutions group, which is a
number of consulting practices that can address operational improvement opportunities or other
areas of cost that are not impacted just through procurement or through a group purchasing
As an example, we've got a phenomenal group that focuses on clinical utilization and bringing
down physician preference-item cost. We've got a group that focuses on permanent labor and
agency labor. As most people are aware, labor cost is approximately 50 to 60 percent of total cost
for a hospital. It’s a signiﬁcant area of opportunity.
Finally, we bring lean transformation and process-improvement capabilities to healthcare
through another practice in our Advisory Solutions group. There have been tremendous beneﬁts
brought through Lean to other industries, and we're trying to bring that to the healthcare
environment as well.
Gardner: Looking back into MedAssets, what other tools do you have in your toolbox, to use
your phrase, that you can help health providers improve their ﬁnancial standing?
Grodin: As I mentioned before we've got our Spend and Clinical Resource Management
segment that manages over $50 billion in spend, but we also have another large operating
segment where we provide revenue cycle management services.
So we've got a whole suite of technologies that can impact everything -- the front, middle and
back portion of the revenue cycle -- as well as the Revenue Cycle Services group that provides
both consulting services, as well as a shared-service environment for taking on revenue-cycle
activities within a hospital environment.
Gardner: How about the relationship between MedAssets and Ariba? Do you utilize their
services in their cloud activities, technologies, and processes, and then apply that through yours.
Is this an ecosystem type of relation? How does it work?
Grodin: Our relationship with Ariba is on two fronts. We're currently in the process of
implementing their Procure-to-Pay solution for our own internal use within MedAssets, and our
team is extremely excited about how things are going so far.
I was mainly focused on working with the Ariba team on putting together the strategic
partnership that we announced in early April and that we're extremely excited about. We wanted
to partner with the leader in global e-commerce and there was no doubt that that was the Ariba
We’d like to bring the capabilities that are proven in other industries, where Ariba has basically
gone to market and been extremely successful, and bring those similar cloud-based and network
activities into healthcare.
As I alluded to before, we have our own eCommerce Exchange and Transaction Management
services, as well as a partnership on the front-end for requisitioning through Prodigo.
Historically, we've done a very good job of working with the buyers in hospitals to requisition an
item and get that purchase order out through our eCommerce Exchange and Transaction
Management services to the vendor. Where we’ve fallen short is in helping our suppliers and
providers get that invoice back most efﬁciently.
What's great about the Ariba Network is that we can link our eCommerce Exchange with the
Ariba Network to enable a more efﬁcient transaction process. We enable providers to get a PO
out through our eCommerce Exchange or through the Ariba Network electronically, and then
enable suppliers to send that invoice back electronically through their exchange or through
invoice conversion services, which is basically taking the paper invoice and converting it into an
Multiple beneﬁts come out of that. It’s a perfect complement to what MedAssets has already
been doing in the healthcare community with our provider clients, but taking it to the next level.
The other thing that’s extremely exciting about what Ariba brings to the table is the fact that they
have over one million vendors on their network.
Today, we do commerce through our exchange with about 350 traditional medical/surgical
vendors, whereas Ariba has perfected the world that they call "indirect spend" and we call
"purchased services." That's a huge unlock both for us and for the provider community.
We believe that purchased services spend is just as big as the spend that goes through the GPO, if
not even bigger. Typically, that has been a very hard area for providers to get their arms around,
because they haven’t had access to the data.
The main reason for that is that most of the purchased services spend is a non-PO transaction. So
it’s very hard to get to that granular line-item level detail to break down that spend, whether it’s
by contract category or speciﬁc vendor. You can’t manage anything if you can’t see it.
So we're extremely excited about leveraging the Ariba Network and working with them to
capture 100 percent of provider spend, not just med/surg and PO-backed spend, but all of the
spend that’s coming out of the hospital. The value this can bring to the provider community is
Gardner: It sounds like a really good marriage between the general approach that Ariba can
have and the more verticalized, specialized approach that you have. It's sort of the best of both
worlds. What did you do before Ariba, and how long have you been working with them?
Grodin: We've been in dialogue with Ariba for several months about a strategic partnership. We
hadn't worked with Ariba in the past so this is a new relationship. But after speaking to
customers of theirs, doing our due diligence in other industries, and talking to some of their
healthcare clients today, we knew that this would be a great strategic ﬁt both for us and for them.
Gardner: Rick, tell me a bit more about how the services at MedAssets and some of the
capabilities at Ariba coming together to offer you the capabilities to deliver into the market
things that perhaps you've never been done before.
Grodin: This is where I get very excited about the potential of what Ariba and MedAssets can do
together in the marketplace. As I mentioned before, we have our eCommerce Exchange, which is
EDI-based, and we can get a certain portion of invoices back electronically through our
There are other offerings in the marketplace that are very similar, but really what they do is just
get a paper invoice back into the provider’s hands more quickly. But you don’t know if that
invoice is correct. If it’s not correct, there is a whole lot of inefﬁciency in managing that
exception on the backend.
Ariba has created a smart invoicing capability, because it’s a network, as opposed to just an EDI
pipe. Those invoices that are inaccurate can be rejected on the front-end, so they never even get
to the provider until they are accurate.
The best part about it is that rules engine -- and that I believe that you can customize up to 70
different rules -- is dictated by the provider themselves. It’s not a built-in, one-size-ﬁts-all type of
solution. Depending on the unique needs of that provider, they can customize that rules engine to
reject inaccurate invoices back to the supplier in real-time.
It’s the whole notion of garbage in, garbage out. We're preventing the garbage from coming
through, which is then creating those efﬁciencies in AP. That is absolutely something that’s going
to be unique to healthcare and doesn’t exist today, and which again will create tremendous
operational efﬁciencies on the back end.
