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Sisters of Mercy Health System

A consolidated, standardized supply chain streamlines processes, cuts costs and supportsimprovements in patient safety by collaboratively designing clinical and revenue workprocesses.

There is growing recognition in healthcare of value derived from effective supply chain management. Considering that supply chain operations constitute 30 to 40 percent of healthcare costs – second only to personnel costs – leaders and managers must become competent to effectively steward improvement efforts that focus on value. Decisions of consolidation, gaining economies of scope and scale, versus outsourcing, integration with other functional areas versus stand-alone operations, timing and tempo of change become vital to healthcare organizations and systems today. Both adaptive or process and technical change must be considered. Coupling process redesign with technical improvements adds to greater benefit as long as the changes are complementary.

As an industry leader in healthcare supply chain, Sisters of Mercy Health System (Mercy) is in the second iteration – The Genesis Project – of optimization within a planned, yet aggressive evolutionary strategy. This effort intends to add greater value to the health system from the supply chain operation; currently there is reliable analysis that for every $1 spent in supporting supply chain operations, there is a $6 return to the health system.[1]

Mercy, a four-state system based in St. Louis, includes 19 hospitals along with outpatient care, physician practices and a health plan, and has 4,122 licensed beds. With over 26,000 co-workers, the Mercy system has embarked on a $260 million project that will encompass technology upgrades throughout the system in clinical, patient access, revenue, resource planning and supply chain areas. The supply chain operation began its movement to consolidation several years ago with the implementation of a shared materials management system, McKesson’s Pathways Material Management. The Genesis Project enhances an integrated approach for further standardization of supply chain practices and the initial standardization of clinical, revenue and ERP practices and technologies. Launched in 2004, the Genesis Project is an ambitious effort for the system, addressing the following six daunting challenges facing today’s healthcare organizations: concerns about quality and outcomes; higher expectations of patients; shortages of clinical personnel; capacity issues; financial pressures; and the ability to have physicians and institutions operate as a team. In response to compelling environmental factors and based on a belief that through innovation we can positively impact the lives of our customers and communities, the Sisters of Mercy Health System is committed to improving patient safety, simplifying work processes and enabling communication flow among patients and their families, co-workers and physicians.

Situation Analysis

In the 1990s the healthcare supply chain found at Sisters of Mercy Health System was much like those found at many organizations. The fragmented and duplicative systems across Mercy were dependent on six disparate information technology materials management software solutions, unable to negotiate the maximization of supplier discounts, and were heavily reliant on outside vendors to help facilitate the management of the health system’s supply chains. The decentralized work found in the mimicking of similar processes at each health system was neither managed for process efficiency nor cost savings at the enterprise level. This realization created a new organization at the system level, with the intent to create an integrated supply chain that better utilizes available technologies for inventory management and implements supply chain best practices from in and out of industry. With the creation of a new centralized supply chain, departmental data could then be shared across the system and Mercy reliance on outside vendor information was dramatically reduced.

The creation of Resource Optimization & Innovation (ROi) helped consolidate the supply chain throughout Mercy at the corporate level, align major processes utilizing a shared materials management software solution, create an internal GPO and allow for the enterprisewide management of supply chain distribution and repackaging processes within Mercy. The creation of an internally owned and managed repackaging and distribution facility, the Consolidated Services Center (CSC), permitted improved supply chain responsiveness by better catering to our customer hospitals; improving fill rates above the 85 to 90 percent level that other distributors achieved; streamlining the receiving process; reducing complexity by 70 percent through combined deliveries of med/surge and pharmaceuticals and created standard inventory management metrics like fill rate percentage to measure departmental and centralized performance; and permitted more timely deliveries to facilities (with an internal truck fleet) improving cost savings by eliminating third-party markup fees (approximately $3 million annually) by purchasing directly from manufacturers; and permitted bulk purchasing and contracting for economies of scope and scale. With the ROi team (current supply chain operations) and the Genesis Supply Chain team working in tandem, there is a clear message that the platform of the present supply chain will serve as the launching pad for future improvements and value-seeking initiatives. Furthering currently standardized warehousing practices by focusing on dock-to-bedside practices of the supply chain, the Genesis team is tackling charge capture practices, local inventory management processes and supply-related general ledger design, creating (when applicable) standard operating procedures and utilized supply chain metrics.

