On May 25th, Advantus Health Partners held a webinar with the American Hospital Association (AHA), “Bridging the Price Gap in Rural Hospital Supply Chain.” In the webinar, Advantus’ president, Dan Hurry, shared strategies rural and community hospitals can use to optimize their supply chain. See the full transcript below.
Watch the WebinarAHA Webinar Transcript
Alicia Chollampel:
Thank you. Welcome, everyone, to today’s webinar. This is Alicia Chollampel with the American Hospital Association. I’m pleased to be moderating today’s webinar, Bridging the Price Gap in the Rural Hospital Supply Chain: How rural and community hospitals can reduce their supply chain costs with more equitable models. Today’s event is sponsored by Advantus Health Partners.
Rural and community hospitals are some of the most underserved when it comes to supply chain operations. The data shows that they pay about 30 to 40% more in supply chain costs than an integrated delivery network. Rural hospitals are serving critical needs in their communities, and yet they struggle with supply chain pricing and purchasing power. Rural hospitals tend to get less support from national group purchasing organizations.
In this webinar, Dan Hurry, President of the Advantus Health Partners, will present solutions for how rural and community hospitals can bridge the supply chain price gap between big and small players by optimizing the price schedule, take advantage of a Costco model where there is one price for all, streamlining workflow and staffing, drive decisions for better process design, more efficient product and inventory management, and effective organizational design, leveraging technology and insights by using more than spreadsheets to identify opportunities and find values.
Now let me introduce our first speaker for today, Dan Hurry. Dan is the President of Advantus Health Partners. He is responsible for the strategic vision, growth, and operational management of the consulting and supply chain functions of Advantus Health Partners. He is an experienced executive with a proven track record on driving results in the logistics industry. He has successfully implemented supply chain strategies, resulting in significant cost savings, improved customer success, and increased efficiencies. Dan oversees essential functions for Advantus, including finance, clinical transformation, strategic sourcing, pharmacy, lab services, procure to pay, digital field operations, and business development.
In addition to his executive leadership roles with Advantus, Dan also serves as the chief supply chain officer for Bon Secours Mercy Health, one of the nation’s largest nonprofit health systems, with 48 hospitals across seven states and Ireland. It’s now my pleasure to turn the floor over to our speaker, Dan Hurry.
Dan Hurry:
Thank you, Alicia. I appreciate it. And thanks, everybody, for taking the time today to listen to me a little bit. But what will be most important is to hear your questions and anything that we might be able to address realtime or in the future post the presentation today. But thanks again for your time, and thanks to the AHA for putting this together. I really appreciate it.
Alicia already spoke a little bit about me, so I won’t talk too much to the point other than here, I’ll give you a little storyline via a journey of what brought me into healthcare supply chain. But I’ll back that up with, I’ve been in supply chain my whole career, starting really coming right out of school, as a buyer for a retail organization that was also a manufacturer of food products, and really cut my teeth learning how to be a supplier to Walmart, be a supplier to our own retail, and how to find value through engagement with suppliers. Because what I believe is, independent of your size or scale, alignment and consistent performance is what yields value. And we’ll talk a little bit about that as we walk through this.
And you’re going to hear some interesting links here that I hope will resonate as we walk through the story. But in front of you there you see a slide that shows Valero and some ICEEs, some Twinkies, Coke, Pepsi, and some trucks there. About half my career has been outside of healthcare, and what I learned there is absolutely applicable in this space. And I’ll give a small story here, and it’s going to revolve around Twinkies. I’m going to use that as an example really and then play that a little bit later as we walk forward in the slides here.
I put together a program years ago, because I had frustration with the fact that I worked for a convenience store chain. We owned about, company ops, 2,500 locations across the country, and about 7,000 that were jobbers. So we didn’t control them, but they were affiliated with us. But of the 2,500ish that we owned, it was frustrating that some of the smaller products like a Twinkie, we didn’t always have on the shelf ready to go. We didn’t get optimal pricing. We didn’t have what we wanted when we wanted.
And really what it boiled down to is that the attention that an independent distributor would pay to a small location with a couple shelves, versus a big grocery store or a super center or a big organization like a Costco, and it made sense for them. Why would they spend that time, and their income was really revolved around what they did in the day in, day out basis.
