Prescription For Success Paper (PI Knowledge Leadership Publication)


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Health care in Crisis: “Insolvency Is Seen Closer for Social Security and Medicare” New York Times (May 12, 2009)

In the “Prescription for Success” white paper I closely examine these as well as other case references, and in the process “provide the operational framework for a successful implementation of an automated health care procurement system.” Referencing the proven guidelines established by Bellwether Software Corporation’s highly successful track record of delivering results over the past 23 years, this paper will hopefully become an indispensable resource for health care organizations looking to “control their costs.”

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Prescription For Success Paper (PI Knowledge Leadership Publication)

  1. 1. Ottawa, Canada 2009 Prescription for Success: Achieving the Optimal Balance between Procurement Savings and Premium Patient Care White Paper A Knowledge Leadership Publication By Procurement Insights Author Jon Hansen
  2. 2. Prescription for Success: Achieving the Optimal Balance Table of Contents EXECUTIVE SUMMARY: BEYOND THE BOTTOM LINE. . ..............................................2 THE HIGH COST OF PROCUREMENT INEFFICIENCIES…………………………….…4 A REASON FOR CHANGE? . . . .................................................................................................5 A TIME FOR CHANGE! ..............................................................................................................6 A PRESCRIPTION FOR SUCCESS............................................................................................7 A CASE IN POINT . . . .................................................................................................................8 OVERVIEW: INTERFACE WITH EASE……………………………………………………11 ABOUT BELLWETHER SOFTWARE. . . . ............................................................................12 Appendices APPENDIX A ...............................................................................................................................14 1
  3. 3. Prescription for Success: Achieving the Optimal Balance Executive Summary: Beyond the Bottom Line When organizations seek to drive efficiency and savings through the implementation of an automated procurement system, the impact can often be lost in terms of calculated returns and measurable process improvements. This of course is reflected in the consistently high rate of initiative failures to achieve the expected results in both the private and public sectors. While less than stellar results are a problem for any business, in no other sector are the ramifications of inefficient procurement practices more detrimental than within the health care industry. Even with the military, in which a retired general stated during a 2007 interview that if the armed forces supply chain breaks down it can potentially cost lives, the wide ranging impact of a procedural breakdown in diverse and nationally distributed health care systems is incalculable. Veterans Health Administration procurement initiatives (which included both a JD Edwards and Oracle implementation) spanning a period of seven years, and costing taxpayers $650 million dollars before being scrapped, provides an example of the negative financial impact of a failed program. However, it was the ramifications on patient care that was most alarming, and ultimately led to a series of hearings. During one such hearing on March 22, 2004, then Secretary for Management William H. Campbell acknowledged that he “recognized that there are considerable concerns over the implementation of an automated system and its potential affects on medical care at one of the VHA’s largest facilities, Bay Pines Medical Center in Florida.” Problems according to an Office of Inspector Generals (OIG) report included “the failed conversion of inventory data,” to the system resulting in the need to cancel procedures (re surgeries) due to a lack of critical medical supplies. While it may be inconvenient to run short of an office supply, it is an entirely different matter when said shortages result in the cancellation of life-saving surgery. And it is within this context that the approach to automation of the health care industry’s procurement practices must be viewed. This includes making decisions that are based on a combination of engaging vendor’s whose expertise and ability to deliver a viable solution have been clearly demonstrated, the effectiveness of the health care facility’s communication 2
  4. 4. Prescription for Success: Achieving the Optimal Balance and collaboration mechanisms to ensure maximum levels of compliance, and finally a clearly defined and well established performance response mechanism to ensure that any problems are quickly and effectively addressed before there is a negative impact on the quality of patient care. The purpose of this paper is to highlight the challenges as well as provide the operational framework for a successful implementation of an automated health care procurement system by referencing the proven guidelines established by Bellwether Software Corporation’s successful track record over the past 23 years. 3
  5. 5. Prescription for Success: Achieving the Optimal Balance The High Cost of Procurement Inefficiencies “Procurement practices in some parts of the National Health Service (NHS) haven’t moved on substantially in the last 60 years. By adopting best practices, as used by other health care organisations, the NHS could save up to £2.1 billion (or $3.07 billion US) each year.” Henry Featherstone, Head of Health and Social Care Policy Exchange “NHS wasting £2.1 billion a year in procurement inefficiencies” (January 4, 2009) 4