The recently redesigned supply, chain with the creation of ROi, has served as a springboard and reinforcement for other functional areas such as clinical, finance and revenue to recognize the inherent value of standardized processes and the efficiencies of consolidation. The launching and second iteration of supply chain-related improvements and efficiency realization serve as the groundwork for the establishment of a culture of continuous change at Mercy. This enterprisewide organizational change enhances the current operations but also integrates into the clinical and revenue functional areas. Clearly, working together across the various functional areas, within the framework of standard files, helping design both clinical and supply chain-friendly processes and systems will create a value-seeking culture that is flexible and ready for change.

The Genesis methodology is as follows: the documentation of current practices based on observation of clinical, revenue, ERP and supply chain processes and facilities at each of the in-scope facilities. After these processes were documented and sign-off achieved, Genesis team members began designing a “rough start” of the theoretical best practice for each process. Utilizing a joint application design methodology, all stakeholders participate in their initial design, which helps create standards that maximize overall value for Mercy. With ongoing design sessions including end-user experts from the effected facilities, the iterative process of determining the future-state best practices were compiled. After these “straw persons” of future processes were created, the focus of the project shifted to functional capabilities of the IS solutions while the executive subcommittees for each of the areas approved the team’s future process designs.

The primary information systems that will be designed simultaneously to ensure the appropriate cross-functional sharing of information and resources are Cerner for clinical applications; McKesson for patient access and revenue; Lawson for ERP and supply chain processes; and TECSYS for the warehouse management capabilities. Additional business partners include Omnicell storage cabinetry; the Global Healthcare Exchange for item descriptions, EDI transactions and contracts; Mezzia for capital expenditures; and MHC software for PO customization. By participating in the design of each of the systems, significant value from IS investments can be achieved, whereas in the past this value was sometimes lost due to a failure to readdress longstanding core business and clinical processes. The caution to heed is that technical change cannot drive adaptive change. People and their processes must be altered with technical changes to complement the “people process changes.”

As noted in the Leader’s Change Handbook, “Exercising leadership requires distinguishing between leadership and authority and between technical and adaptive/operational work. Clarifying these two distinctions enables us to understand why so many people in top authority positions fail to lead: they commit the classic error of treating adaptive challenges as if they were technical problems.”[2] Based on this premise, Mercy attempts to balance the technical changes of consolidation and integration with the adaptive or operational challenges that in the end, enable our professional co-workers to get the job done right every day.

Among other major changes in processes and responsibility throughout the enterprise health system, Genesis will bring about a huge shift from “home grown” health system-defined and designed processes, to new standardized, corporate, consolidated processes and management of resources, by standardizing metrics, naming conventions, functional area processes, documentation practices, role definitions and charging practices management, true enterprise-level management of system resources, promotion of best practices and accurate information management. A great deal of build and maintenance of systems and data, currently often managed at a departmental level, will both be maintained and managed through future reporting capability with the instrumental involvement of the corporate and local IS staff. For the first time, truly comparative data comparing “apples to apples” and “oranges to oranges” is achievable.

Figure 2 diagrams are the high-level methodological steps undergone to standardize processes and systems at Mercy. In the first stage, each of our 18 acute care facilities are represented by the facility boxes, each having selected their own uniquely designed information system and having created their own business and clinical processes. In 2002, with the creation of ROi, supply chain was consolidated to one commonly shared materials management system. Still serving each of the facilities, the new centralized supply chain enabled standardized product naming conventions, sole sourcing for better contract negotiation, the minimization of the number of products to be managed and improved customer service. As Figure 3 illustrates, the supply chain function is still tied to each facility whose systems and processes are still separate and disparate, but the supply chain is consolidated. The future Mercy is theoretically diagrammed as well. Following the path of optimization from the supply chain, the other Genesis tracks are moving forward with the design of their own standardized processes, utilization of appropriate enabling technologies and an approach of streamlining; minimizing unnecessary duplication and creating a greater “systemness.” The schematics of system-to-system interactions are illustrated in Figure 2.