So what I did is worked on consolidated distribution offering, and flipped that whole model on its side and said, what if I bought everything we used, as an example, in 600 of our locations in Texas? I bought them at one stop and then I took on the distribution side. And the short story, the quick math is we could take 28% out of cost in that model while also creating 40% increase in volume for those providers that allowed us to do that, Twinkies and that whole company and what they did, it revolutionized their model.
We became first to come to market, and then quite frankly, that changed the dynamics of how those products go to market in the United States today. Now they’ve got a warehouse solution and they’ve got what they call direct store delivery solution, all stemmed out of a frustration. A second element there was we get frustrated that as an individual consumer we could walk into a Costco and buy a case of Gatorade, as an example, cheaper as a consumer than we were buying four or five trailer loads a day on an ongoing basis throughout the whole year.
The short story there is we actually leveraged the relationship with Costco and Sam’s Club to buy that product directly through them and changed the model, and ultimately at the end of the day created what you’ve probably come to as a normal now for many years, probably almost 15 years now, where cases went from 24 packs to 32 packs, that was the work I did in actually redefining that channel restrictions that were in place, that convenience couldn’t get as optimal pricing as the big Costcos or Sam’s Clubs of the world.
So what we did is we got creative. Let’s create a new package, and actually they had agreed to it after a year and a half of not having direct access to products, to actually move the product through us. And now it became the convenience pack. Same product at the end of the day. But what we did is we got creative on the solution, they became partners with us, and we yielded the value downstream.
And I can go on with a number of stories that are everyday products that people consume every single day, that you’ve come across, like Twinkies or Gatorade or even some innovation we did with ICEE. But what we didn’t do is we never sat and waited for some other opportunity to come to us. We actually created, innovated, and again, with that alignment and consistent performance, we could yield value all day long in those things.
Now along that way and along that pathway of where we were going, I actually got sick along the way, got cancer, had a tumor in my chest. I have a pretty large scar here. And it changed my outlook on life because I loved the world I was in, loved supply chain, loved how we did things. I was always fighting for the little man, if you will, and how we could create more value and optimize our supply chain model. But I’ll tell you then I had a lens, because I had a poor experience and actually because supply chain was just, that was my life, I really thought the experience I had and the delays in the cancer analysis or the labs coming back to even through the surgery, having some issues going through what happened there and poor communication all the way along the lines, I actually thought it was a broken supply chain.
You then get behind the curtain, you find out it’s more than just supply chain. But I’m also not a complainant, so I like to step into the world as it is this way and say, I’m not going to complain, but I’ll take action. And it really started my itch to get into healthcare and take the experience I had in logistics, distribution, manufacturing, contracting, and all that, and bringing in healthcare. And it’s been a wonderful journey ever since.
So I’ve worked for Baptist Health System, was my entry point in San Antonio, Texas, which was a division of Vanguard. I quickly helped with their strategy across the country where they existed. We were then bought by Tenet. I was the first person actually to get employment at Tenet in the conversion officially, and then build out their supply chain strategy with the team there. That was deployed in 2016, and almost immediately after was recruited to come to Mercy Health, then became Bon Secours Mercy Health.
We did a number of interesting and innovative things within the supply chain here because we’re really not-for-profit organization, ministry led, but we understand the constraints both from the community hospital perspective and then we certainly have some large facilities within our network as well. But trying to create the economies of scale to create value but then really still consistent to lead into performance, and how do we use performance of partnerships to yield value?
And with the wonderful things that the team was doing, we were approved by the board to actually move into an independent solution to yield even more value for our healthcare system. It’s been a lot of fun. We’re going to unpack a few of those things as we go here today.
So struggling with finding my next button, here we go. So again, Advantus Health Partners came out of really Mercy Health and Bon Secours Mercy Health. We’ve got a wonderful team in play, but really where we spend every day and we focus every day, all day, is really on how do we engage people where they’re at and then how do we expose them to maybe new ways of thinking, new ways of operating, and new ways of taking what might seem like an insurmountable challenge that could be in front of them and break it down into its components and parts and then bring forward value.
We look at ourselves, I hate to associate that we are a GPO, but we are. We’re an end to end supply chain company that happens to have a GPO. And I say that because I think there’s been challenges within the industry that can create where they just focus on contracting. And that’s really what the GPO element is. You’ve got to have that arm. But you ultimately have to look at why you have what you have, where it is, when it is, how you move those products through the supply chain up and downstream of your immediate consumption, if you will. How do you manage that end to end and then how do you contract that accordingly?
