Swimming with the Supertankers

1. Swimming with the Supertankers

2. Today’s Objectives • Understand your customer’s challenges to best align with their needs • Recognize the structure and landscape of health systems & IDNs: • levels of supply chain integration • compliance expectations • Gain insights into proven methods of effective targeting strategiesLearn the critical importance of building relationships with multiple purchase decision makers within health systems & IDNs

3. Health System & IDN Operating Challenges • Physician relationships continue to be a barrier toward profits • Uncompensated care has reach as high as 25% in some areas • Lack of financial incentive alignment among supply stakeholders hinders collaboration • Revenues shifting to specialty hospitals and ambulatory surgical centers • High profile expenses for medical devices and specialtydrugs • Continued reimbursement cuts – 130 billion currently on the table

4. Health System & IDN Strategic Imperatives • Improve Clinical Quality / Operational Performance • Ensure a Safe Environment • Build & Retain Physician / Clinician Relationships • Preserve Cash • Maintain / Expand Debt Capacity • Reduce Cost of Capital • Reduce Overall Operating Expense • Grow Profitable Market Share

5. Health System & IDN Marketplace

6. Vertically Integrated Delivery Networks (Authentic IDN) A Vertically Integrated Delivery Network (VIDN) is a healthcare provider organization, which through ownership or formal agreements, aligns healthcare facilities to provide cradle-to-grave care delivery services, to include a shared mission of improving the quality of care and patient satisfaction.

7. Horizontally Integrated Delivery Networks (Health Systems) A Horizontally Integrated Delivery Network (HIDN) is a healthcare provider organization, which through ownership or formal agreements, aligns acute care facilities to provide care delivery services, to include a shared mission of improving the quality of care and patient satisfaction.

8. Health System & IDN Segmentation Profile Attributes & Behavior

9. Three Stages of Supply Chain Integration

10. Clinical Integration

11. Stage 1 Stage 2 Stage 3 May have pharma product formulary in place but not being managed across Network. Moving toward single pharmacy formulary, managed at physician level. Super-formulary in place with physician leadership managing process. Moving toward procedure based utilization criteria. No product demand/ utilization criteria in place. Fully implemented and managed product utilization and patient demand matching program (low unit of measure). Multiple GPO affiliations / transactions. Contract compliance not measured. Single GPO—NOT strategic. Limited contract compliance. Strategic GPO relationship or self-contracting model. IDN embraces and values strategic supplier relationship. Developing strategic sourcing models. Leveraging supplier resources across the Network. Decisions based on total value. Formal strategic agreement with suppliers & collaborative processes developed. Supplier relationship more transactional than strategic. Some limited strategic relationships being formed. Supplier relationship limited to purchasing transactions. Relationship are adversarial and decisions are price driven. Contracting Strategies

12. Operational Management

13. Strategic Focus

14. Four Steps to Qualifying Supply Chain Integration

15. Qualifying Supply Chain Integration • Which of the following best describes your systems clinical standardization progress? • Stage 1: Limited “Best Practice” models in place that includes metrics for measuring performance and outcomes. • Stage 2: “Best Practice” models are in place including metrics for measuring performance and outcomes for top 3 to 5 DRGs. • Stage 3: “Best Practice” models are in place including metrics for measuring performance and outcomes for most surgical and laboratory procedures.

16. Qualifying Supply Chain Integration • Which of the following best describes your systems contracting strategies? • Stage 1: Contracting is mostly decentralized with many departments making independent product/ service purchasing decisions. • Stage 2: Commodity purchase contracting has been centralized, while physician preference, clinical preference, pharmaceutical and capital equipment remains a departmental decision. • Stage 3: A fully integrated multi-disciplinary team making IDN contracting decisions product/services representing over 70% of total spend.

17. Qualifying Supply Chain Integration • Which of the following best describes your IDNs operational infrastructure? • Stage 1: System-wide processes; protocols and information systems are fragmented, with limited cross-facility initiatives in place. • Stage 2: Developing system-wide processes and protocols, while minimally having cross-functioning integrated financial information systems. • Stage 3: System-wide integration initiatives for processes, protocols, and information systems are in place with minimal completion of cross-functioning financial, human resource, and supply chain management operating systems.

18. Qualifying Supply Chain Integration • Which of the following best describes your systems strategic focus on supply chain management? • Stage 1: Purchasing decisions made at facility level with no clinical resource management positions in place, as well as minimum oversight of overall supply chain performance. • Stage 2: Moving towards a system-wide supply chain management executive position, with some clinical resource management positions in place, along with formal supply chain management oversight committee. • Stage 3: Fully integrated, multi-disciplinary, full-time supply chain management team in place with strategic business plan and standardized processes to manage system-wide operations.

19. Common Myths About IDNs • IDNs can drive volume and commitment. • This is likely true of only those IDNs that have accomplished Stage 3 integration. • Others will tout volume, but may not have systems in place to drive compliance. • IDNs will replace GPOs. • Unlikely. Some will self-contract, but in most cases, you will see an IDN working with a more flexible GPO partner. • It is very costly and time-consuming to effectively manage all the contracts an IDN needs. • Some IDNs will try to go alone, but most will fail. • Once the IDN contract is in place, the work is done. • Like GPOs, IDNs will still require the Supplier to help drive contract compliance. You will achieve the greatest successes by having a document implementation plan that the customer approves.

20. Common Myths About IDNs • IDNs have systems in place to manage contract usage. • Unlikely in Stage 1-2 IDNs and some Stage 3 IDNs. In most cases, Suppliers will be responsible for monitoring usage and compliance and reporting back to the IDNs. • IDNs fully understand the implication of contracting for multiple facilities across their network. • Most early stage IDNs will not understand all of the work involved with writing, implementing, and enforcing contracts for multiple facilities. As a result, much of this work may fall to the Suppliers. • The larger the IDN, the better. • In almost every case, not true; smaller, localized IDNs tend to drive better compliance. • IDNs have control and influence over physicians’ purchasing decisions. • Few IDNs have accomplished this task as of yet. Less than 10% of all IDNs have achieved this great quest.