At St. Luke’s, supply chain excellence depends on physician engagement

President Obama signed the Affordable Care Act into law in 2010. The new law meant that the functioning of medical systems had to change. Expanded health insurance coverage has led to an increase in demand for care. The ACA led to a shift away from fee-based services and toward mandatory value-based payment initiatives. This has squeezed hospitals’ margins and created an incentive for hospital chains to start tackling costs, but doing so in a way that doesn’t compromise patient outcomes. Procurement has become a logical area of ​​focus for leading health systems.

Adrian Weingert joined St. Luke’s Health System in 2014. There are many St. Luke’s hospitals across the country. Mr. Weingert works for the St. Luke’s System, headquartered in Boise. It is Idaho’s only nonprofit, community-owned, and community-led health care system. With 16,000 employees, it is the largest private employer in the state. The system operates 8 acute care hospitals and has 300 ambulatory medical centers throughout the state.

As vice president of supply chain and procurement, Mr. Weingert was brought in to drive change. Hospital chains’ approach to procurement lags far behind the practices employed by manufacturers, retailers and distributors.

“We don’t have enough strategic personnel,” Mr. Weingert said. “We added about 20 positions, all strategic hires largely from outside healthcare. It was by design to help us solve problems that required a different lens.

Procurement was a natural place to focus. In healthcare, large, powerful distributors sell medical supplies to hospitals and deliver these supplies to individual medical facilities. In many health systems, the costs of these supplies and services are not closely examined. Costs are passed down the line to patients and insurers. As a result, hospital chains are largely inefficient in terms of resources. And yet, after labor costs, medical supplies are the second largest expense.

St. Luke’s began developing new supplier relationships. “We formed strategic supplier partnerships.”

The net result was about $100 million in savings over 10 years.

These are great results. For those who know health care systems, they are amazing. Doctors traditionally have a great deal of autonomy in what they prescribe and what medical devices they use. My wife, who worked as a vice president in industry, told me that one of the keys to keeping hospital executives in their leadership positions is following a simple rule, “Don’t avoid documents!”

Mr. Weingert was very diplomatic. “In manufacturing, engineers are usually at the top of the food chain. In health, it’s doctors.”

How did St. Luke do this? “We have developed strong collaborative relationships with our internal partners, which are largely comprised of clinicians and physicians,” said Mr. Weingert.

“How do you start to build those relationships so that you can drive product standardization? You can make meaningful decisions that aren’t purely based on cost. They have to be based on product effectiveness. You have to look at results, quality, Complexities, see all these things. So, we started working on clinical integration as a way “to save on procurement.

Mr. Weingert explained that medical chains have two types of procurement models. “The first is the command and control model.” In this model, “the supply chain goes out and negotiates a contract on spinal implants and says to the doctors, ‘You’re using Medtronic now.’ We did this because we saved several million dollars, and while the savings add up quickly, over time, it eliminates physician engagement and, more importantly, physician alignment.

The “You Can’t Hold It” Model. “No doctor wants to lose their independence. They don’t want a businessman telling them how to practice clinical medicine.

Another model, Mr. Weingert explained, is the influence model. In this model, you present the surgeon with all the options. “One option is we do nothing; we stay put. That’s what it looks like.”

“The second option is always to standardize. If we go from six suppliers to three, how does that affect pricing and ultimately help you build deeper partnerships.

Why should physicians care about deep relationships with suppliers? During COVID, there were many shortages that made it difficult to practice good medicine. Better supplier relationships help ensure that goods are delivered in full and on time. Doctors may not care about costs, but they do care about ensuring supply.

This model empowers decision-making committees to focus on specific cost categories such as spinal implants or knee replacements. “We’re going to be strategic about how we build membership. So, if we ask them to standardize on one brand or the other, we try to identify surgeons who use both brands to ask for their clinical feedback. ‘What do you think about that?’

“But you always have some surgeons who say, ‘This is what I want to use.’ We have really strong physics champions in our organizations. Sometimes they will lean in, and argue, and it usually resolves itself.

St. Luke’s also has six nurses assigned to the supply chain team. “They speak clinical language. It helps us increase our success rate.”

“Then finally, we hand over to the medical director of the supply chain. And she was just amazing. She explains to the physician community ‘the whole benefit of what we’re trying to achieve for our patients.’

St. Luke’s is not resting on their laurels. They are moving to a self-distribution model that further reduces their reliance on expensive distributors. They have built a warehouse with material handling systems and a warehouse management system from Tecsys. Inland supplies will enter the warehouse and then be delivered to medical facilities across the state. The warehouse will be operational by the end of the year.