And a contract should be really what that relationship is with your supplier partner and how do you engage to push them, you know, the new Twinkie model, the new Gatorade model, whatever it is, to a different avenue and a different value proposition that may not exist today that you can bring forward?
So we hope to continue to shape and shove the industry in that direction, to really look at their supply chains in a much more respected and strategic way. And one of the things we’re constantly pushing on is really elevating the whole supply chain team and looking at it as more strategic rather than transactional. And when I walked into the industry, what I did find was I think we diminish or dilute the value proposition that can come from the supply chain, both from a resource perspective and from a strategic position of where we really bring the supply chain to the table. And unfortunately, I think the pandemic unpacked the need for an advanced supply chain, but also as an industry, I don’t know if we were fully prepared for that. And we continue to evolve and educate and learn all the way around. So we continue to move on here.
So what’s the problem? The reason we’re talking here today, and hopefully some of this setup is going to start to resonate as I walk through these slides here, is why should a rural or a community or a small facility that may be independent or may be partnered with one or two other folks in a given market, why should they have higher pricing, or punitive pricing, you may even call it, compared to maybe a large IDN or somebody of that nature?
I actually believe some of it is from design by the traditional method by which the non-operating GPOs really design how they come to market. And what I mean by that is if you think about incentives and how performances work behind the walls, that old adage of follow the flow, follow the money, it’s not optimal necessarily for some of those folks to have best pricing because the more inflated pricing is, the higher the fees are that are associated with it, therefore yielding greater value.
What I find is that in studies we’ve done within ourself, and I’ve seen this with Mackenzie, it was noted with AHA as well, but we’ve seen it within our own data, there’s about a 35% price gap that we see between an IDN and an independent. And when you really break those things down, what you’re not finding is the real root cause of what that looks like. There certainly may be the reality that the cost to serve could be a little higher in a smaller location than a larger location, but it’s minimal in comparison to the whole thing. And it’s not 35%, I can tell you that for now.
And the correlation I give here, back to the silly Twinkie story that you might have thought at the time is like how is he going to bring that back around, is what we found in that industry was when we can consolidate and operate and then narrow down to single partners or folks that we’d align with, we were finding a 28% give or take cost adjustment in most every area that we did that.
And then what we did is made commitments and aligned with those partners, that they were the solution in that space. We didn’t have a breadth of options and things across the table, maybe four or five different solutions that were comparable. We narrowed it down to just a short list of products, short list of suppliers, short list of opportunities there. The thing can be done in this space.
I find it to be an interesting fact, if you don’t all already know this, that in the United States when you look at gloves SKUs, there’s over 9,000 different versions of a glove in the United States today. There does not need to be that many different versions. And what’s interesting there is it’s not that, I did not say there’s 9,000 different gloves, there’s 9,000 different versions of gloves, so different labeling that’s put on the same glove, different packaging that’s put on the same glove, different colors schemes that are put on the same.
And that carries over to other products, as well, where you’ve got replication of goods and the more you’ve got that inefficiency, if you think about the true supply chain throughput, upstream what it does is it’s not allowing standards to be put in place that allow efficient production, efficient shipping, and efficient final mile, if you will, getting it to the final point of delivery or final point of consumption.
And I think what the traditional GPO scenario has done is they’ve been a little bit disingenuous in creating layers or tiers. This only shows three tiers on it, but we see agreements out there from nine to 12 different tiers, that essentially it’s hard to get to that next threshold, but the reality is there’s no added cost involved within that scheme, if you will. So the challenge of the point there, and we’ll get to a few takeaways here, but the problem is that we’ve built a design in an industry that’s revolved around creating I’d say fictitious levels of cost increase that are really more favorable to the company putting the contracts together than they are the reality of what it does for the end user, and that helps the industry actually thrive a little more so than ever.
Why prioritize the supply chain? Fairly straightforward. Second to labor, supply chain is your largest expense. You put supply chain, whether it’s supplies, pharmacy, and purchase services under that bucket of supply chain, there’s a lot going on there. So it’s something that we need to understand, we need to emphasize, we need to move forward with. I also believe supply chain is the catalyst of standardization. When you think about what we do and how we do it, if you truly look at supply chain as not necessarily a department, but it’s really a discipline that you’ve got in your organization, everybody’s doing supply chain every single day. Whether it’s at home, it’s at work, you’re buying things, you consume things, you move things from the cabinet to the refrigerator to the counter. You’re managing the logistics of a daily supply chain workflow, but we don’t think about that discipline in an ongoing basis inside the walls where we work.
