Panel Discussion: Purchased Services in Arizona July 26, 2011

1. Panel Discussion: Purchased Services in Arizona July 26, 2011 Keith Callahan, MBA, MHA Senior Vice President, Supply & Resource Service Management, Catholic Healthcare West Dorance Dillon Director of Supply Chain Management, Yavapai Regional Medical Center Mike Hildebrandt, CMRP Associate Vice President of Supply Chain, Scottsdale Healthcare Carmel Porter, MBA, CMRP Senior Analyst Performance and Consulting SCM, Mayo Clinic

2. Agenda • Introductions • Facility Overview • Catholic Healthcare West • Yavapai Regional Medical Center • Scottsdale Healthcare • Mayo Clinic • Panel Questions

3. CHW slides not available for distribution. For questions contact: Heather McDonald heather.mcdonald2@chw.edu

4. Yavapai Regional Med Center • Formed in 1940 as not-for-profit, locally owned & locally operated, healthcare IDN. • 2 Great Hospitals…One caring Spirit: Prescott & Prescott Valley – Totaling 206 beds. 1800 Employees • Women’s center, Wound Care, Home Health, Hospice, Imaging Centers, etc. • 6 Physician clinics, with 17 physicians

5. Scottsdale Healthcare • Scottsdale Healthcare is a not-for-profit organization led by a volunteer board of directors comprised of leading local citizens. That means we answer to our community, rather than stockholders.  • A leader in medical innovation, talent and technology, Scottsdale Healthcare was founded in 1962. Today, we serve the entire Northeast Valley and beyond through two comprehensive medical centers and the first hospital north of the Loop 101.  • Scottsdale Healthcare also offers outpatient surgery centers, home health services, and a wide range of community health education and outreach services. Not to mention clinical and research services not typically found in community healthcare systems.  • Our compassionate staff members and expert physicians are dedicated to providing world-class patient care. Supporting Scottsdale Healthcare's staff in providing patient and family-centered care is a corps of  800 volunteers who donate more than 155,000 hours of service each year.

6. Scottsdale Healthcare Purchased Services • Janitorial Cleaning Services • Landscaping/Grounds Maintenance • Marketing, Public Relations • Medical Staff Contracts • Off-site storage • Pest Elimination/Control • Printing • Reprocessing • Toner cartridge for printers • Transcription Services • Travel • Utilities • Waste Management • Web Management • Ambulance • Asset Management (Electronic Waste/Recycling) • Bio-Medical Outsourcing • Building Lease and Maintenance • Coffee • Construction/Remodeling • Copier Services • Courier service • Document Shredding • Elevator service • Graphic Arts • Group Purchasing Organization • Helicopter service / fixed wing • Integrated Pest Management (IPM) • IS service contracts Purchased Services Annual Spend = $120 million Supply Annual Spend = $195 million

7. Outsourced Printing/Copier ProgramFinancial Impact at SHC

8. GPO Purchased Services Assessment • West Coast GPO Hospitals (21) participating in strategic assessment • SHC to Data file submitted • Service line questionnaires • AP Data • Contracts • Onsite meeting itinerary being finalized for August 16 & 17 2011 • Final results in September, 2011 Purchased Services

9. Mayo Clinic was formed in 1863 as the world’s first private integrated group practice and has evolved into a charitable, not-for-profit foundation and leading academic medical center. • Through the years, Mayo Clinic has nurtured and developed its founders' style of working together as a team. Shared responsibility and consensus still provide the framework for decision making at Mayo. • That teamwork in medicine is carried out today by more than 57,000 doctors, nurses, scientists, students and allied health staff at Mayo Clinic locations in the Midwest, Arizona and Florida. Our network of 24 hospitals, clinics and specialty care centers offers care to more than 1.5M patients and generates $7.9B in net revenue. • Mayo Clinic is a leading member of the Upper Midwest Consolidated Services Center, a consortium of 34 like-minded healthcare centers who have joined together to leverage their collective purchasing power and derive value through aggregation. Mayo Clinic, in conjunction with our GPO, provides contracting services to the UMCSC, whose combined purchases exceed $3B annually.