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Future SCM Direction

As part of future methods of optimization Mercy is looking to collaborate with the Center for Engineering Logistics and Distribution, a consortium of the Universities of Oklahoma, Oklahoma State, Arkansas and Louisville, sponsored by the National Science Foundation. Utilizing real-time, data-driven, discrete (and later dynamic) simulation embedded within our system, the supply chain can continuously optimize processes.

As the Mercy supply chain continues to try and improve performance, a number of areas listed below have been identified as processes needing attention:

• Reconciliation of patient charges to items issued;
• Determination of inventory levels by consumption data versus subjective interpretation of need;
• Management of perpetual inventories in the preoperative areas;
• Proactive management of resources using RFID wireless technology;
• Coordination of the surgical instruments;
• Simplification of the charge capture practices for clinical end users;
• Improved reporting and data visibility;
• Deriving greater value from contracting savings and rebates; and
• Lessening the burden of inventory management to end-using departments by expanding the breadth of resources managed by the supply chain.

Rather than continuing to automate the current processes, the supply chain team is re-evaluating and transforming the way the supply chain is managed at Mercy, and the improvements are already substantial:

• Supply chain has reduced overall costs of supplies 4 to 5 percent by serving as the middleman for Mercy;
• ROi staff is paid for by supply chain efficiencies and ROi is no cost to Mercy. ROi exists to generate revenue for reinvestment into Mercy;
• ROi earnings have paid nearly $30 million for an enterprisewide Mercy Meds project to help achieve an error-free environment that promotes greater patient safety;
• Suppliers view Mercy as disciplined decision makers who speak with one voice in pursuit of value;
• Mercy leaders view supply chain initiatives as proof that centralized functions can improve service while also eliminating redundancy; and
• Clinicians view Mercy as an employer of choice because more time is spent on patient care and less time on supply chain administrative efforts.[3]

Lessons Learned

As part of the learning process of the Genesis Project supply chain team a number of important “lessons learned” were gathered.

• Data is currently integrated via interfaces and operational processes; this work is time-consuming and costly so the emphasis continues to be integrated solutions where business requirements and standards drive the data flow rather than the technology driving that flow.
• Both departments and vendors receive data from customized reports (Cognos Cubes and Crystal Reports); vendors receive tracking reports for paying incentivized sales representatives based on contract terms with Mercy.
• Integration across departments is handled by task forces identifying and then building systems and interfaces across systems that are based on business requirements and data requirements.
• Departmental collaboration was fostered by the structure of the Genesis Project and the use of more than 500 subject matter experts, from across the Mercy system; vendor collaboration is focused on our GPO operations where standardization and contract negotiation are coupled to increase value within the health system.
• Metrics are available and used by the operation at multiple levels and include daily, weekly, monthly, close-out and diagnostic reports and decision support report generation; a separate article would be required to develop an understanding of metric and reports use within the Mercy System.

Conclusion

The development of a consolidated, standardized supply chain fosters stewardship of resources and enables improvements in patient safety and customer responsiveness. The supply chain team is an integral part of supporting the other functional tracks now undergoing their own systemwide standardization. Supply chain’s primary goals include collaboratively designing the future clinical and revenue work processes. This proactive design approach helps ensure efficient and enhanced revenue capture, PAR management, inventory controls and promotes accountability. The supply chain culture intends to facilitate an environment of continuous optimization.

Endnotes

1. Sisters of Mercy Health System. “ROi Annual Value Report.” March 2005.
2. Conger, Jay; Spreitzer, Gretchen; & Lawler, Edward III. The Leader’s Change Handbook: An Essential Guide to Setting Direction & Taking Action. San Francisco, California: Jossey-Bass Publishers, 1999, p. 56.
3. Sisters of Mercy Health System. “ROi Value Report.” June 2003.