Cleveland Clinic Leaders Tackle
Non-Clinical Supply Chain Costs
A senior supply chain leader at the vast Cleveland Clinic system notes supply chain progress.
This interview was originally featured on Healthcare Innovation.
The leaders of patient care organizations nationwide are dealing with a very wide range of operational challenges these days, both challenges related directly to clinical issues and those not directly related to clinical issues. And while some of the clinical supply chain issues have been widely discussed in recent years, leaders looking into their organizations’ ongoing costs are finding hidden challenges on the non-clinical side.
One organization for which that has turned out to be true is Cleveland Clinic, an integrated health system in northeastern Ohio with 313 patient care locations, including at 26 hospital facilities. The Cleveland Clinic is, naturally, a very complex organization, with many operational challenges and opportunities. Not surprisingly, supply chain issues are managed thoughtfully across different sites and across different zones of responsibility. Stephen Downey, chief of supply chain and support services, leads a team of over 400 materials management and supply chain professionals at Cleveland Clinic. He and his colleagues sat down well over a year ago to try to determine with precision where areas of inefficiency might possibly be uncovered. Shortly after that, Downey and his team decided to collaborate with the Westport, Conn.-based LogicSource, a procurement services and technology company.
In the press release last September announcing the partnership between the two organizations, Mark Van Sumeren, strategic advisor of healthcare at LogicSource, stated that “Health systems are broadly underinvested in non-clinical procurement compared to other industries. Yet, they spend between 20 to 25 percent of net revenue in the categories – more than their non-industry counterparts. Alongside the team at Cleveland Clinic, we have confirmed that healthcare can benefit from practices and benchmarks established across non-healthcare industries to improve profitability for the organization and free capital to enhance high-impact clinical initiatives,” he added.
Recently, Stephen Downey sat down with Healthcare Innovation Editor-in-Chief Mark Hagland to discuss what’s been learned so far on his team’s journey forward into maximal supply chain efficiency and cost-effectiveness. Below are excerpts from that interview.
What was the core problem that you and your team wanted to address with this initiative?
Our total annual spend is about $4.5 billion. And supply chain is about one-third clinical supplies (including physician items), one-third pharmacy, and one-third indirect and non-clinical. There’s a lot of money involved in the non-clinical side. Indeed, that area is a tough-to-manage, abstract type of expense area. Are you spending the right amounts? What are the benchmarks? Are you using your scale appropriately? How are you handling local services as well as national? Choosing a catheter is very different from choosing a window-washing vendor.
What does it mean to use the scale of your organization, in this context?
First, you have to ask, who are the appropriate stakeholders? If Facilities is managing the elevators in every facility, is that a central service or a disseminated one? At Cleveland Clinic, it’s central; but not all health systems operate in the same way. And if I’m going to support your non-clinical services for facility work, what does that look like? And will we manage operations centrally or individually? And will we manage spending centrally or in a disseminated fashion?
And part of the challenge is to develop trust in the relationship [with operational managers], to show them you can help local managers manage their spend. And if you can convince them that you have folks who can do appropriate discussions with elevator companies, for example, that’s a big part of it. It’s just like what happens in health IT.
What led you to decide to partner on this, and what led you to LogicSource?
Healthcare has a lot of different experts; there certainly are folks who know benchmarks and healthcare spend. What didn’t really exist before our partnership was outside-healthcare expertise with benchmarks that I could leverage inside healthcare. Elevators are an example: people damage elevators, because people damage elevators rolling patients in and out, and the elevators have to be usable 24/7. And let’s say that, if on the East Coast of Florida, elevators should cost X amount, but they cost a different amount for us, then why is that?
We were looking for experts on non-clinical spend outside of healthcare. There were lots in the healthcare space, but very few outside of healthcare; and LogicSource was just starting in healthcare, and they wanted to work with someone who knew the nuances of healthcare. How do we know that an elevator in healthcare is different from outside healthcare, for example? I’ve been doing non-clinical spend management for decades, and we have a dozen people with that expertise. LogicSource was looking for people with expertise inside healthcare, and I was looking for people with expertise from outside of healthcare. And when I met the CEO of LogicSource, we said to each other, that makes sense, and let’s light this up.