10. Purchased Services Program Development • 2010 spend on non-medical commodities and purchased services by Mayo Clinic in Rochester, Florida and Arizona was $252M, with 70% contract penetration and $16.2M in contracted savings/value. (Additional $252M spend on capital equipment service/maintenance, facilities maintenance and IT services.) • Holistic approach: program covers the entire process, including data analysis and assessment, sourcing and contracting, procurement, logistics, and ongoing measurements and controls. • Broad participation: end user input and support throughout the process, executive sponsorship and support, creation of a cross-functional Supply Chain integrated support team • Strategic focus: policy development, process improvements, best practice identification and implementation, compliance and utilization programs, standardized metrics/reporting, communications and education

11. Purchased Services Program Successes • In conjunction with our GPO, completed a strategic assessment of purchased services for Mayo Clinic and all members of the UMCSC, and identified a range of $29M - $57M in annualized net savings opportunity • Produced a quarterly Purchased Services Dashboard to monitor spend, key drivers, contract coverage, value, and contracting activity • 2011 value objective is $16M - $20M – realized line item savings, cost avoidance and rebates from contracting activities total $13M (YTD June 2011) • Change Management Strategy – completed policy/procedures; identified internal and external customer base; developed a communication plan • Formed a Reporting and Analytics team to validate data integrity, facilitate the categorization of spend and supplier utilization information in our MMIS and automate reporting

12. Panel Question • Which departments in your organization are responsible for contracting and overseeing purchased services? • CHW - The system Supply & Service Resource Management (SSRM) Department is responsible for contracting for purchased services. • Yavapai - Purchasing; HR for labor; Admin for Physicians; Engineering for construction • At Scottsdale Healthcare, departments responsible for overseeing purchased services include: Senior Administration, Medical Staff, Finance, Facilities, Supply Chain and several Department Managers. • Mayo - Supply Chain Management (SCM) exercises oversight and fiduciary responsibilities for all purchased services contracts, even though routine activities associated with a service arrangement may be delegated to the functional owner or department end user.

13. Panel Question • How much influence does your supply chain department have on the selection of service providers • CHW - They have a great deal of influence. The SSRM department works with clinical and facility leadership and various internal subject matter experts prior to awarding contracts. • Yavapai - Equal, however, if we are not satisfied with the price, terms nor conditions, the contract is not approved. • At Scottsdale, the Supply Chain department has strong influence on the selection of some service providers, such as outsourced relationships for food, environmental services, biomed, printing and copier services. • Mayo - SCM collaborates with end users and facilitates the vendor selection process for most purchased service arrangements.

14. Panel Question • Does your supply chain department participate in the process of contracting for medical services? (Employed physicians, anesthesia, radiology, medical transport, etc.) If so, please describe advantages/disadvantages of supply chain involvement. If you do not oversee these areas, do you plan to become involved in them in the future? • YavapaiNot if it involves personnel. However, medical transport we do participate in I do not see the advantages for supply chain involvement for medical services that involve contracting of personnel • At this point, Scottsdale Supply Chain has limited involvement in contracting for medical services. This is a disadvantage since these contracted medical services have a significant effect upon supply utilization. In the future, the Supply Chain department is planning to have more involvement in these contracts. • Mayo - SCM has oversight for and participates in the contracting for most medical services (exceptions are professional physician consulting arrangements). The Purchased Services Integrated Support Team is in the early stages of assessing the level of use of medical services and how SCM can add value to the selection and contracting processes.

15. Panel Question • Do you employ individuals who specialize in service contracting? Why/why not? • CHW - Yes. There is a Purchased Services group within the SSRM Department. • YavapaiYes. I have a contract administrator that specializes in the management of contracts. This works effectively with our legal dpt to ensure that we manage the contract language consistently. • At this point, Scottsdale Healthcare does not have specialists in service contracting. The service contracting responsibility is shared among Senior Administration, Supply Chain, Medical Staff, Finance, Facilities and key Department Managers. • Mayo - Purchased Services contracting is centrally managed through a team of Contract Portfolio Managers – our primary objectives are standardization, reduction of the number of service providers, vendor management, risk management and best value determination.

