Bridging Procurement Organizations

After a Merger or Acquisition

Back To The Future:

GuideWell

Dawn Ozanne-TolmanSr. Director, Procurement

sig.org/summit

BACK TO THE FUTUREBridging Procurement Organizations

after an Acquisition

Our Evolving Enterprise Structure

Health Plan

3

Information We Believe May Help You

What to do within the first year after a M&A

How to align procurement practices, contract and impacted staff

How to manage contracts/ negotiations for the same services

How to track and report success

Avoid our mistakes4

5

How many M&A related entities have impacted your

organization in the last 5 years?

A 0

B 1 or 2 entities

C 3 -5 entities

C 6 or more entities

Since 2010 the number of hospital and health system

mergers increased by 55%.1

Aetna acquired Coventry

GE Healthcare buys

Camden Group

LabCorp acquires Providence and CHI

Apple acquired Gliimpse

Asics acquires Fitness Keeper $85M

Aetna and Humana Merger Blocked

HCSC acquires Lovelace

Nokia acquired health device makerWithings for $191M

Anthem and Cigna Merger Blocked

McKesson will acquire CoverMyMeds

1 Medical Office News - http://medicalofficenews.com/2017/01/health-system-ma-55-since-2010/ 6

Understanding Where We Started

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What To Do Within The First Year

OPERATIONAL

READINESS

PHASE 1

GET DATA

CLOSED LOOP

COMPLIANCE

DAY 1

READINESS

PHASE 2

PEOPLE AND PROCESS

ITSM

EXCELLENCE

PHASE 3

CONTRACTS

SERVICE

TRANSFORMATION

PHASE 4

INTEGRATION

• Compare Spend

Categories

• Review same or

similar vendors

• Top Areas of Spend

• Compare highest

spend and vendors

• Procurement roles

and/ or people

involved in

procurement

• Knowledge levels of

current staff

• Pay ranges/benefits

of current staff

• Environment/culture

• Gather written policies

or procedures if

available

• Review procurement

templates (POs,

requisitions, RFx)

• Approval levels

• Review Intranet or

instruction sites for

Procurement team

• Use of std contracts

or vendor paper

• Review upcoming

renewals and

termination w/o

cause options

• Determine if

contracts have

minimums,

exclusivity

• Negotiate consolidated

contracts

• Set up RFx schedule

• Migrate to single ERP or

integrate procurement

data between systems

• Determine a game plan

for future acquisitions

• Develop audit and

reporting plan

1-90

Nov- Jan

1-180

Jan - Jun

6-24M

Jan -Jul

90-270

Jul-Dec

8

Initial Data Observations

Line level purchase details was difficult to match

Primary commodities were different than our current procured commodities, but aligned between acquired entities

Don’t assume less sophisticated procurement models don’t achieve great savings

Contract Management systems/ repositories are important

Linking procurement to inventory and asset tracking systems are important

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People and Process: GuideWell Health Affiliates

1,000+ employees

70,000+ customers

Procurement Staff: None

Procurement Data: Established ERP system

Procurement Process & Policies: Limited policies and paper based approvals

Contract Process: CEO/Officer reviews with Legal

Spend Management: Managed by budget owners

700+ employees

3,000+ customers

Procurement Staff: 2 Employees

Procurement Data: Paper based records

Procurement Process & Policies: No policies and paper based approvals

Contract Process: None

Spend Management: Managed by finance committee w/o analytics

2 employees (outsourced)

34,000+ customers

Procurement Staff: None

Procurement Data: Practice Mgt System

Procurement Process & Policies: Limited policies and email/paper approvals

Contract Process: Limited high dollar transactions are shared with Legal

Spend Management: 1 employee reviews all costs each month (approx 100 pages)

10

Relationships Are Key

Leaders

• Listen to their goals and present ways you can help

• Discuss overlapping vendors and spend categories

• Provide early estimates of savings (but don’t overestimate/ overpromise)

• Be visible if possible

• Determine which master to serve

Procurement Staff

• Get to know and learn from them

• Share ideas (but don’t scare them off)

• If absorbing carefully manage the transition

• Get to know their culture/environment

• Praise what you can

• Knowledge

• Efficiency

End Users

• Understand the nature of their business and order needs

• Determine their current understanding of the procurement process

• Determine what data they need and/or expect

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Procurement Integrator

Sourcing

Team

Contracting

Team

Buyer

Team

Administration

(Vendor Maintenance, Supplier Diversity, Audits)

Clients

Procurement Organization 3 Years Ago

12

Category Teams

Clients

BPO

IT

Delivery

Mar/Comm

Prof Svcs

Our Procurement Organization Today

Business Focused Team

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Procurement Organization considerations

for M&A support

Functional Model

• Strong expertise for specific procurement activity

• Limited knowledge of business to apply their expertise to

• Limited deep relationships with clients

Category Model

• Procurement staff understands industry

• Improved relationships with clients

• Level setting of staff knowledge and capabilities is difficult

Business Area Model

• Deep relationships with clients

• Procurement staff understands core industry of clients

• Level setting of staff knowledge and capabilities is difficult

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15

What is the current procurement model for your company?