Supply chain in its truest form is really, it’s optimizing. It is the Six Sigma of the organization. How do you continue to drive those? Supply chain, I think within our industry, has really been looked at as materials management or how do we move things from point A to point B, which is a component of supply chain. It’s not supply chain in and of itself. And then naturally, standardization correlates to clinical quality. Nobody’s going to argue that the more you get to standards in whatever it is, you’re going to yield a higher quality output. That’s what Six Sigma is all about. How do you drive standards?
And if you think about it in that hierarchy that we’ve got in the slide in front of us, the supply chain is a huge component of your organization. And again, I challenge you not to think about it as what’s my supply expense? Think about it as what’s your supply chain as a whole? How do we move through the building, how do we move from point A to point C? And then as a catalyst standardization and what does it mean to yield quality? It is absolutely a critical point and a strategic element of how we manage the supply chain.
Now as we move in, what can you do today? Because when we get on calls like this, what we want to do is how do we share some insights? And it’s always tough in a quick webinar where you’ve got some engagement. I can’t wait for the Q&A session. But trying to instill a few things, and I fully recognize that nothing I’m going to say here is rocket science or things folks already have, but maybe it’ll pique a different angle on something or a different light or maybe a new interest or a new energy around some things.
But optimizing price schedules and identifying strategic supplies, so again, you think about that tier methodology and what that looks like and how that’s constructed. How do you optimize what that looks like? And there’s a slide coming up here that will talk about the reality of how many people do optimize those schedules today and what does it look like in that regard. And I’d also say you’ve got to lean into the rest of the supply chain. The supply chain doesn’t start and end with what we do on a day in, day out basis as healthcare supply chain leaders. We are a part of that chain. Upstream, there’s manufacturing. Downstream, there’s disposition through the waste system, through an implant that walked out in a patient, to whatever we might move downstream. But we are part of the supply chain.
So with that, I think you’ve got to identify, you’ve got to find partners that think alike, look alike, and work with you on what your solutions are. Leveraging your workforce and streamlining your processes, again, you are the Six Sigma. You are the team that can find and identify and streamline, remove waste, and really push the envelope on processes and performance engineering within your shop or within the entities that you run. And of course when we can’t embrace technology, where we’ve got good technology, continuing to use that as what I’d say your digital supply chain driving your physical supply chain. So the work and the effort, everything that we do, is supported by that digital supply chain provided via the technology that we’ve got employed and in place.
And fully recognizing, like I’ll even pull in the Twinkies comment yet again here, is that in that industry, everything has a UPC on it. In our industry, we’ve got disparate language from site to site, system to system, manufacturer to manufacturer, and we’re not consistent there. It is a hindrance to performance for sure, but it’s not necessarily, it doesn’t shut it down, if you will. You’ve still got opportunities to outpace there.
So optimizing the price schedule, what does that really mean? What do we look at there? I think I just mentioned a moment ago that you look at opportunities within even the structures within the GPOs themselves today. But if you think about this particular stat here, the reality is that all the major GPOs today, 70 to 80% of what they currently have in their platform is augmented locally. So all day, every day long, don’t accept the pricing that’s being brought forward in your current GPO.
If you do have a GPO relationship, which you most likely do, you should be challenging every opportunity that’s in there. Now, you need to do that with your partners. Who is your partner? Whether it’s distribution through Medline or it’s cardiovascular, Medtronic or Boston or Abbott or one of the majors in that space, how do you work with them to augment the reality of the agreement that you do have in place?
Because I’d say that alignment piece, of alignment and consistent performance yields value, you’ve got to find here who you align with and then what you need to do is prove performance because it’s easy to get a good deal in aggregation, but it’s tough to get a deal the second time around or the third time around if you did not perform against what you said you’re going to perform. No secret there.
We think about that in our everyday life. If you can trust somebody with something, you’ll trust them with a little more maybe down the road. If it can’t be trusted on an ongoing basis and relationship from a business perspective, it’s hard to yield that next level of value.