16. Panel Question In your experience, what are the most common purchased services in a healthcare organization? • Ambulance • Asset Management (Electronic Waste/Recycling) • Bio-Medical Outsourcing • Building Lease and Maintenance • Coffee • Construction/Remodeling • Copier Services • Courier service • Document Shredding • Elevator service • Graphic Arts • Group Purchasing Organization • Helicopter service / fixed wing • Integrated Pest Management (IPM) • IS service contracts • Janitorial Cleaning Services • Landscaping/Grounds Maintenance • Marketing, Public Relations • Medical Staff Contracts • Off-site storage • Pest Elimination/Control • Printing • Reprocessing • Toner cartridge for printers • Transcription Services • Travel • Utilities • Waste Management • Web Management

17. Panel Question cont. • Yavapai - Basically anything that involves NON-labor. The most common being equipment service / maintenance contracts • Mayo- High spend contract categories include clinical services, temporary staffing, laundry/linen services, food services, professional (consulting) services, building services, waste management services and travel services. Note: Capital Equipment Service and Maintenance, IT Services and Facilities Maintenance Services are managed through separate programs at Mayo Clinic.

18. Panel Question • Does anyone in your organization routinely measure vendor performance as it relates to purchased services? • CHW - Yes, the entire department routinely measures vendor performance starting in the RFI/RFP phase through contract implementation. We have quarterly / semi-annual reviews with vendors to evaluate performance. • YavapaiNot routinely. Typically the review of vendor performance occurs when there is a decline in service performance or the hospital department – right / wrongly – believes that the service contracted for is not occurring • SHC routinely measures vendor performance in the following outsourced categories: Food Service, Environmental Services, Biomed Services, Printing, Copiers, Hospitalists, Anesthesia, Service contracts, HR staffing services, patient care surveys, distributors, etc. • Mayo - continually evaluate the economic and contractual performance of prime vendors through regular business reviews, stakeholder surveys, and other vendor management tools.

19. Panel Question • How do you decide when to simply renew a contract, or bid the service to competitive providers? • CHW - All expiring contracts have some form of market check performed (RFI, RFP, GPO comparison) prior to renewal. • Yavapai We always conduct a market review for contract competitiveness. If after reviewing the market, we feel that there exists an opportunity to avoid a price increase or reduce costs and/or improve needed services we will send out an RFP. Further, we will renew an agreement only once without bidding it out. • SHC - When the contract is coming up for renewal, the contract decision makers review the vendor performance, GPO relationship and dollar impact before deciding to renew the contract or go to bid. • Mayo - Elements of this decision making process include the total spend; the total value opportunity; the potential business, financial or legal risks associated with the arrangement; number of competing service providers; extent of contract use across our enterprise; evaluation of current service provider performance; stakeholder input.

20. Panel Question • Which purchased service do you feel brings the most value to your organization? • CHW - Reprocessing • YavapaiIf you are looking for examples, I would say 3rd party supply benchmark data bases; GPO; GHX; etc • If SHC defines a Group Purchasing Organization as a purchased services contract, I believe that it would bring the most value to our organization. • Mayo - The greatest recorded savings have come from our food and laundry, temporary staffing and medical coding service programs

21. Panel Question • If you had your way, which purchased service(s) would you eliminate? (No vendor names please) • YavapaiOEM service / maintenance contracts. I would like to see more third party service/maintenance players in the market. • SHC eliminated the outsourced function of document shredding and we are doing this in-house. • Mayo - We have removed IT Services, Capital Equipment Service and Maintenance and Facilities Maintenance from our Purchased Services Program – these purchased services are under the management of separate teams comprised of subject matter experts in those areas.

