At St. Luke’s supply chain excellence depends on physician engagement

President Obama signed the Affordable Care Act into law in 2010. The new law meant that healthcare systems had to change. Expanded health insurance coverage led to increased demand for care. The ACA led to a move away from fee-for-service services and toward mandatory value-based payment measures. This reduced hospital margins and created an incentive for hospital chains to start tackling costs, but doing so in a way that did not affect patient outcomes. Procurement became a logical place for leading healthcare systems to focus.

Adrian Wengert joined Saint Luke’s Health System in 2014. There are several St. Luke’s Hospital across the nation. Mr. Wengert works in St. Luke’s system is headquartered in Boise. It is Idaho’s only not-for-profit, community-owned and community-led health care system. With 16,000 employees, it is the largest private employer in the state. The system operates 8 emergency hospitals and has 300 clinics across the state.

As vice chairman of supply chain and procurement, Mr. Wengert brought in to force changes. Hospital chains’ approach to procurement lagged far behind the practices used by manufacturers, retailers and distributors.

“We didn’t have enough strategic staff,” Wengert said. “We added about 20 positions, all strategic hires mostly outside of healthcare. It was designed to help us solve problems that required a different lens.

Shopping was a natural place to focus. In healthcare, large, powerful distributors sell hospital medical supplies and deliver them directly to individual medical facilities. In many health systems, the costs of these inputs and services were not carefully considered. The cost was passed on to patients and insurers. As a result, hospital chains largely lacked procurement skills. And yet, after labor costs, medical supplies are the second largest expense.

St. Luke’s began building new supplier relationships. “We built strategic supplier partnerships.

Its net result was about $100 million in savings over 10 years.

These are great results. For those who know the health systems, they are amazing. Doctors have traditionally had a lot of autonomy over what they prescribe and what medical supplies they use. My wife, who served as a vice president in the industry, has told me that one of the keys to hospital administrators maintaining their leadership position was following a simple rule: “Don’t piss off the doctor!”

Mr. Wengert was more diplomatic. “In manufacturing, engineers are usually at the top of the food chain. There are doctors in healthcare.”

How did St. Luke’s this? “We are re-establishing strong collaborative relationships with our internal stakeholders, which are largely made up of physicians and clinicians,” Wengert said.

“How do you begin to build those relationships so that you can drive product standardization? You can make meaningful decisions that are not solely based on cost. They must be based on the functionality of the product. You have to look at outcomes, quality, complications, all of that. So we started working on clinical integration as one way” to drive procurement savings.

Mr. Wengert explained that medical chains have two purchasing models. “The first is the command-and-control model.” In this model, “the supply chain goes out and negotiates a spine implant contract and says to the doctors, ‘You’re going to use Medtronic now.’ We did it because we saved several million dollars. And while the savings add up quickly, over time, it reduces physician engagement and, even more importantly, physician alignment.

“You can’t sustain it” model. “No doctor wants to lose his autonomy. They don’t want a business person telling them how to do clinical medicine.”

The other model, Wengert said, is the impact model. In this model, you are presenting the surgeons with all the possibilities. “One option is that we do nothing; we maintain the status quo. This is what it looks like.”

“Option two is always standardization. If we go from six suppliers down to three, that affects prices and ultimately helps you build deeper partnerships.”

Why should physicians care about deeper relationships with suppliers? During COVID there was a severe shortage which made it difficult to practice good medicine. Better supplier relationships help ensure that products are delivered in full and on time. Doctors may not care about cost, but they do care about certainty of supply.

This model empowers decision-making committees that focus on specific spending categories such as spine implants or knee replacements. “We will be strategic about how we form the membership.” So, if we are asking them to standardize with one brand or the other, we try to identify surgeons who use both brands to ask them for clinical feedback. ‘What do you think of this?'”

“But you always have some surgeons who say, ‘This is what I want to use.’ We have very strong medical masters in our organization. Sometimes they lean in and talk and it usually resolves itself.”

St. Luke’s also has six nurses embedded in the supply chain team. “They speak a clinical language. It helps us be more successful.”

“Finally, we onboarded a supply chain medical director. And she’s just been great.” She explains to the medical community “the overall benefit of what we’re trying to achieve for our patients.

St. Luke’s is not resting on its laurels. They are moving to a self-distribution model that further reduces their reliance on expensive distributors. They have built a warehouse with a material handling system and warehouse management system from Tecsys. Inbound supplies will flow into the warehouse and then be delivered to medical facilities across the state. The warehouse will be put into use at the end of the year.