June 2010

Integrated Supply Chain Shows Results

Jewish Hospital and St. Mary's HealthCare (JHSMH), Louisville, KY, recently made a decision that reinforces the work CHI has done to create an integrated supply chain function across the system. JHSMH, which already had its own successful supply chain operations, chose to join CHI's integrated supply chain network. "Our colleagues at Jewish-St. Mary's see the value in what we're doing, and their decision to participate is the best endorsement that I can think of," said Steve Kehrberg, CHI's interim senior vice president of supply chain.

Throughout the FY2010 fiscal year, CHI's Supply Chain group has been implementing an integrated structure. The structure has local operations aligned into nine regions. A regional director supports the materials managers in each region. The regional directors report to Kehrberg and are supported by the Supply Chain Group. CHI's Supply Chain Strategy Advisory Group, which includes CEOs, CFOs and other leaders from across the system, is also part of the structure. This integrated structure helps to ensure:

  • Centralized contracting operations, including custom contracting services provided by HealthTrust Purchasing Group (HPG), CHI's group purchasing organization.
  • Central data management for all purchasing activities via CHI Connect.
  • Consolidated and standardized business processes and transaction management.
  • Collaboration with clinical users and experts prior to contracting via Value Analysis and Standardization Teams (VASTs).

The integrated structure is helping supply chain work towards the FY2010 goal of reducing supply expenses by $65 million across the system. An indicator of progress is the rebates and patronage fees returned to CHI by HPG. "Patronage fees come from the contract administration fees that are paid to HPG by suppliers, which HPG then returns to it members," said Kehrberg. "Rebates are earned on purchases through HPG contracts. By the third quarter of fiscal 2010, CHI had already generated more rebate dollars than we did in all of fiscal 2009. That's an indicator that we are seeing greater MBO participation in our contracts."

Some of the patronage fees go toward funding supply chain projects, such as the current Purchased Services Cost Reduction initiative and the Price Optimization for Orthopedic and Spine Implants project. "Our advisory group agrees that these are good investments of a portion the patronage fees, as these projects will deliver further cost reductions across CHI," said Kehrberg. The FY2010 patronage fee payout of approximately $10 million was distributed to the MBOs at the end of May.

Additional areas that have yielded significant cost reductions in supply chain this year include contracts for endomechanical devices, sutures and drug-eluting stents.

The Supply Chain Group is now developing a set of metrics that will help assess performance over time in a variety of operational processes, including inventory management, contract conversions and expense management. "We're very encouraged by the results we've already seen from our integrated approach to supply chain, and we believe we're well on the way to building a world-class supply chain organization," said Kehrberg. "Presenting our vendors with an integrated CHI supply chain is an important part of being One CHI."