22. Panel Question • Have you ever had difficulty eliminating or switching providers for a purchased service? Please describe without naming the parties involved. • YavapaiI inherited a horrible contract with evergreen clauses. In addition, there was a clause that if you made any change to the services, e.g., added or closed a facility, the agreement would auto renew for another five years. I ended up initiating the ridiculous 2 year notice of non-renewal to get them back at the negotiating table. This was the worst contact that I’ve seen in my supply chain experience. • Yes, SHC has had to eliminate or change purchased service providers due to inadequate service levels. • Mayo - Due to practice and operations differences at our various facilities, as well as geographic service limitations for some providers, we are not always able to centrally manage some of our purchased services and must contract with several providers for the same service at different locations.

23. Panel Question • Does your organization outsource any departments? If so, what challenges have you encountered with these services? • YavapaiNo, but we should. I’m a big fan of outsourcing for the right reasons in non-patient care areas, e.g. foodservice, housekeeping. A perfect example is the intergrated services solution utilized at Scottsdale Healthcare. • SHC has outsourced our mail room and copier services without any significant challenges or problems. We also have modified outsourced models in Food Service, Environmental Services and Biomed Services. • Mayo - No

24. Panel Question • How does your GPO assist you with acquiring purchased services? • CHW - The GPO does not have a broad purchased services portfolio. We do include GPO contracts in our market review when available. • YavapaiMy GPO does a good job of screening service providers and providing agreements that allow a base for negotiations. • SHC works closely with our GPO to try to use GPO contracted purchased services whenever possible. • Mayo - Our GPO has an extensive and growing purchased services portfolio, and we also engage GPO resources to assist with our Purchase Services contracting, vendor management and analytical/benchmarking activities

25. Panel Question • Are GPO contracts preferred over local contracts? • CHW - The vendor that brings the most value to CHW is preferred & awarded. All things being equal, we prefer to award to the GPO contracted supplier. • YavapaiNot necessarily. It boils down to the best match of service and costs. • Yes, SHC has an overall goal to be 70% compliant with GPO contracts. • Mayo - Wherever possible and feasible, we prefer to partner with our GPO contracted suppliers.

26. Panel Question • Do you have a formal process for considering minority-owned service providers? • YavapaiNo and I don’t believe there should be special consideration. • SHC does not have a specific goal or target for using minority-owned service providers, but we work with our GPO to identify minority-owned vendors. • Mayo - Yes we have a Diversity/Minority Business Vendor Program incorporated in all of our Sourcing & Contracting portfolios.

27. Panel Question • Does your MMIS allow you to view purchased service expenditures? What are the limitations of the data? • Yes, our Lawson system allows CHW to view purchased services expenses. • YavapaiOur current system only allows the capture of aggregate expenditures which is only mildly helpful for the purposes of ensuring that the vendor is not exceeding contract expenses. • SHC’s MMIS system allows us to track all purchase orders entered into the system, including purchased service expenditures. However, some of our purchased services contracts are not assigned purchase orders (such as medical staff contracts, hospitalists, etc.) and these contracts are more difficult to track and measure. • Mayo - Our system does not allow for the categorization or classification of service expenditures into identified contracting categories. We are investigating the potential assignment of attributes to vendors in our vendor master to allow for grouping of service expenditures through a combination of vendor and account number. We are challenged by the use of a single vendor for multiple services and a limited selection of services accounts in our general ledger.

28. Panel Question • What purchased services opportunities have you identified to increase revenue? • SHC has recently contracted with a consultant company to review our internal processes for charge capture (including coding, admitting, third-party billing) in order to improve our revenue performance.

29. Panel Question • What purchased services opportunities have you identified to reduce costs • SHC has seen significant cost savings in areas such as outsourcing of travel nurses, mail services and copier management.

30. Panel Question • Do you specify any “green” requirements in your contracts? • CHW – Yes. • YavapaiOnly to the extent that we request assurance that the vendor follows required local, state and federal environment laws. • Mayo - Through our Sustainability Program, we are incorporating environmentally sensitive language into our contracts and implementing service programs targeting waste stream reductions.

31. Panel Question • Do you have a source of information you can use to benchmark the cost and/or efficiency of your purchased services? • CHW - We benchmark within our system and look to other similar size systems to compare metrics. • Mayo - We can only compare purchased services costs and usage internally among our various sites and affiliated networks but we are working with our GPO to develop benchmarking tools for participating members.