  6. 6. Prescription for Success: Achieving the Optimal Balance A Reason for Change? The National Health Service (NHS) is the world’s largest publicly funded health program “catering to a population of 50 million and employing more than 1.3 million people. And while the NHS web site boasts that in the 60 years since its inception it has become one of the most efficient, most egalitarian and most comprehensive programs on the planet, there are persistent questions regarding its overall effectiveness from both a cost and patient care standpoint. The referenced challenges with the NHS’ procurement practice on the previous page reports that more than $3 billion US is “wasted” on an annual basis. Citing that “little has changed” since the 1950s, said losses are directly linked to “huge inefficiencies, with procedures for buying goods and services.” The report, which involved interviews with 80 senior health care professionals, highlighted several problems including the slow uptake of new technologies, devices and drugs, which many felt was the reason that the level of care in the UK had fallen behind those of comparable countries. The emphasis that “premature deaths from causes that are preventable with prompt and effective health care are higher in the UK than in Germany, Canada, Australia and France,” is particularly disconcerting. The report went on to say that “there are many innovative technologies that are not being taken up uniformly across the NHS,” and as a result the “spread of proven innovations” which would both “improve patient care and reduce costs” is not being pursued as aggressively as it should. What is interesting is that this is not a new situation that has suddenly come to light. In 2007 CBS News’ Larry Miller’s weekly “Letter from London” segment under the heading of “Problems With U.K. National Health System,” presented a variety of problems with the NHS, many of which were blamed on government bureaucrats and politicians for “turning hospitals into factories, constantly pushing for the cheapest supplier and squeezing through the maximum number of patients in the minimum time.” 5
  7. 7. Prescription for Success: Achieving the Optimal Balance As is the case with the VHA’s ongoing difficulties, which were reported as far back as January 1995 when an article in USA Today asked the question “Can government run a health care system?” there are clear problems that procurement alone cannot solve. However, and based on the efforts such as those of the VA Procurement Reform Task Force that was chartered in 2001 to examine a number of key areas including “the extent to which the VA obtained best available prices, complied with federal and VA acquisition regulations, used purchase cards appropriately, used adequate systems to track and document purchases, and ensured an adequate acquisition work force,” it is clear that procurement is an important cornerstone of a sound overall health care system. A Time for Change! In the January 2009 Telegraph article regarding the “All Change Please” report on the NHS, and in particular the findings that “vast quantities of paper-based invoices” were still being “generated” across the organization’s various trusts and different departments represents the starting point for the needed evolution in health care procurement practices. This does not suggest that efforts to automate have not been pursued. They have. Unfortunately, and as the study discovered, literally “dozens of health service projects and innovations are abandoned before they have any impact on (patient) care.” In fact of the close to $4 billion US that was spent on the creation of ideas within the NHS, only a relatively “small proportion” – approximately $224 million US - is actually spent on spreading the innovations down to the patient level. The old axiom “when everything is said and done, there is more said than done,” certainly takes on new meaning as the report concludes that “by spending nearly 16 times more on invention rather than diffusion, millions of pounds is being wasted in generating ideas that are never implemented.” The report’s recommendation that the “setting up of a central procurement body,” which would be charged with establishing common operating procedures and standards including the creation of “managerial incentives” that are linked to improving outcomes and financial performance is a solid first step. 6
  8. 8. Prescription for Success: Achieving the Optimal Balance The United States has of course similar challenges as data coming from one of the many industry reports indicate that “the U.S. health care sector could collectively reduce supply chain costs by $40 billion through improved spend management practices, policies, and automation,” resulting in a combined $26.7 billion “profit increase.” However, understanding the “operational” factors that influence compliance from the executive suite through to the frontline buyers at the regional level to capture such savings must be clearly identified and incorporated into any program for it to achieve a sustainable commitment and corresponding results. This is where the expertise of a solution provider like Bellwether can and will play an integral part in the ultimate success of any program. A Prescription for Success In their 2004 article that appeared in the International Journal of Electronic Health care under the heading “E-procurement and automatic identification: enhancing supply chain management in the health care