The Switch to HealthTrust Saves HackensackUMC $21 Million in One Year

“More ramifications of healthcare reform are on the horizon, and the only way to address them is to have a strong bottom line,” says Karl Blomback, vice president of finance at HackensackUMC. “Strengthening our bottom line was our major focus in 2011, and becoming a member of HealthTrust was an important part of that.”

On March 1, 2011, HackensackUMC in Hackensack, N.J., joined HealthTrust. Just one year later, that decision saved the hospital $21 million. The transition to HealthTrust was the first major step in the hospital’s yearlong internal review and cost-cutting overhaul, which resulted in a total of $43 million in savings.

Achieving Savings

Many of HackensackUMC’Source_2Q12cvrs savings were immediate, without changing vendors or renegotiating contracts, when the hospital joined HealthTrust. “Just by flipping the switch with HealthTrust, buying the exact same items I’d been buying before, we saved about $9 million,” Blomback says. Those savings came from HackensackUMC’s ability to take advantage of HealthTrust contracts, which include lower prices on many items than are available through other avenues.

“Just by flipping the switch with HealthTrust, buying the exact same items I’d been buying before, we saved about $9 million.”

But not all the savings came so easily; achieving such significant savings required a great deal of work. “Between the HealthTrust team and my team, we looked at every single agreement we had and either renegotiated or just tried to hammer down the price,” Blomback says.

While Blomback says 95 percent of HackensackUMC’s previous vendors already had contracts with HealthTrust, there were a few cases in which the team made purchasing changes. One of those was medical waste services. Prior to joining HealthTrust, HackensackUMC had four different vendors handling various parts of its medical waste needs. One of those vendors, Stericycle, had an attractive contract with HealthTrust that would allow for significant savings if the hospital switched all its medical waste service management to Stericycle. HackensackUMC made the switch, which ended one vendor relationship, but moves like that were “very minimal,” Blomback says.

Working with HealthTrust

HackensackUMC’s HealthTrust team, led by Account Director Sueanne Kyle, MHA, started the process by reviewing HackensackUMC’s annual spend, purchase order history and other data. “They came up with a number they thought we could save on an annualized basis and a realized basis,” Blomback says. With dedicated teamwork, those goals were exceeded.

Together, HealthTrust and HackensackUMC team members performed ongoing due diligence to determine lower-cost products that were exact matches with the products currently used by the hospital. They also worked toward “proper price loading from vendors and distributors and determining conversion opportunities,” Kyle says.

The positive attitudes of HackensackUMC staff helped smooth the process. “Everyone in purchasing was open-minded, and welcomed me into their department,” Kyle says. “I have the pleasure of getting to know and working alongside a great bunch of folks throughout the medical center.”

As for the transition in HackensackUMC’s pharmacy department, the HealthTrust onboarding process started months before the actual effective date. Harold Willingham, PharmD, MBA, HealthTrust’s director of pharmacy clinical contract negotiation, first set up conference calls to discuss HealthTrust value offerings with Nilesh Desai, assistant director of pharmacy and Arpi Kuyumjian, clinical coordinator at HackensackUMC. During these calls, pharmacy initiatives, contracting alternatives and clinically preferred products were discussed along with product substitutions that could be undertaken to maximize HealthTrust contracts.

The pharmacy department was able to align many purchasing decisions with HealthTrust contracts on their effective date. After the effective date, monthly phone calls between HealthTrust and HUMC pharmacy departments reviewed off-contract purchasing to identify and rectify such purchasing with contracted alternatives. “The process allowed the HUMC pharmacy to exceed 99 percent compliance with pharmacy purchasing within months of becoming HealthTrust members,” Willingham says. “I had no ego in this at all; if HealthTrust representatives could get better prices than I could, that was fine with me.”

With help from Scott Richardson, MBA, HealthTrust’s director of custom contracting for medical devices with SourceTrust, Blomback and his team brought in current vendors for face-to-face meetings to renegotiate contracts. One of the areas in which HackensackUMC had the most success with contract renegotiations was physician preference items. “The SourceTrust team helped us reach out to vendors on a national level rather than the local rep level,” Blomback says. “I had no ego in this at all; if HealthTrust representatives could get better prices than I could, that was fine with me.”

Put ServiceTrust Services to Work for You

The ServiceTrust team can provide a complete financial analysis of all contracted services spend by utilizing national market intelligence and the contract portfolio of HealthTrust to identify service contract opportunities and savings for your facility. After analyzing your current spend, the team makes recommendations on potential service contract opportunities, working closely with your staff throughout contract conversion and/or negotiation, execution and implementation. ServiceTrust also tracks your savings and validates those numbers on an ongoing basis.

While physicians weren’t necessarily involved with contract negotiations, Blomback did ask for their support in using the vendors that were most cooperative. “If three vendors for an orthopedic product were renegotiating contracts with us, and the fourth was not cooperating, we asked the physicians to talk to the fourth vendor about renegotiating, or simply use the other three and not the fourth,” Blomback says. “Physician buy-in was outstanding; they understand the importance of a strong bottom line for dealing with healthcare reform.”

Preserving Relationships

As with most important endeavors, HackensackUMC’s effort to drastically reduce costs was effective because it was grounded in positive relationships. The key to the success of the partnership between HealthTrust and HackensackUMC was the solid relationship between Kyle and Blomback, according to Kyle. “There’s tremendous trust there,” she says.