You’ve also got to think about it. The question here is you see, are you a Costco or a super center? I like this analogy because if you’ve got too many things on your shelf, if you’ve got five versions of an exam glove on your shelf, and that may be an oversimplified version, versus one that you’re aligned with, or maybe two, because resiliency, we’ve learned a lot through the pandemic, that you’ve got to have some comfort in what you’ve got there. But make sure within any of those categories or even from down to a product line that you’re looking at things in a very selective way.
And I like to use the Costco analogy because if you think about Costco, and I apologize, there’s people on where there’s no Costco in their markets because they aren’t necessarily everywhere, but you think about that club, sort of wholesale warehouse analogy, most times those products that are on the shelf in there, they’ve been vetted heavily. And they partner with, Costco in this case, partners with whoever that manufacturer might be in a strong way. They commit a lot of volume, they commit performance, and they stand behind what they’ll say. You can almost return anything to those folks.
But you’ll also notice that nine times out of 10, most of the time there’s a unique way of their packaging. So you may be able to go in there and buy the same, say a TV or whatever it might be, but there’s a unique way that they position it, or it’s only the size or dimension for Costco. Some of that you can do locally yourself as you apply that to how you approach the world of your selection of goods and who you partner with. They’re always quality goods, they’re always measured on performance, and they’re always aligned in a way that both parties win.
But most importantly, if you think about it, the consumer that walked away, so Costco and the manufacturer, they came to agreement to align on something, but generally speaking, that consumer walks away with a better value and a quality outcome that they walk away with, not unlike a patient. They want a quality outcome, they want the benefit of understanding that they have quality cared for, and they want to have comfort in the guarantee that was provided. You’ve got to find those partners that you can align with, and don’t overdo it. Don’t try to be everything to everybody because the more you are everything to everybody, you’re diluting the value. In today’s economics, we’ve got to get away from that.
Leveraging your workforce and streamlining processes. I’d say communication, communication, communication. I’ll tell you when I was in college and school, I used to think, is communication really all that important? As long as you’re just a great performer and you know what you’re doing, you’re the best of the best, does communication matter? It matters all day, every day. Think about, again, hate to be oversimplified and practical, but think about your everyday life. If you didn’t communicate at the house or you didn’t communicate at work well, how effectively would you be driving the performance that’s expected of you as a supply chain leader? So think about very strategic ways and very, I’d say strategic and very timely ways of how you communicate to your stakeholders, to your partners on the supply side, to your stakeholders, to the end users. What’s the frequency? What’s the method? And then overdo it. Repeat it, repeat it, repeat it, repeat it, repeat it.
What do I mean by that? Well, you’ll learn that most people, not everybody hears your message the same way and not everybody hears your message the first time, maybe not even the second time. So what we do is in Advantus, we’ve built a model and it’s worked very well, where we have both written and verbal frequency by which we push information out to really assure certainly the message is given out, but we’re also trying to accommodate the way by which people hear and interpret what’s going on.
So we believe it’s very important for people to have a regular cadence of updates on financial operations, performance and initiative change, whatever it might be, quality outcomes, whatever we’re working, and just general HR updates, how’s the team doing, how do they engage and interact? How do we do that on a regular basis with a right audience at a high frequency? And how do we localize it? So how do you make sure you got that? So within the walls of your facilities, how are you doing that in each department? How are you doing that with the C-suite? How are you doing that with everybody else that’s within the room? And how do you engage on an ongoing, regular basis?
And also, how do you set it up where people can go back and review everything on an ongoing basis? We think it’s very important that they hear the same message in different settings to ultimately have it set in. Because back to the performance side of what you do, if you really want to get people to align on a certain product mix or a certain method by which you’re operating or what that looks like, you’ve got to really keep repeating the message. Don’t assume everybody understands your supply chain lingo.
Don’t assume everybody understands, or even cares, for that matter, what you’re thinking about in that day in and day out basis. You have to constantly sell it to them, constantly bring it up to them, and bring it up in multiple formats so it’s optimizing the probability that the message is sinking in and people understand the why, the why is important, the why you’re doing what you do to really help both your financial teams and your operating teams. So leverage your workforce to do that. All teams should be armed at all times with all the insights and information they need while performing at the same measures that you’ve set forward.