A Functional

B Category

C Business Focus

C Blend of the Above

Aligning Contracts and Suppliers

Contract Alignment

• Look for minimums and exclusivity

• Most Favored Nation clause

• Change of Control/Assignability

• Supercedes language

• Termination w/o Cause/Notice Periods

• Payment Terms

Consideration with Suppliers

• More volumes/consolidate contracts (look for the hungry acct rep)

• Negotiate with suppliers providing the same capabilities

• Get their perspective on improvements

• Discuss product standardization

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People

• Determine KSAs needed for Enterprise Procurement and assess KSAs of all current staff

• Work with HR to develop appropriate new roles if needed and market rates

• Look at total staff needed based on expectations of combined leadership

Spend

• Set up shared contracts/fees and discounts for volumes/total spend

• Determine most effective suppliers for all entities (geography, delivery times, etc.)

• Product/formulary standardization

• Align standard terms (payment, contract/PO terms)

Reporting

• Leverage assets/inventory where possible

• Develop ongoing reports per spend category including upcoming opportunities and desired outcomes

• Develop compliance reports

• Develop shared vendor scorecards

Process

• Leverage the same ERP or ordering and contract mgt systems if possible

• Establish enterprise procurement policy and procedures

• Determine low value work and processes

Preparation and Guiding Principles for

Procurement Bridging

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Developing the Initial Plan

People

• Determine if and how procurement staff can be merged or aligned

• Determine salary and benefits between staff before they do

• Look at total staff needed based on expectations of combined leadership

Spend

• Determine overlapping spend and start determining estimated savings

• Determine top vendors and categories and begin vendor rationalization

• Determine major new purchases and upcoming renewals for next 6-18 months

Reporting

• Develop high level reporting based on savings

• Develop a shared “playbook” and agree upon priorities

Process

• Determine which processes are non-compliant, costly and/or don’t provide necessary data

• Determine systems of record for contracts and spend

• Determine efficiencies in process logistics (receiving, ordering, PO creation, etc.)

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Areas Of Focus

o Standardize and automate requisitioning, purchasing, receiving and AP processes

o Develop budgeting process and cost ctr mgr tracking of actuals

o Track and then improve usage of inventory and minimize waste

o Improve the cost and performance of maintaining medical equipment

o Improve the tracking and reporting of assets (i.e. property taxes, capital expenditure planning,

etc.)

Supply Chain Areas of Focus

The DCMG Supply Chain Management processes are manual and data needed

for reporting, planning and inventory management (i.e. forecasting, capital

expenditures, waste prevention, budget management) is very difficult to obtain.

The following suggested Areas of Focus have been identified to mitigate risk,

improve reporting and utilization of staff and inventory/equipment.

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Scope of work for Supply Chain Improvement

Implement Policies and Procedures–

A.1 Supply Chain 1. Draft Supply Chain policy and Requisitioning SOP

2. Determine updates needed for clarity with cost center mgrs

3. Introduce policy/SOP during training to cost center managers on ePro

1st draft to be shared

on 5/12

A.2 Supplier

Contracting

1. Determine if DCMG will follow the same contracting approvals as GW

2. Draft Policy

3. Review with team and specifically with anyone allowed to execute contracts

and their administrative staff

A.3 Expenses 1. Determine expense process and if any updates are needed beyond system

adjustments

2. Determine owner and determine starting point for drafting policy

3. Draft policy and seek approvals

Implement System Changes – Improve tracking of purchases and financial controls of supplier spend

B.1 System Security

updates

1. Determine ways to manage security authentications (Citrix)

2. Test system for requisitioning, G/L and invoice processing

Completed 9/12/16

B.2 Cost Center

Managers set-up

1. Pull spend and sort for review by each cost center lead

2. Determine owners for each cost center

3. Work with GW Finance to add each cost center mgr to ERP

4. Test Hierarchy in Requisitions

Barb working to

finalize

B.3 HR Hierarchy set-

up

1. Determine if HR hierarchy matches expectations of financial approval

hierarchies

2. Update HR Hierarchy in ERP

3. Test Hierarchy in Requisitions

Continued….. 20

Scope of work for Supply Chain Improvement cont.

Implement ePro con’t– Improve tracking of purchases and financial controls of supplier spend

B.4 Set up Stock

Products

1. Gather current lists of stock items

2. Update stock items based on current bids (Pharmacy)

3. Enter Stock items into ERP

B.5 Set up Punch-Outs 1. Office Depot

2. McKesson

B.6 Pilot 1. Determine pilot testers

B.7 Roll-Out and

Training

Receiving Improvements

D.1 Largo 1. Performed site visit

2. Meeting to discuss current and future workflow on 1/17/17

D.2 Countryside 1. Performed site visit

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Don’t share your plan until you know their entire procurement process

Understand the Enterprise plan for the merger/acquisition

Get a seat with the investment team to start gathering information early

Integrator roles between corporate and affiliates are extremely helpful

Don’t assume less sophisticated procurement models don’t achieve great savings

Avoid our Mistakes

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WANT TO SHARE BEST PRACTICES?

Dawn Ozanne-Tolman

GuideWell/Florida Blue

Sr. Director, Procurement

904-905-0676

Dawn.ozanne-tolman@floridablue.com

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Back To The Future: Bridging Procurement Organizations

After a Merger or Acquisition

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Dawn Ozanne-Tolman

GuideWell/Florida Blue

Sr. Director, Procurement

904-905-0676

Dawn.ozanne-tolman@floridablue.com