Because of smart invoicing and the overall transaction efﬁciency that’s created through the
exchange and the network, we're going to be able to enable providers to get invoices in a ready-
to-pay status much more quickly. Industry best practice is ﬁve days. We've seen metrics, where it
could take anywhere between 20 and 40 days to get that invoice approved for most healthcare
Our relationship with Ariba will enable us to leverage Ariba’s working capital management
solutions as well. They’ve got something that they refer to as Dynamic Discounting, which
creates the ability to have an ad-hoc negotiation for further cost-of-goods-sold reductions
between a provider and a supplier.
Because of the increased visibility into where an invoice is sitting and what the status of that
invoice is between suppliers and providers -- something that doesn’t exist in healthcare today -- a
supplier can go in and see that an invoice is sitting in a ready-to-pay status.
They can then offer an incremental discount to the provider, so that if the provider has additional
cash on hand and it’s better used to drive additional discounts as opposed to sitting and getting
short-term interest, that can make a tremendous amount of sense.
So, there's also the ability to optimize prompt-pay discounts, where appropriate, because we're
getting those invoices in a ready-to-pay status much more quickly. So if it’s a two percent
discount if you pay within 10 days, and the average invoice isn’t being approved for 20 days, all
of a sudden I've missed that window. Even if I have cash on hand, I can’t leverage it.
Even better, if I've missed that prompt-pay window, but am willing to pay on day 20, instead of
day 30 or day 40, all of a sudden there is value coming back to the provider as opposed to no
incremental value for paying early. It’s just another lever or another tool in the toolkit that we can
use to drive further cost reductions in our partnership with Ariba.
Gardner: Of course, healthcare being such a large part of the economy, we're talking about some
very large sums of money. But when it comes out to eking out these efﬁciencies, when you can
reduce those paper invoices, when you can streamline the processes, and you can provide the
right data at the right time to the right people to make choices to automate over time, what sort of
savings are we talking about? Do you have a sense of what the payoffs are when this is done
Grodin: The beneﬁts are signiﬁcant in a couple of areas, making that back ofﬁce function,
speciﬁcally in AP, more efﬁcient, more scalable, and being able to repurpose the work that was
being done in that department and in other back-ofﬁce administrative areas. Also, the ability to
reinvest those resources in front-line patient care delivery.
As the reimbursement models are changing in healthcare, they're getting more-and-more focused
on clinical quality, safety, etc. That’s where a hospital’s core focus needs to be, not in the back-
ofﬁce. It needs to be with the patient. Certainly there are signiﬁcant FTE and operating efﬁciency
beneﬁts created by this partnership, but what we are particularly excited about is more from a
Through our eCommerce Exchange, our transaction management service, as well as what Ariba
is going to bring to the table through PO and invoice automation, invoice conversion services,
invoice professional which is their workﬂow tool, we'll have the ability to ensure that folks are
buying on contract where they should be and also ensuring that they are paying the right price.
We do a good job today of ensuring that that PO price matches the contract price, but where we
have been challenged in the past is the ability to bring that invoice price in.
It’s going to bring signiﬁcant beneﬁts, because in some of the research that we're doing with
very sophisticated health systems, they're ﬁnding that they may only be buying on contract 30-40
percent of the time. So a contract is only as good as its use. If it’s just sitting in a drawer and
nobody is accessing it, all the great work that’s been done by their sourcing team or our sourcing
team is for naught.
The ability to do all of that in real time, to take that PO price match it up against our contract
price and against the invoice price, is going to ensure not only are they buying on contract, but
they are paying the right price.
Gardner: As we move further down the road, we see that the technologies in cloud computing
and data analysis are being brought to bear on some of these issues of more opportunity, gain
insight, see the trends and bargain, and understand what the market will bear, rather than just
dealing on a point basis. Do you expect that you'll be looking for more analysis services from
providers like Ariba and how important is that in the long-term for further eking out productivity
Grodin: As our relationship continues to blossom with Ariba, I'm sure we’ll be having
conversations around their spend visibility and other analytic tools that they can bring to the
table. Within MedAssets, we have our own analytics tools, including service line analytics,
spend analytics and pharmacy analytics.
For us, the true unlock is the ability to get access to purchasing and spend data, which is where
we are very excited. We capture a lot of ﬁnancial and spend data today, but this purchasing and
indirect spend area is really an untapped horizon where the data and the technology that Ariba is
going to bring, in combination with our analytics, people and process, will provide signiﬁcant
We currently manage about $5 billion of spend through our National Procurement Center, which
is the largest shared services operation of its kind in healthcare today. That combination of
people, process, and technology is absolutely going to unlock new opportunities in healthcare
from a spend-management and cost-reduction perspective.
Gardner: We’ll have to leave it there. We have been talking about the healthcare sector’s unique
operational efﬁciency and regulatory challenges and how MedAssets, in partnership with Ariba,
has found ways to improve health provider and supplier compliance, cost and accuracy of results.
I’d like to thank our guest. We're here with Rick Grodin, the Senior Vice President of Product
Management at MedAssets. Thank you so much, Rick.
Grodin: Thanks for having me. I’ve enjoyed the discussion.
Gardner: And I’d like to thank our audience for joining us here for this special podcast coming
to you from the 2013 Ariba Live Conference in Washington, DC.
I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of
Ariba-sponsored BrieﬁngsDirect discussions. Thanks again for listening, and come back next
Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP Company
Transcript of a BrieﬁngsDirect podcast on how a major healthcare services company is
leveraging tools from Ariba to cut costs and improve efﬁciency. Copyright Interarbor Solutions,
LLC, 2005-2013. All rights reserved.
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