We’ve all got varying abilities of technology out there. You may rely on what’s coming in via the GPOs, what might be coming in, some internal information or insights that you’ve got within your teams. But information is power, and how do you embrace the technology that may be there? There’s a lot of good companies that do good analytics and measurements or some tools that they can layer in. Your ERP platforms, there’s usually a lot you can draw out of them, but sometimes the ERP platform is certainly limited because not everything always goes through there, especially in your purchase service space and what that looks like.
But what I would say is embrace the technology to be the backbone of everything that you bring forward. And of course, again, a call like this wouldn’t necessarily allow us to expand too far, but the technology that you embrace is going to be as good as the inputs that you’re providing it. So thinking about your data sets, your data manage, your use case that you’ve got within anything that you’ve brought forward, but make sure it’s meaningful data. Is it meaningful and is it quality?
Because you can also, as we talked about that communication and the point number two, you come back to that and every day if you don’t have quality within the data, it can shut down your credibility almost overnight that you may have built up over the years and how you bring that forward. So I think it’s critically important to support what you’re trying to leverage and bring forward with the metrics that are behind that. And again, they should be part of your regular cadence of the measurement around what you brought forward.
Because again, the old adage you’re going to manage what you’re measuring is clearly important in our world. The more we’re bringing things forward, the more we’re trying to line up with our teams or be shoulder to shoulder with the department leader on challenges or opportunities, the more you’ve got the data, the more you can work with your supplier base, your partner base, the more you can work internally and continue to turn the dial towards optimization.
And with that, really I got through those slides in a little quicker time than anticipated, which hopefully affords us a good Q&A session. But what I’d say is thank you for the time to at least walk you through the slides. I think the engagement’s going to be important. I’m looking forward to the questions. And with that, I’ll turn it back over to Alicia to maybe open the floor.
Alicia Chollampel:
Thank you, Dan. We will now begin the question and answer portion of today’s event. As a reminder, you may submit a question for our speaker in the question and answer box to the left of the presentation. Simply type your question in the box and hit submit. Our speaker will answer as many questions as possible in the time remaining. Questions that are unable to be answered in our allotted time will be shared with the speaker for a follow-up offline. So the first question is, Dan, could you please discuss purchase services strategies for the rural hospital?
Dan Hurry:
Sure, absolutely. And I think certainly in a rural hospital, some of the purchase services, even if you think about programmatic elements, like dietary or EVS or plan ops, clinical engineering, you’ve probably got folks that have multiple hats that they wear as they step into these roles from a leadership position, which I think is healthy. But I also think it’s space that you’ve almost got to think about it in two splits.
There’s the programmatic things, like the ones I just listed up, hospitality services, which would include dietary, EVS, patient transport, even supply chain to a degree. There’s some elements of that that could be on the purchase service element. Your clinical engineering, your facilities management, all those big programmatic things, I think you’ve got to make sure, do you have the right partners in place, or you don’t have partners? At least have discussion with the partners to understand where you sit from a benchmarking perspective and what does your quality outcomes look like and how do you push on that.
I think the second thing that you need to look at is everything else, because that’s what really gets you, is the thousand other purchase service elements, and is there a streamlined way to manage those relationships on a local basis and assure that you’re getting quality measures, but then also pushing that up into understanding some benchmarking. And when I say benchmarking, it’s not always just about price. It’s about the outcomes and the push that they’ve got in that regard as well. So great question.
Alicia Chollampel:
Second question is, what is the best way to get added to the vendor panel so we support cost savings for the clients in these areas?
Dan Hurry:
I’d say just constantly raising your hand, making a little noise to whatever that supplier base might be, or the manufacturer or vendor community would be. Make a little noise, pull them in, show them what you’re doing, cast a vision of where you want to go, maybe the next level of performance you want to bring forward. You’ll get their attention. It’s really that adage of the squeaky wheel gets greased. I think in a lot of cases we assume we can’t get to the table, but if you ask to be there, you absolutely can.
Alicia Chollampel:
Thank you.
Dan Hurry:
I see some coming in here too, Alicia. Yeah. Go ahead.
Alicia Chollampel:
Yeah, we could ask the first question. So the first question from the chat is, how often do you recommend shopping new GPOs? At what point have you leveraged the most out of a GPO?
