Reining In Health Care Costs Through Stricter Supply ManagementReining In Health Care Costs Through Stricter Supply Management

Could the secret of lowering health care costs nationally come from supply chain improvements?

At least one executive thinks so from a major New York City healthcare provider that's saving millions each year via better supply chain management.

"If health care wants to tackle its problems, you've got to take on systems drastically," in terms of squeezing out costs in the purchasing of supplies ranging from drugs to sutures, to even the soda that's sold in cafeteria vending machines, said Charles Agins, Montefiore Medical Center VP of finance and executive project director who oversees business information systems.

Montefiore Medical Center, which includes two hospitals and soon a third, began deploying SAP ERP software in 1996, and continues to roll it out today as it acquires other facilities. Montefiore is using SAP's software modules for materials management, financial systems, and funds management, said Agins.

Agins said the SAP deployment has enabled the healthcare provider's management team to overhaul purchasing processes and policies dramatically, as well as enforce those procedures and rules, resulting in $72 million in savings over the last 10 years.

A big chunk of the savings has come through fierce contract negotiations with vendors of everything from copy machines to pharmaceuticals to staff cell phones, resulting in much longer term contracts at discounted prices, as well as improved services. Instead of changing suppliers every few months, Montefiore has multi-year deals that keep prices low and improves quality of services and loyalty from suppliers, he said.

The system ensures that Montefiore employees are buying approved products from the contracted suppliers, and staying within departmental budgets.

More than 800 workers, ranging from clerks, doctors, nurses, and department heads order supplies through the SAP system, which features checks and balances to ensure that purchases are made within budget as well as adhere to the array of product standards and selections that Montefiore sets.

Not only has the system helped reign in costs, it's streamlined and expedited processes. Orders that in the past took 24 to 37 days to process, now happen overnight, Agins said.

The system also provides Agins and other Montefiore executives the ability to see in real-time purchases that have been ordered, and by whom. This has also greatly reduced "shrinkage" of supplies, including drugs and expensive medical gear that gets stolen by workers.

The savings from shrinkage has been "shocking," he said.

The SAP system provides Agins and others with order data that can prompt investigation into why, for instance, an operating room employee ordered drugs or expensive medical supplies for a procedure that's not even scheduled, he said.

With "big brother getting this information" about legitimate as well as suspicious orders, employees are much more honest and careful about what they purchase, he said. This translates to millions of dollars in savings a year.

Agins said he thinks that if more healthcare providers nationally applied these kinds of changes in practices and processes with supply chain management -- including muscling more favorable contacts with suppliers and then adhering to those deals with the help of technology tools, rising healthcare costs could be better controlled nationally.

"It's about accountability," he said.