Additionally, HackensackUMC’s and HealthTrust’s long-term relationships with vendors helped ensure that the process went smoothly. When he came to HackensackUMC four years ago, Blomback met with each vendor to build a foundation for a relationship and make sure each vendor understood his facility’s needs and requirements. That early groundwork has translated into trusting relationships with vendors that Blomback continued to preserve throughout the cost-cutting process. “Anytime you’ve had a long-term relationship with a vendor and you terminate it, it’s a business decision, and you have to make sure they understand that,” Blomback says. “I just worked hard not to burn bridges, and to maintain professional relationships. It’s a small world and you never know when you may have the opportunity to work with those same vendors again.”

In addition to focusing on building relationships with HealthTrust and preserving relationships with vendors, HackensackUMC’s purchasing staff worked hard to maintain good will among other hospital staff. Blomback and his team worked to clearly communicate about the changes taking place and the reasons behind them, and there was very little resistance from staff.

Why the HealthTrust Model Works

HealthTrust is able to help facilities like HackensackUMC save so much money because it offers a targeted, patients-first approach to contracting, as well as a combination of group purchasing volume and a committed membership. “Because members continue to be committed to HealthTrust contracted vendors, the value offerings from vendors are enhanced,” says Harold Willingham, PharmD, MBA, HealthTrust’s director of pharmacy clinical contract negotiation, who worked with HackensackUMC on pharmacy conversion. “It is the true combination of clinical evidence, purchasing power and committed members that allows HealthTrust to work with the members and vendors to present a true win-win opportunity for everyone.”

According to Scott Richardson, director of custom contracting at HealthTrust, the organization offers three distinct strengths to its members:

1. Strong, committed members.
HealthTrust requires an 80 percent contract level commitment, so vendors can count on more than 80 percent of a member’s supply spend to use HealthTrust contracts. In return, “we provide an aggregate savings on spending that nobody else can match,” Richardson says.

2. Robust contracted savings.
HealthTrust brings economies of scale in contracting, clinical, educational, operational and supply chain that are unrivaled by any other group purchasing organization.

3. A dedicated purchasing team.
HealthTrust’s knowledge experts and vetted contracts are available to achieve the savings goals of each member, allowing members to focus on their core mission of delivering patient care. “Our members don’t have to have a 100-member purchasing staff to hit their targets,” Richardson says. “We score the savings for them at HealthTrust.”

Individual facilities have limited bandwidth for tackling clinical or contracting initiatives within their facility and lower purchasing volumes. By tapping into resources across the membership, HealthTrust synergistically combines the best clinical minds and committed volumes that are just not available in a single facility.

For members like HackensackUMC, which took advantage of each of these HealthTrust strengths and maximized every contracting and savings opportunity that HealthTrust had to offer, the organization offers tremendous savings. “HackensackUMC’s leadership understood and was committed to savings,” Richardson says. “They understood and promoted to their staff throughout the hospital that realized savings goes straight to their bottom line and adds to the health of their operations and patient care.”

HackensackUMC Finds Significant Savings With ServiceTrust’s Strategy

From pest prevention services to document destruction, purchased services account for more than 16 percent of a facility’s operating expenses—yet there’s no industry standard definition. Purchased services is typically a “catchall” for outsourced services that cross multiple departments, and they are often overlooked as areas for savings. Yet, without a purchased services sourcing strategy, hospitals are missing out on an additional 10 to 25 percent in potential savings.

With the help of ServiceTrust, HackensackUMC developed a strategy to use its combined facility volume to negotiate facility contracts that would generate standardization, improve service levels and cause significant reductions in overall operating expenses. In addition, the ServiceTrust team identified several services that could be converted to existing HealthTrust contracts for significant savings.

The Process

Christina Katamay, assistant vice president, ServiceTrust, worked closely with several of the facility’s departments to assess services utilized and savings opportunities.

Analysis. ServiceTrust began with a comprehensive analysis of HackensackUMC’s outsourced services spend using 12-month AP spend reports, three months of invoices and a thorough review of all existing contracts. The analysis included evaluating the top 80 service areas typically outsourced by healthcare facilities.

Collaboration. Step two had the ServiceTrust team onsite to gain internal support for the process by meeting with HackensackUMC department directors to review current contracts, discuss quality and service-level requirements and look at existing contracts held by their group purchasing organization, HealthTrust, for possible conversion opportunities.

Action. Using HackensackUMC requirements, the ServiceTrust team used its contracting expertise to complete the entire sourcing process. This included contract conversion assistance that resulted in immediate cost savings by converting the current services that HackensackUMC was outsourcing to existing HealthTrust contracts with proven, existing high-level service providers.

Where no contracts existed, the ServiceTrust team negotiated and implemented new contracts. The team will continue to provide on-going support with conversions, auditing vendor invoicing and facility spend as well as providing HackensackUMC with monthly savings tracking reports.

The Results

In working with HackensackUMC, the ServiceTrust team found several outsourced services that could be converted to existing HealthTrust contracts. In other cases, the team developed new contracts. ServiceTrust has helped HackensackUMC realize an average savings of 27 percent for each category of service contracts converted.

One area that delivered a high-quality service with significant savings was in language interpreter services. HackensackUMC was using seven different vendors; by converting to a HealthTrust vendor, Language Services Associates, they are enjoying a 40 percent savings.

Another area of savings was in medical waste service management. By converting to HealthTrust’s waste management vendor, Stericycle, HackensackUMC saved 20 percent.

Other areas that drove savings for the system included indigent pharmacy and medical device recovery, instrument/scope repair, transcription, waste management, medical gases, and pest control.

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