The new normal: 6 keys to optimizing alternate care supply chain

As the alternate care market continues to grow, the following six best practices can help healthcare organizations design and adopt an optimal supply chain.

The following content is sponsored by Henry Schein.

As healthcare reform continues to spur changes in all sectors of the industry, alternate care networks are gaining in volume as well as popularity. In fact, joining and growing integrated provider networks and care systems is the second top strategic priority for healthcare executives over the next three years, according to a recent survey conducted by the American Hospital Association.

Such alternate care networks — which result when acute-care hospitals acquire or affiliate with outpatient physician practices — are expected to grow in the coming years, for two main reasons. First, outpatient volume growth is far outpacing that of inpatient. Sg2, a healthcare analytics firm, projects outpatient volumes will grow 17 percent in the next five years while inpatient volumes fall 3 percent.

At the same time, physicians are increasingly looking to affiliate with hospitals and health systems. According to CareCloud's Practice Profitability Index report, the percentage of independent physicians looking to sell their practices rose from 21 percent in 2013 to 24 percent in 2014. At the same time, the number of physicians planning to remain independent fell from 60 percent in 2013 to 53 percent in 2014, according to the report.

As health systems align more closely with physician practices, many extend their processes and structures to the outpatient groups, and supply chain efforts are no exception.

"Today's environment is changing rapidly," says John Gaida, senior vice president of supply chain management of Dallas-based Texas Health Resources. "Healthcare reform has pushed organizations to broaden their focus from birth to end of life, causing hospitals and health systems to scramble into the non-acute space. The supply chain leadership teams need to be ready for that opportunity."
While there may be challenging times ahead as health systems, physicians and alternate care sites navigate these new waters, supply chain leaders can get a step ahead of the curve by learning from newly-defined best practices, meaningful partnerships and keys to success.

1. Recognize that alternate care and acute-care are different markets.
"The physician office is nothing like the acute-care market, and that's the first thing to get through your head," Mr. Gaida says.

Texas Health Resources launched a physician-practice supply chain management program in 2011 after quickly acquiring a handful of physician practices. The goal was to remove excess costs for physicians, provide valuable services and strengthen ties to the integrated delivery network. One of Mr. Gaida's biggest pieces of advice is to approach alternate care and acute-care supplies markets differently because, at the most simple level, the two are different markets.

Jim McManus, vice president of finance at Irvine, Calif.-based St. Joseph Health System, says the alternate care market typically requires a narrower range of products (although there can often be a lot of variation) compared to the acute care market. Some estimate that 65% of products used in the physician class of trade are different than those used in acute settings.  Additionally, there typically is no dedicated supply chain staff in alternate care markets, while acute-care sees materials management roles as high up as in the executive suite.

As such, an integrated physician practice supply chain program has its own set of operational requirements and considerations, including making sure products aren't "over engineered" for the physician office. For example, if all you need is a Camry, there's no need to buy a Mercedes-Benz just because others have done so.  

Beyond simply products, non-acute and acute markets differ in levels of clinical and practice efficiency technology, staffing support and services.  Distributors that have focused on this market for years can provide great perspective into the nuances of non-acute settings.

2. Identify a point person to serve as a liaison between physicians and the supply chain.
One can look to Norfolk, Va.-based Sentara Healthcare's materials management program to understand the role and responsibilities of an effective point person. The system developed a physician-focused, non-acute-care materials management purchasing program for community physicians called DOCxdirect.  The program includes integrating a non-acute program for Sentara-owned physician practices as part of its expansion strategy and to ensure physicians had tools to improve care for their patients. The DOCxdirect program not only provides physicians with leveraging power for acquiring product, but also offers them such a point person who specialized in the non-acute-care market and could really drive the strategy.

Members of DOCxdirect can purchase supplies and services through the program, while specialty value-analysis committees address standardization and utilization issues to help further drive down supply costs across the health system. Cindy Saeger, program manager for DOCxdirect, works on behalf of the community physicians to integrate them and their product requirements into the overall strategy of the materials management team of the entire healthcare system. The purchasing program in the alternate care site becomes a fundamental element of success for the overall integrated delivery network, not just a piece of the system tacked on at the end of strategic discussions.

In addition to serving as a voice for the physicians to the rest of the healthcare system, Ms. Saeger and the team of non-acute-care experts also work directly with the physicians to continue to evaluate their needs while also encouraging them to work toward product standardization. Ms. Saeger and other DOCxdirect representatives are always available for physicians to consult, and physicians can determine the frequency with which they interact with the representatives, whether it be weekly or monthly visits or only when a situation arises in which they need help.

