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Health Systems Scour the Globe for Low-Cost Supplies

Analysis  |  By Christopher Cheney  
   May 23, 2016

Supplies are second only to labor among the highest costs for most healthcare providers. As health systems look for ways to increase value in the delivery of services, global sourcing of supplies is becoming an increasingly attractive option.

Supply chain executives at some of the country's largest health systems are searching worldwide for manufacturers that can help them cut costs while maintaining quality.

Particularly for high-volume supplies such as clinical gloves and gowns, global sourcing is emerging as a significant driver of boosting value at healthcare providers, says Marc Prisament, director of product development and global sourcing at the Manhattan-based NewYork-Presbyterian health system.

"This gives you another option. It's a great extra tool. It shows significant savings on a percentage basis, and it shows dollar savings," Prisament says.

Over the past three years, New York-Presbyterian's global sourcing program has grown from a dozen stock keeping units (SKUs) to more than 80, with an average cost savings of 25% to 30%, he says.

Sourcing high-volume supplies such as plastic basins, slipper-socks and tourniquets from low-cost manufacturers around the world including China has cut annual supply chain spending at New York-Presbyterian by about $1 million, Prisament says. "That's $1 million we wouldn't have otherwise."

NewYork-Presbyterian health system is organized in four divisions:

  • NewYork-Presbyterian Hospital has six campuses: two academic medical centers, two acute care hospitals, one children's hospital and one behavioral health hospital
  • NewYork-Presbyterian Regional Hospital Network features acute care hospitals in Bronxville, Cortlandt Manor and Flushing
  • NewYork-Presbyterian Physician Services features primary care and specialty care physician practices
  • NewYork-Presbyterian Community and Population Health includes NewYork Quality Care, an accountable care organization  

For the year ending Dec. 31, 2014, NewYork-Presbyterian Hospital posted total revenue at $4.5 billion.

St. Louis-based Mercy Health has been pushing its global sourcing efforts aggressively for the past four years, says Joshua Sandler, director of business development at Resource Optimization & Innovation (ROi). Mercy incorporated ROi in 2002.

"Mercy created ROi. We are essentially their supply-chain arm," Sandler says.

Through global sourcing, ROi is projecting to save Mercy $2 million on high-volume supplies this year and $4 million next year, he says. "We typically see no less than a 15% cost savings for any [SKU] category. Health systems won't switch out [an SKU] for 5%."

Mercy operates 45 acute care and specialty hospitals in Arkansas, Kansas, Missouri and Oklahoma. For the year ending Dec. 31, 2015, Mercy posted patient service revenue at $4.3 billion.

The health system owns 90% of ROi. Baton Rouge, LA-based Franciscan Missionaries of Our Lady Health System owns the remaining 10% stake.

Keys for Achieving Global Sourcing Success

The primary guiding principles of global sourcing are relatively simple, Prisament says. "Global means going directly in the world marketplace to the manufacturers who make the product at the lowest cost without sacrificing quality."

For healthcare providers, picking which products to source on a global basis and getting those products to medical facilities is relatively complicated, he says. "You have to find items that can be readily sourced without sacrificing quality… It is as much an art as it is a science."

Both NewYork-Presbyterian and ROi have focused their global sourcing activity on low-cost, high-volume products. "Most of these products often get very little attention," Prisament says.

Volume is a key consideration when changing the source of low-cost products, Sandler says. "You're talking maybe a dollar of savings on a product; but when you're spending $2 million on a product such as a health system, you have significant opportunities for cost savings."

Engaging clinical end-users at the beginning of a sourcing change process is critically important. "You need to have clinical input. You don't want to bring in items and not be able to push them out to the clinical end users," Sandler says.

NewYork-Presbyterian has a "clinical improvement team" that participates in the decision-making process when the health system changes the sourcing for a product, which often results in significant win-win scenarios in terms of maximizing value and standardization, Prisament says.

This win-win scenario played out splendidly when NewYork-Presbyterian changed the sourcing for operating room jackets, he says, noting the preferences of the health system's OR clinicians.

"They didn't like the snaps. They didn't like the length." By leveraging their volume purchases with a new manufacturer, the health system was able to combine the preferences of OR clinicians from all of New-York Presbyterian Hospital's campuses. "There's only one product now to buy, stock, and distribute," Prisament says.

He says the OR jacket example illustrates another essential element of targeting products for global sourcing: the importance of picking products that are "patient and staff satisfiers."

"Is it something that's nice to have or something that we really want to have?" Prisament says.   

Yet another prime consideration in global sourcing decision-making is assessing the total cost of switching to a new product rather than just focusing on the price that a manufacturer sets, he says.

"You need to look at fees such as handling—there may be an extra freight charge. We weigh those extra costs, then we come up with a number."

Rising to Global Sourcing Challenges

The main hurdle in global sourcing is getting products from Point A to Point B, particularly when the distance between those points is thousands of miles across international borders.

When working with manufacturers overseas, logistical challenges are significant, Prisament says, citing placement of orders, ensuring quality control, clearing products through customs regulators and warehousing.

"How do you get a product to the United States? How do you get it through customs? How do you warehouse this stuff?"

NewYork-Presbyterian and ROi have teamed up with Atlanta, GA-based ASP Global to help address these logistical challenges. "A good trading partner is your advocate," Prisament says.

Having a trading partner such as ASP Global is an unavoidable cost for most health systems engaged in global sourcing, Sandler says.

"It's very important. They're used to dealing with customs, bringing the products into the country, and distributing them. They have experience with that. Ideally, you would like to eliminated that added expense, but it's just too cost-prohibitive for us today."

Prisament expects NewYork-Presbyterian's global sourcing activity to grow—to a point. "We have a restriction where we can't self-distribute," he says, noting the limited amount of warehousing space that the health system has in New York City.

"I don't see this as doubling every year… I look at it as another tool in my toolbox. Will it become our total supply chain? No. We have 20,000 SKUs in play every day."

Sandler says ROi is planning to expand to new product categories and physician preference items such as surgical products. "We're trying to dabble in areas where we haven't been before," he says.

Christopher Cheney is the CMO editor at HealthLeaders.

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