Locally owned DCH Health System includes the 583-bed DCH Regional Medical Center along with community hospital Northport Medical Center and Fayette Medical Center, a rural hospital and nursing home facility. The system boasts the region’s most advanced trauma center, as well as cancer and cardiac care, robotic surgery, and ancillary services including home health care, sleep medicine, and occupational medicine.
DCH Health System realized that it was facing potential reductions of more than $20 million to its $23 million bottom line as a result of the Affordable Care Act, general reimbursement reductions, take-backs from the Centers for Medicare & Medicaid Services’ audit program, and new pension funding requirements. The system tried to lower spending before but struggled to get competitive pricing for orthopedic and spine products. The small gains achieved were not worth the pain involved in the process.
Johnny Gilliland, director of materials management, and Nina Dusang, CFO, talked about how savings on physician preference items (PPI) could help offset some of the predicted reductions to the system’s bottom line. “There was no hesitancy to address physician preference items; we were just not able to get the good information we needed to make it happen,” said Gilliland. “We knew the savings were available if we could develop a workable strategy.”
The DCH team knew that its cost-cutting goal had to be extreme, given the huge reimbursement reductions on the horizon. They therefore set an aggressive goal of saving $5 million in 12 months. When Vizient proposed a solution that would get them there, Dusang and Gilliland found it convincing.
Vizient consultants used evidence-based practices as well as their broad clinical knowledge. They tapped into our industry-leading data and analytics to recommend supply cost improvements, especially for PPI. The Vizient team identified potential savings that would add up to DCH’s $5 million goal.
In early discussions, Dusang and Gilliland identified opportunities to reduce inventory and create vendor consignment programs. They also wanted to find ways to balance a la carte with bulk-buy pricing for the system’s cardiology items and improve their value analysis process.
Given the magnitude of the spending cuts, Dusang knew that the board, leaders, physicians, and vendors would all have to be actively involved. One of the first things she and the other DCH executives did, therefore, was to share details of the pending $20 million financial hit with both physicians and vendors.
Dusang was careful to be completely open with DCH’s vendor contacts about what the system faced. As she pointed out, “If we don’t exist, you have nowhere to sell your products, so we have to work together and get us solvent.” She believes the honesty of the approach had a positive effect.
Connecting the dots
Once the stakeholders were on board, the Vizient team began analyzing DCH’s data with Vizient PriceLYNX™, a business intelligence solution with data for more than 2,400 medical facilities nationwide and more than eight million product comparisons. Vizient PriceLYNX data enabled the team to do the national and regional benchmarking needed to identify major savings opportunities.
Vizient consultants then helped DCH negotiate with its suppliers to ensure that contracts reflected the newly benchmarked pricing. The team worked to consolidate products, standardize PPI, and establish consignment programs.
The Vizient team also helped define daily processes. For example, some vendors had a habit of bypassing the materials managers and going straight to the physicians. To change this habit, DCH introduced a “quiet period” that was in effect while pricing negotiations were going on. During the quiet period, vendors could only contact Vizient’s onsite purchasing representative.
The experience and expertise of Vizient’s team members allowed them to serve as a much-needed clinical resource for Dusang and Gilliland. “When a physician wanted to argue efficacy of products and outcomes, I had nowhere to go. Vizient’s clinical expertise plugged that hole,” said Dusang. One DCH surgeon initially resisted the PPI changes. After Vizient’s consultants met with the physicians individually, however, the surgeon told the hospital’s CEO how impressed he was with the consultants’ knowledge.