The Value of a Seamless Integration
How RWJBarnabas Health transformed its supply chain operations before, during and after a merger
On April 1, 2016, Barnabas Health merged with Robert Wood Johnson Health System to create RWJBarnabas Health, New Jersey’s most comprehensive healthcare system with 11 acute care hospitals, one behavioral health hospital, and a medical staff of more than 9,000 physicians. The move to consolidate was driven by the shared goals of advancing the health status of residents of New Jersey, furthering the academic mission of the legacy organization and the need to become more operationally efficient. The newly formed system looked to its supply chain leadership to drive a significant amount of operational savings, but that couldn’t happen without considerable work to unite the disparate supply chains, including four different enterprise resource management (ERP) systems, electronic data interchange platforms, multiple distributors and varying approaches to value analysis. One thing both legacy systems had in common was their membership in HealthTrust. RWJ Health System was a longtime member, and Barnabas Health had recently switched from a different GPO, in anticipation of the merger.
This shared experience allowed RWJBarnabas supply chain leadership to quickly utilize a variety of HealthTrust resources to help achieve supply chain integration. Some specific initiatives involved establishing a single item master and data governance process; adopting a new electronic data interchange platform, ERP system and tracking tool for strategic sourcing initiatives; moving some back-office functions to a common shared services center; and realigning staff while amplifying the physician voice in critical product standardization initiatives. “We wanted supply chain to function as an asset to the organization as opposed to a back-office service,” says John Doll, chief integration officer during the merger. “The end goal is a highly functioning supply chain organization modeled after a mature HealthTrust structure, which not only has high compliance within the contract portfolio, but also a robust, value-add that includes the ability to analyze data, maximize contract performance and partner with clinicians.”
While the transformation is not yet complete, RWJBarnabas Health has already achieved $53 million in supply chain savings—with the opportunity to save millions more while continuing to provide its clinicians and patients with the highest quality of medical supplies and devices.
Keys to a Successful Transformation
The Need for Better Data
1. Transitioning to one system. The first order of business toward achieving supply chain integration was collapsing the four disparate ERP systems, each with its own item and vendor masters, into one system. This process revealed thousands of incorrect, duplicative or missing item descriptions.
RESULT: An item master file a fraction of the original size with enhanced data elements.
2. Cleansing the data. The legacy systems didn’t have a centralized data management team accountable for maintaining the data. Item numbers were often recycled so manufacturer data was not in sync with distributor data. Some physician preference items were purchased as non-file or free-text so determining what was actually purchased in order to build the new system was difficult. During a six-month data cleanse project, HealthTrust advisors traveled to all 11 hospitals, talking to as many clinical department heads and supply chain professionals as possible to discuss planned changes to item descriptions, the rationale for data accuracy, and to obtain their input and buy-in for the overall item-add process.
RESULT: Many items were updated to include correct descriptions, part numbers and UNSPSC classification.
3. Training staff in 11 sites. Educating staff across 11 sites and keeping the data clean was aided by a HealthTrust-developed playbook based on newly established business rules, including naming conventions for adding items to the ERP system going forward. A corporate office “command center” set up during the transition phase at each facility assisted in making sure products were ordered correctly using the new ERP system. Educational posters hung in areas of the hospitals where ordering takes place, and additional training occurs on an as-needed basis.
RESULTS: The benefits of having a consistent item master classification system include confidence in savings estimates, ability to quickly spot and valuate value analysis opportunities, and ease of use for end users
The merger also required a variety of other changes to achieve optimal operational efficiency, including consolidating purchasing and accounts payable at a single shared services center.
1. Move to GHX. Almost a year after the merger, RWJBarnabas Health switched electronic data interchange (EDI) platforms to GHX, allowing buyers to seamlessly exchange an increasing amount of data, including electronic purchase orders (POs) and invoices with suppliers, and get real-time acknowledgments to see where data was not aligned.