Dan Hurry:
Yeah, so Ben, one thing that I think about is shopping the GPO in and of itself needs to be secondary to your partnership equation. So I’m going to veer a little bit from the question on how often do you recommend. If the GPO’s not adding any value, as frequently as that termination clause looks like. If they’re adding some sort of value, continue to push the options with them, continue to extract whatever value you can, and then move on if they’re not doing such.
But I think the bigger thing you want to look at is within that, how much work are you doing yourself versus what they’re providing for you? And do they yield value? Like I say, one of the reasons we went independent as a GPO was we were doing all the work, we were creating all the value, and we were giving up, for lack of better terms, the value within the fees that we could have just brought in-house. Hence, we moved into our own entity in that regard and still in transition to a degree.
But I would say it’s a constant review. There’s no magic formula there. You don’t hear people say, I think on a normal basis, maybe it’s a five year run, but it needs to be a direct correlation to the value coming in and make sure that there’s accountability on what they provide.
Alicia Chollampel:
Thank you. The next question is, can rural organizations successfully create purchase space with competitors?
Dan Hurry:
Yeah, I think so. I think it’s a struggle with folks looking at competitors as they gain a greater advantage of some sort by aligning on some cost measures. I think it’s a place that you should absolutely align. It politically can maybe be tough depending on the environment of the C-suite and what they may think. But I think the reality is if you can optimize your supply chain, it rises the tide for all.
And then maybe from a volume metric standpoint, meaning the engagement you’ve got from physicians coming in or cases there, that’s really a matter of the quality of service and what you provide. So I think all day long folks should be able to look at their competitors from a competitive landscape perspective, and I know that’s kind of a loose term there, but on the supply chain side, the more economies of scale you can gain in certain markets, and back to the purchase services question, absolutely, if you’ve got a service within a market, but it’s fragmented and nobody can get economies of scale. But if you could align on that service and ramp forward, it probably rises the tide of value for everybody. And then the product side, the same way, but probably maybe a little more prevalent on the purchase service side.
Alicia Chollampel:
Thank you. This next question comes from the chat. The question is, Dan, how do you feel manufacturing has changed for the future since COVID? Do you feel that there was a true lesson learned about diversifying locations?
Dan Hurry:
Thanks for the question, Jody. So yes, I think we’re still in a flex point where the major manufacturers aren’t sure how much they should move into the United States. Because I think there’s also some space in here where we use some terms that are a little looser than they should be, and we use the term onshoring or things like that. Some are using that, but they’re still buying all the components, bringing them in and piecing them together in the United States. I think it’s a little bit of this made in America approach that we should be thinking about, and how to move and diversify in that regard and have things a little more local.
I think the biggest thing that I know we’ve seen some of it as well, we’re actually an invested partner in a manufacturing facility in Ohio, and Emerge Manufacturing will be open next year. But what we learn is there’s been this historical fallacy that it’s all about the labor on these sides, where you go overseas and you can buy things a lot cheaper there. The reality is labor is cheaper there, no question about that. And that’s not what I’m going to debate.
However, over time now, efficiencies of manufacturing have outpaced the need for that labor. However, and I’m going to draw into a link of what I shared a little bit earlier about the 9,000 versions of gloves, if you’ve got disparate manufacturing going on, you won’t get the efficiencies of the economies of scale to drive costs down. If as an industry we could land on let’s say three, four different versions of a gown, three, four different versions of a glove, that is absolutely clinical quality, although maybe even better quality, and we can drive economies of scale on some of the machine technology that exists now to run these products, millions of products in a minute, we can gain a made in America model that actually creates a lower cost model, creates back to that quality of care and standard, bring that forward, and then provide better product economically and from an outcome perspective in the states.
However, as an industry, we’re just not there yet. I wish we were, but if you follow the logic and the alignment of other manufacturers in other industry, it’s all about how they use machines and robotic technology to optimize their production runs and they drive standards, they reduce options. I hate to say it, but think about such a generic version, but how many versions of an iPad come out every year or every two years, whatever their cycle is. They’ve got one, they run. Now, they do the update, they change it, but when they do that, they decide to move forward. They don’t have 16 different versions of the same thing coming out of that manufacturing plant. And in our case we do.
