In Recovery

Sept. 1, 2006

Supply chain optimization brings benefits to all stakeholders.

Necessity is the mother of innovation. But at Premier Inc., the nation’s largest alliance owned by more than 200 leading hospitals and healthcare systems, it is also a powerful driver of cost savings and member benefits for its 1,500-plus membership base. Today, Premier’s members enjoy the benefits of a supply chain optimization effort that relies on only one business intelligence (BI) team to manage the components of an otherwise large and previously unwieldy supply chain program.

Supply chain optimization brings benefits to all stakeholders.

Necessity is the mother of innovation. But at Premier Inc., the nation’s largest alliance owned by more than 200 leading hospitals and healthcare systems, it is also a powerful driver of cost savings and member benefits for its 1,500-plus membership base. Today, Premier’s members enjoy the benefits of a supply chain optimization effort that relies on only one business intelligence (BI) team to manage the components of an otherwise large and previously unwieldy supply chain program.

Headquartered in San Diego, with offices in Charlotte, N.C. and Washington, D.C., Premier is dedicated to reducing its members’ supply chain costs and helping them improve their quality and performance across all products that healthcare providers regularly purchase, from medical supplies to pharmaceuticals. Optimum healthcare delivery—and the payers and patients who pay for it—demand as much. How to get there, however, was another issue.

Online Tools for Members

Last year, Premier contracted for more than $27 billion in purchasing volume for health-provider members. But tracking the enormous amount of products, the comparative prices with other products, and whether or not they are contract items or noncontract items was daunting but necessary. Increasing competition from rival group purchasing organizations (GPO) was posing a challenge to Premier’s information systems department.

To consistently demonstrate that its members’ high-quality hospitals also could be cost-effective and competitive inside the healthcare supply chain, Tom Palmer, Premier’s director of business intelligence, began looking for a better way to do business. He created an online contract analytics system that would help members reduce administrative and supply chain costs, but without using multiple vendors to solve the problem, as many organizations do. He called the undertaking the “Spend Manager” initiative and set out to make Premier become more competitive while also being the most cost-efficient for its members.

Implementing a BI Toolset

Going into the supply chain optimization program, Palmer knew that Premier needed to upgrade its reporting and analysis systems to address its challenges.

“Our member hospitals want to feel confident that they are getting the best products at the best price in order to manage their costs better and improve their performance,” says Palmer. “This means Premier has to offer them critical analytical tools to see what they are getting and how it compares with other products and costs. The sheer volume of data in that scenario can be overwhelming.” Oftentimes, there are numerous overlaps of items on the manufacturer and distributor sides, compounded by what’s covered on contract versus what is off-contract and non-contract. “It is often difficult to make cost and product comparisons.” Palmer says that Premier needed a BI application that could cleanse the data, make it comprehensible to users, then link the data back to contracts for real spending analysis and management insight.

To get the job done, Palmer went with Lancet Software, Burnsville, Minn., a company with which Premier had done business for more than seven years. Lancet’s task was to create an online contract management system to help members reduce administrative and supply chain costs—and that system would subsequently earn the name, “Spend Manager.” Under the Spend Manager umbrella, Lancet implemented a BI toolset that interfaces within the supply chain through an online analytical program.

Lancet designed, deployed and is now managing the life cycle development of the application. Today, Spend Manager is part of Premier’s overall solution, which integrates Premier’s electronic catalog, contract offerings and price-activation process with members’ procurement, fulfillment and settlement processes. The result is an electronic system that helps members:

  • Model alternatives for conversions, standardization and other savings opportunities;
  • Benchmark pricing and performance indicators to support planning and goal setting;
  • Monitor their progress and develop scorecards and metrics;
  • Track contract utilization, spend patterns, accuracy and compliance for suppliers, pharmaceuticals, physician preference items and other spend;
  • Discover, explore and analyze savings opportunities across multiple facilities, suppliers, contracts and products;
  • Reveal and realize the benefits of rebates and performance programs;
  • Identify savings opportunities through cross-references to equivalent products.

Real-time Analytics

The system that Lancet devised replaced an older system that provided numerous reports to members via requests to individual departments, such as relationship management, contracting and finance. Spend Manager allows members to drill down for on-demand and online access for comprehensive reporting and analytics, including dashboard/summary reports using ArcPlan software and exportable detailed reports (using MicroStrategy tools).

Spend Manager provides report access directly to the members via the Internet. It uses the dashboard view and Neteeza as a warehouse database, so users can quickly find detailed information to support future purchasing decisions. They also can get reporting that aids in decision-making about cost containment and management.

The Spend Manager model allows for contracts requiring price activation (electronic letter of commitment) and contract-conversion opportunities, while offering potential savings based on national benchmarks. It provides product consolidation and operational opportunities, and creates a “supplier” scorecard highlighting different product offerings and product-category analysis. It offers analytical data about facilities and departments, price parity and contract spending.

Palmer says that Premier members generally look for—and see—improved performance, lower supply expense ratios and higher quality in key clinical areas of interest to regulators and the public. “Member costs decrease through identification of increased contract spending, plus the system allows more member understanding of supply and pharmacy off- and non-contract purchasing trends, and assurance that members receive the value of GPO prices and savings,” says Palmer. “It also provides comparison of contracts within Premier’s portfolio and integration with any existing materials management information system.”

The result, he explains, is delivery of much greater value and insight than is conventionally available, plus the ability to provide benchmarking of price and volume information against peers and the marketplace, an improvement over the way supply chain issues have been examined in the past. “Because Spend Manager can now aggregate data on one platform, we can identify more cost-reduction opportunities for our hospitals.”

Stronger Market Position

Premier gained a number of opportunities to increase its contract purchase activity and to advance market share. Spend Manager reveals areas in which contracts are not fully utilized and can facilitate behaviors and process changes that maximize member savings, which lead to Premier administration fees. It also supports usage of existing contracts and increasing volume for a specific contract or product to reach a better price tier.

The system identifies contracted product alternatives and opportunities to “standardize” on a contract or product, while pointing out automatically where there might be a need for additional contracts or products. “Premier has been able to grow its collection of administration fees because we have made it easier for our members to identify places where they can increase contract spending,” says Palmer. Finally, the entire initiative has enhanced and strengthened Premier’s competitive position in the marketplace. For any organization provider, vendor, partnership or alliance—that is a major mission accomplished.

For more information about business intelligence consulting services from Lancet Software,
www.rsleads.com/609ht-203

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