Overview

Our work helped DCH Health System surpass an aggressive savings goal by nearly 20 percent and fostered new relationships that will keep the successes coming.

Member Profile

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.

Challenge

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.

Solution

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.

Fostering relationships

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.

Results

With help from Vizient, DCH lowered its supply and service costs enough to exceed its $5 million goal by nearly $1 million, while also improving operational performance. “We’re so sure of the savings that they are being calculated in the next budget year,” declared Gilliland.

DCH realized nearly $900,000 in savings on hip and knee implant components, an outcome Gilliland thought was impossible. “We have tried and tried with only some savings,” he said. DCH also achieved unplanned savings of nearly $500,000 in pharmacy through improved utilization and standardization, and reduced inventory in the cardiology and cath lab by 35 percent through product consolidation and a new consignment program.

Gilliland said that DCH worked with other consultants in the past to lower orthopedic and cardiology costs, with much less success. “They had done good work but never achieved this level. Without the information from Vizient, we may have continued making bulk buys to get the pricing on cardiology products.”

Advancing new partnerships

DCH and Vizient achieved more than cost savings. “It’s the openness with physicians and vendors that will sustain us—an outcome I didn’t anticipate,” noted Dusang. “It evolved into more than we expected.” The improved relationships provide opportunities for future cost reductions: “Since working with vendors, they’ve approached me with additional ideas for savings,” she said.

In Gilliland’s experience, consulting engagements can be painful. But, he said, “[working with Vizient] was probably the least painful. We were able to operate day-to-day as we always do. The stress level was low and the team was great to work with.” He believes the close collaboration with Vizient and the fact-based, high-quality, actionable information that the Vizient team delivered was a crucial factor in the initiative’s success.

Gilliland also believes Dusang was instrumental in achieving their goals. “Nina did a remarkable job of pulling this project together and making it the great success it was,” said Gilliland. “Vizient called in our vendors and then Nina gave them the lay of the land. She was transparent on our financial situation and got their attention off the bat. Administration was very involved and engaged.”

Building on success

DCH’s work with Vizient isn’t over yet. A Vizient adviser remains on site, working with the DCH supply chain team and Vizient PriceLYNX. Their next focus is to find and secure additional savings opportunities to help the system reach its next goal: $2.4 million in savings. The adviser will also watch to be sure processes and savings stay on track. The Vizient team's experience shows that if the executive team is invested in the goal, things won’t fall apart after the project team leaves.

Working with Vizient “was a wonderful experience for us,” said Dusang. “It will be easier in the future to keep pricing where it needs to be.

Vizient stood behind the proposal and made ironclad guarantees. They promised quality resources in sufficient numbers to get the job done.
Johnny GillilandDirector of Materials Mgt, DCH Health System