So it’s still a lot to learn. There’s been some, like you’ve seen Medline move some production into Atlanta. You’ve seen others, I think they’re going to do that. But the question is now that we’ve got so much economic disruption and economic challenges, I mean Becker’s Tuesday had an article about a list of 650 rural hospitals that are on the list to potentially shut down. So that’s still pushing us for what’s the best price today, right now, next month, how do we get that best price? So there will be a little churn. So Jody, to your question, I think lessons learned, now the next thing is how do we apply those lessons to doing something coming down the road?
Alicia Chollampel:
Thank you. And we have one more question from the chat. The question is, what is the role of aggregation groups rather than GPOs for rural and community hospitals? Do they have an advantage?
Dan Hurry:
Again, another great question. Jimmy, thank you for the question. I think absolutely, but it points back to … Here’s what I’d say. If groups want to aggregate, and we’ve probably all heard these statements, gosh, we’re putting together billions of dollars in spend. We’re big powerhouse of having billions of dollars. Really that billions of dollars means nothing to the individual manufacturer.
So I think it’s absolutely there’s a role in the aggregations much more powerful than GPOs, if the aggregation equals consolidation or standardization and what they approach in the partnership that’s brought forth with said manufacturer or vendor or service provider, whatever that is. If you can do that in aggregation and land on consistency of product or service all day long, there’s value to be had. If folks go into it with a loose thought of we’re just combining a big dollar spend and we think that we’re big and powerful as a result of that, you’re not going to yield it because it boils down to that deal or that transaction with whatever that service or product that you want to gain from.
And the more you can align there, pull that partner manufacturer in and then drive some value equation. Another way that we look at it is at Advantus, we look at how do we take cost out of a manufacturer or partner and then convert that to price for us? And what that does is that you have these partnership discussions. What’s your cost of distribution? What’s your cost of logistics? What’s the cost for you to cut a PO, to pay an invoice, to actually respond to calls, the frequency of delivery, how do we optimize those things and bring it forward?
So I think aggregation groups can be very powerful. And really, I love the question because that’s really what it’s about, is the aggregation, not so much GPO. GPO in and of itself is an aggregation group, but it’s really about that power of how do you bring forward the alignment and consistent performance to yield value? If we can do that with those teams in aggregation groups, I think it’s a great win for all.
Alicia Chollampel:
Thank you, Dan. And we have one more question. Next question is, earlier you said getting the best price is not always best. Can you elaborate?
Dan Hurry:
Did I say that? So we look at it from, and this is probably what I intended wherever I said it in the lineup there, but we look at the total value equation. So there could be a scenario by which let’s say an individual widget cost, it was slightly more expensive than another one. However, when we yield what we move downstream, when that might be a length of stay equation or something else, how do we look at the total equation and the value generated as a whole rather than the individual cost of the component? That’s really how we look at the equation. However, always yielding that partnership with whatever your supplier base is to have good solid pricing as well.
Alicia Chollampel:
Thank you. All right, Dan, we have a few minutes left. Do you have any additional information that you’d like to share before we close out?
Dan Hurry:
No. Again, I appreciate the time. I appreciate the attendance. Hopefully there’s maybe some nuggets in there people can draw from. And what I’d say is we’re always open. You can see how to contact us on the screen there. But we’re always open to help. We’ll lend an ear, we’ll lend a voice, if you will, on some things that might be supported. And honestly, even the things that we’ve built within our own organization, they’re all designed to cascade to anybody of any scale in any size.
So my quest coming into healthcare is to drive the industry to have better performance so we can have better outcomes for patients, so they don’t have to go through struggles when they’re at their most vulnerable points in time, whether it’s a family member or you as an individual that does go through that. So our quest is how do we help?
The other thing I would say is just hats off to all the people that are on here that are constantly seeking that question or advice because you don’t sign up for something like this unless you do have some inquiry about what can I learn, where can we go, and what does it look like to move into a next layer and next level of support. So again, happy to help, and thanks, everybody, and thanks for what you do every day. Because working in healthcare is a noble role, no matter what we do. And folks in supply chain may not feel it every day. You are certainly a component to the end results of care and all the patients there. So thank you, everybody, for what you do.
Alicia Chollampel:
Thank you, Dan. So this concludes the time that we have available. In the next few days, all attendees will receive an email that will include a link to the archived webinar session. Thank you to our audience for joining us, and thank you, Dan, for your discussion. And thank you to our sponsor, Advantus Health Partners. Thank you again for joining. This concludes today’s program. Have a wonderful afternoon.