RESULT: Decrease in the number of invoice exceptions, earlier notification of those exceptions, and an increase in the number of automated transactions.
2. Establishing new key performance indicators. Beginning 18 months after the merger, staff performance has been measured against three key indicators—requisition turnaround time, PO confirmation adherence, and match exceptions—which are included in monthly operating reports. The initial target for PO confirmation adherence was 10 percent, but the group exceeded that—even reaching the 90 percent mark.
RESULT: A higher level of buyer output and accountability.
Unlocking More Savings
1. Savings from clinical supplies. The majority of the $53+ million in supply chain savings has come from med/surg supplies. In anticipation of the merger, Barnabas Health became a HealthTrust member in 2015, which allowed for consistency in contract terms and commodity items across the entire health system and paved the way for an effective value analysis function (See below.).
RESULT: The savings on core med/surg supplies and services were immediate, with the legacy system saving more than $9 million in year one with better pricing on many of the exact same products it was already using.
2. Standardizing distribution. The decision to standardize to a single med/surg distributor in April 2017 was driven by the potential for reducing distribution costs as well as continuing to build on the integrated platform through further standardization of par levels, distribution methods and product selection.
RESULT: An additional $3 million in annual savings with even greater enhancement in the ability to optimize supply spending across the entire health system.
3. Value analysis. Before the merger, Barnabas Health began a partnership with HealthTrust to enhance its value analysis program. This platform was created with the vision of accommodating the needs of the system post-merger and included the following elements:
- Establishment of a multidisciplinary value analysis team composed of the chief financial officer, chief medical officers, chief nursing officers, and clinical and non-clinical department directors .
- Hiring hospital-level clinical resource directors to help identify facility-based opportunities to complement initiatives driven at the system level.
- After the merger, standardization efforts and other initiatives designed to mature the value analysis process were implemented.
RESULT: 50 percent of savings is attributed to the enhanced value analysis program.
RWJBarnabas Health recently formed 11 physician-led integrated leadership groups allowing supply chain to directly engage clinicians on initiatives involving clinically sensitive products, primarily expensive and implantable medical devices. Value analysis has been introduced most actively to the cardiology leadership groups so far, as well as an ad hoc anesthesia group. The goal is to obtain physician support for standardization in three key categories.
“Physicians’ perceptions of cost are driven largely by what medical device reps tell them,” says Mary Twomey, vice president of clinical resource management. “Once we’ve established the clinical equivalence of two products and contrast their cost, it is often eye-opening for physicians—especially if a conversion means 20 percent savings for the organization.”
Partnering with HealthTrust’s inSight Advisory team helped RWJBarnabas Health mature its value analysis program. It is evolving toward a model that includes a high degree of physician and nurse integration with an open line of communication with supply chain. “When it comes to introducing new devices at the appropriate rate and being more thoughtful about how they’re utilized, we’re striving for a true partnership between supply chain and clinicians,” says Bob Taylor, senior vice president of supply chain. “That gives us leverage over the suppliers and also helps us bring consistency in levels of services across our health system.”
RESULT: Launch of these structured value analysis teams allowed for some “quick wins” on product standardization initiatives—for 8 percent, or more than $8.7 million, in projected supply expense savings—most immediately in 10 product categories ranging from hard surface wipes to contrast media. The deeper involvement of the system’s physicians also led to significant savings in medical devices and other preference items.
Ultimately, the value analysis structure enabled more than $50 million in savings while ensuring patient care was maintained and, in some instances, enhanced.
Left to right: Paula Strollo, vice president of supply chain consolidated operations; Tracy Burrell-Hancock, vice president of supply chain facility operations; John Tomochek, vice president of data management and analytics; John Doll, chief financial officer, Bob Taylor, senior vice president of supply chain, Mary Twomey, RN, BSN, vice president of clinical resource management, and Phil Maneri, vice president of sourcing and contracts. Inset photo: Richard Hill, vice president of supply chain integration