industry,” authors Alan D. Smith and Frank R. Flanegin made the following observations: “The concepts of automated e-procurement, or electronic B2B (business-to- business) trade, are grounded in the strategic leveraging of both tangible/intangible assets for successful implementation and execution of electronic trade, resulting in significant financial benefits for firms. Some of the major reasons for this growth include significant process savings from automation, compliance, and purchasing advantage: and reduced costs that organizations can experience by conducting transactions electronically . . . In fact more than 93 percent of medical supplies on hospital shelves appear to have universal product numbers on them – at least while still in their boxes and there is a great potential for huge saings in e-procurement in the health care field.” Despite these apparent benefits, according to one of many studies “the rising cost of providing health care” continues to be a major “concern to health care providers.” As a result, it is generally believed that it is essential to focus on the measurement of “procurement performance” to “enable competitive advantage” as well as provide a “framework for continuous improvement.” The question of course is how does an organization go about 7
  9. 9. Prescription for Success: Achieving the Optimal Balance measuring performance and implementing or prescribing the proper solution to drive sustainable competitive advantage and continuous improvement? The first step begins with understanding the health care industry beyond the realms of technological innovation. In their 2008 white paper titled “Health Care Groups Automate Purchasing Cycle to Improve Profits,” Bellwether demonstrated their expertise in what is undoubtedly seen as being one of the most complex and demanding industries. Specifically, the company stated that “The Health care industry’s needs are as diversified as the needs of the patients they care for, and patient care has traditionally been at the forefront of the sector’s focus. Ranking second only to patient care is regulatory compliance. In Health care there is a never-ending myriad of regulations. Compliance is an ongoing, arduous task and is exhaustive administratively. Because Health care’s resources have been focused on these priorities, the operational side of the business has not kept up with other industries. Like any other business, Health care must stay competitive to remain in business, so controlling internal costs is very important. However, a “self-examination” by an organization to identify ways to reduce costs without sacrificing quality can present challenges.” By recognizing the magnitude of the task, and leveraging 23 years of experience and expertise, Bellwether is uniquely equipped to assist health care clients with achieving the important balance between sustainable “best value” savings and maximized patient care while remaining fully compliant with the strict regulatory guidelines that define the industry practice. A Case in Point “Since centralization and implementation of PMX, employees cannot simply buy what they want. Now they are more informed. We have tools. We have better contract compliance, and we know what we spend. PMX is a small investment, considering the ROI. A small financial investment upfront pays for itself many times over in the long run.” Louis Nicolosi, Purchasing Manager St. Anne’s Community – Rochester, New York Much like the NHS 2009 Telegraph article that identified the fact that “vast quantities of paper-based invoices” were still being “generated” across that 8
  10. 10. Prescription for Success: Achieving the Optimal Balance organization’s various trusts and different departments, St. Ann’s (a health care facility for the elderly who require a medical program in an institutional setting) was also on a paper system. Even though purchasing was centralized, the paper system was a “time- consuming process,” that negatively impacted key areas of the operation including inventory management and financial reporting. As is often the case within the health care industry, a reluctance to change despite the benefits of transitioning from a manual to automated procurement system was also a significant obstacle to overcome. After a lengthy comparison of available solutions, St. Ann’s selected Bellwether’s Purchasing Management eXtra (PMX) platform because it “fit the needs of their organization,” and was supported by the company’s willingness and ability “to accommodate” their operational requirements. An ability that extended beyond the technology and was deeply rooted in Bellwether’s expertise relative to understanding and navigating the at times complex nuances associated with automating the procurement process within a health care enterprise. Prior to implementing the PMX solution, Purchasing Manager Louis Nicolosi was unable to “effectively measure” the types of spend volume that were processed through the facility. Today, he can now instantly provide St. Ann’s finance department with reports that deliver hard, meaningful data including a capability to drill down to the individual vendor level. In terms of inventory management, Nicolosi’s department had to “physically look on the shelves” to determine what was available at any given time. The absence of usage history provided limited spend visibility resulting in an increase in costs and excess inventory levels. With PMX they were able to substantially lower inventory as they could effectively align consumption with replenishment through the timely access to information including of course up-to-date usage history. Finally, budgetary compliance had presented a challenge under the manual system as there were virtually no mechanisms to manage the approval process. With the critical data now available at their fingertips, Nicolosi’s department has been able to maximize spend performance while virtually 9