When did you begin actively working together?
About a year ago. They started working with us on our non-clinical spend. And they wanted to figure out how this would work.
What were the initial months like in the collaboration?
Actually, they were really constructive. We wanted to understand how other industries think about X, Y, and Z. Our team has always been open to that innovation and expertise. And there was a lot of drinking in, shall we say. And I think it was the same for the LogicSource folks; they were expecting it to be a mess, but we were able to give them expert reports, and we wowed them. So we were then both working stride. We quickly moved into good data-sharing and stride-forming together.
Did healthcare turn out to be very different from non-healthcare in terms of spending patterns?
I would say, not so very, but somewhat. Elevators are different, for example. And outside-of-healthcare was good fodder for the initial discussion. So as you develop a benchmark, you look at your healthcare benchmark for services, and then look at non-healthcare, and you ask why they’re different. Is it because vendors knew they could charge us that much? And in some cases, it was a ripe area to go clean up. It could well be the health system not negotiating well or centralizing a service; or, something was being used 24/7 with different demand requirements. Those unique elements helped you say, OK, you can’t apply the full benchmarks. So there were nuances to it; but if you don’t have the benchmarks, you don’t have the knowledge, and zero basis for a conversation.
In fact, you really have to decide explicitly if you want to tackle non-clinical spend in the first place, because a lot of places are only trying to tackle clinical spend. And getting the conversation going is step one, and then, you need to find the expertise needed to tackle the non-clinical spend.
Now that you can see the differences you’re finding between healthcare and non-healthcare in some of these areas, how long will it be before you can document significant results?
It’s a journey; we had been doing this ourselves for a long time, and had worked it pretty well. It helped our team fine-tune. There were definitely areas of low-hanging fruit; there have turned out to be other areas where we need to have more conversations. One of the nuggets for us was looking at utilization. Might it be based on price, for example, around local benchmarks? Or are we thinking about services wrong, like trash services? Are we having pickups every day, or once a week? Containers everywhere or centralized? It makes you think about utilization differently. And not all other industries have biohazard waste as healthcare does, for example. But maybe there’s a lever around utilization, and you can start telling your stakeholders about using a particular lever.
Have you been able to document any metrics, regarding improved cost-effectiveness, yet?
Our savings in the non-clinical area has gone up; that’s our best metric. It’s too early to cite percent spend, though.
But certainly, things have improved slightly?
For us, yes, slightly. And that’s because we’d been managing this for a decade, and I had wrung the towel pretty dry; but now, there’s more in the towel; and this is good for me. It will be much better for folks who haven’t been working in this space until now.
What have been the biggest lessons learned so far?
The biggest lesson learned so far is, don’t be afraid to look outside the industry; the team is learning that more and more. And getting the expertise of folks who have helped IT management in even bigger enterprises than ours—there’s a lot to learn when you start looking outside—having the mindset to leverage the expertise. That’s where the partnership with LogicSource is so good. Yes, we know about biohazard waste. Getting your arms around control of the spend, how you build the expertise—the facility team might not even be ready to talk about it, so it involves building credibility.
What should materials managers understand about this?
Let me start with the C-suite side: members of the C-suite need to understand that supply chain and procurement services have value. And sometimes, they’re not even challenged around that. Our executive team challenged us years ago to learn to control the span of spend. So, look for those levers: It’s price, efficiency, and use. What are you paying for the service? Make sure it’s a fair and appropriate rate. And is it the most efficient way to do things? Not excessive handoffs or waste. And lastly, are you using the service appropriately? And as you think about it differently, you think about the role of supply chain differently. The C-suite says to us, I want you to think about how often you pick up waste, and why, and you need to work with the facilities people. And that involves the management of total cost and total cost ownership; and that involves getting the facilities and supply chain folks working together. And work with someone who can help you understand your spend in the first place; that takes effort; don’t be afraid of that, you can get there. But then think broadly across levers. And your stakeholder partners across the organization will look to you as the expert.