What's more, such involvement and demonstrated commitment can lead to improved relationships between the physicians and the healthcare systems. It all stems from ensuring physicians' voices are being heard and relaying those concerns to the broader system.

"You have to be committed to doing everything that needs to be done for your physicians, or they will lose faith in you and the program," Ms. Saeger says.

3. Identify key partners to support your vision.
Having a strong support system is beneficial for any new venture, so finding key partners who support a shared vision is critical for a successful physician practice materials management program.

Key partners can come in the form of representatives, such as Ms. Saeger and the DOCxdirect team, or different vendors and distributors that share the strategic vision and help develop and work toward operational goals.

For example, THR partnered with distributor Henry Schein Medical to support its new materials management efforts. Mr. Gaida says Henry Schein is not only THR's distributor of medical/surgical products, but is also a resource and a partner in the health system's strategic vision as the system continues to extend its presence in outpatient settings. In this instance, Henry Schein and THR both prioritized reducing supply chain costs, sharing savings, transitioning to an automated vendor management system and creating the most cost-effective overall program.

Having key partners who are specialized in the niche and understand the unique requirements of the non-acute-care market can help the overall team implement a project poised for success by meeting the jointly agreed upon goals and strategies.  Distribution partners in the non-acute space have great visibility into community practices' supply spend and are a great resource for data and information. In addition, distributors can provide services like training, in-office solutions and services that can support practice efficiency — from strategy development all the way through implementation.

4. Collect and analyze the data.
Progress is contingent on the collection and analysis of data. It is difficult, if not impossible, to determine next steps if an organization does not know the history of where it has been.

When implementing the physician-practice materials management program at THR, Mr. Gaida's first step was to gather data to understand physician practices' supply chain activities. Only then could the health system make decisions on where cost reductions were feasible and effective.

In THR's case, the process of collecting the data required a mini-project of its own, one that simplified the process of data collection from the numerous distributors and systems used by the all the physician practices.

"We needed to own the data; we needed to be able to communicate with all vendors," Mr. Gaida says. "And it became clear that until we had our own MMIS (materials management information system) dedicated to the non-acute space, we would not be able to make good decisions about standardization and cost reduction."

THR turned to an electronic supply chain solution that allowed physician practices to order equipment and supplies as well as track inventory. This transition wasn't easy for some physicians as many were used to working solely with sales representatives. Only 20 percent of physician practices ordered supplies electronically before introducing the automated supply chain system, but more and more practices eventually learned and witnessed the ease of electronic ordering and embraced the change.

Once THR had collected and analyzed the data from physician practices, they were able to make next-step decisions.

5. Standardize products, but also solicit input.
As in any care site, standardization is key to lowering supply chain costs. Standardization can be a difficult task, especially as newly integrated physician practices may be used to working with certain products.

At Weill Cornell Medical College in New York City, the physician practices work specifically with non-acute-care vendors whose expertise in the space helps smooth the transition for newly acquired physician practices. Experts such as Henry Schein Medical can support supply chain leaders in the identification, evaluation and implementation of such product transitions. Instead of pushing for standardization right away, the supply chain team at Weill Cornell works to improve pricing on products already in use. Partnering with vendors who have specific expertise in the non-acute-care market can help increase physician satisfaction while driving the best product costs. While standardization is still key, it isn't immediately forced. Instead, it is slowly built up and worked into the practice, allowing an adjustment and transition period first.

"It's enough for some of these practices to come under the Weill Cornell umbrella," says John Frain, director of purchasing at Weill Cornell. "It's a big step to tell them what products they should use."

Once standardization becomes a viable next step, it is important to include the physicians in the process and ensure they know they are a necessary part of the team to achieve standardization.

For example, physicians in the Sentara Healthcare DOCxdirect program are highly involved in the standardization process. Ms. Saeger says when the program is evaluating products, they send samples to physicians for their evaluation and input. This not only helps physician practices standardize items, but it also helps identify products specific for their market and increases engagement and participation long-term.

6. Communication, as always, is key.
As is the case with most relationships, communication is the linchpin to implementing a successful physician practice supply chain program. It also is the common theme throughout the previous five keys to success.

Constant communication with point persons and key partners — GPOs, distributors, suppliers, physicians, and major stakeholders — ensures all members are on the same page and on track to progressing toward an optimal materials management program. Supply chain experts can help guide physicians through the materials management process while physicians relay their specific needs and requirements for the alternate care site.

Though at first glance the changing care landscape may appear difficult to navigate, these keys to success can help build and optimize supply chain programs in the alternate care network. Continuous communication, collaboration and a solid strategic vision will help drive physician practices supply chain programs compatible with the changing healthcare landscape that drives down overall health system cost while bolstering clinical quality.

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