  11. 11. Prescription for Success: Achieving the Optimal Balance eliminating the maverick buying practices that are at the heart of the rapidly rising health care costs that negatively impact patient care. In the end, and through the indigenous combination of industry expertise and unsurpassed technological innovation, Bellwether has and continues to deliver superior results to the health care industry. 10
  12. 12. Prescription for Success: Achieving the Optimal Balance Overview - Interface with ease ePMX communicates with your other systems, allowing you to export data to any kind of application, like:  Spreadsheets  Databases  Inventory systems  MRP systems  ERP systems  Accounting systems Save valuable time, Receive extensive support, Enjoy system-wide benefits, Customize Field Names, Personalize your ePMX 11
  13. 13. Prescription for Success: Achieving the Optimal Balance About Bellwether Software Bellwether Software ( was founded in 1985 as a consultancy, helping purchasing professionals and their organizations streamline their procurement processes through e-procurement software. Currently celebrating its 23rd year in business, Bellwether is still focused strictly on working with Procurement Management Software (Material Management Software) solutions for business professionals focused on streamlining and creating greater efficiencies of operation. Bellwether was founded on the following principle: to constantly strive to exceed its clients’ expectations and does so as a “Best of Breed Partner,” not as a vendor, but by providing the best Material Management Software available. Bellwether’s Corporate Headquarters is in Louisville, Kentucky. © Procurement Insights 2008-2009 12
  14. 14. Prescription for Success: Achieving the Optimal Balance About the Author Jon Hansen has studied and written extensively about e-Procurement and the changing face of procurement around the globe. In addition to being a highly acclaimed international speaker, his Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in several languages. He has written more than 200 articles and papers on subjects ranging from supply chain optimization and the utilization of agent-based modeling in the software development process to the evolution of sustainable purchasing practices and the impact of traditional ERP-centric implementation methodologies on the high rate of supply chain initiative failures. Funded by the Government of Canada’s Scientific Research and Experimental Development (SR&ED) program Mr. Hansen’s work in both identifying the existence of Commodity Characteristics as well as defining and recording their impact on “best value” purchasing practices represented a seminal breakthrough that led to the establishment of new theories surrounding the practical utilization of synchronized platforms in achieving sustainable coordinated savings and overall process efficiencies. Other white papers by Jon Hansen: The Greening of Procurement: How Social Consciousness is Re-Shaping Procurement Practices Preserving Supply Base Integrity During an Economic Downturn Yes Virginia! A Profile in Excellence Riding the Crest of a New Wave: How the Original SaaS Companies Have Gained the Upper Hand Using Business Process Mapping as a Communication Facilitator in the Global Enterprise To obtain copies of the above referenced white papers, or to inquire about Jon’s availability to speak at your next conference or seminar contact Jennifer Cameron at, or 819-986-8953. 13
  15. 15. Prescription for Success: Achieving the Optimal Balance Prescription for Success: Achieving the Optimal Balance between Procurement Savings and Premium Patient Care White Paper Appendices 14
  16. 16. Prescription for Success: Achieving the Optimal Balance APPENDIX A Pages 2 (William H. Campbell Reference);, Department of Veterans Affairs Hearing on the State of Health Care at the Bay Pines Medical Center, Veterans Affairs Web Site (March 22, 2004) Page 2 (The OIG Report Reference); section/narrative/oig/3.html, Department of Veterans Affairs, Fiscal Year 2005 Performance and Accountability Report (November 15, 2005) Pages 4, 5, 6 (NHS wasting £2.1 billion Reference); year-in-procurement-inefficiencies.html, NHS wasting £2.1 billion a year in procurement inefficiencies, (January 4, 2009) Page 5 (Problems with U.K. Reference);, Problems with U.K. National Health System, Letter from London (Larry Miller) CBS News (October 20, 2007) Pages 6 (Can government run health Reference); veterans/625581-1.html, Can government run a health care system, USA Today Magazine (Robert E. Bauman) (January 1, 2005) Page 6 (VA Procurement Reform Reference);, Department of Veterans Affairs, Statement of the Honorable Gordon Mansfield (June 17, 2004) Pages 6 (All Change Please Reference); year-in-procurement-inefficiencies.html, NHS wasting £2.1 billion a year in procurement inefficiencies, (January 4, 2009) 15
  17. 17. Prescription for Success: Achieving the Optimal Balance Page 7 (E-procurement and automatic identification Reference); &prevQuery=&ps=10&m=or, International Journal of Electronic Health care, Alan D. Smith and Frank R. Flanegin, Vol. 1, No. 2 pp. 176 - 198 (2004) Page 8 (Health Care Groups Automate Reference);, Bellwether Software Corporation White Paper (February 2008) Page 8 (A Case in Point Reference);, Bellwether Software Corporation Case Study (2009) 16