Spend AnalyticsSpend Analytics

August, 2007

Industry Overview

and

Implementation

Mark ScagliariniDirector Account Management ServiceYankee Alliance

Agenda• Introduction

• What are Spend Analytic Tools?

• Industry Issues

• Long-term solution

• Choosing a Spend Analytic Partner

• Implementing Spend Analytic Tool

• Founded in 1984

• Headquarters in Andover, MA

• Member of Premier

• 42 Employees

Yankee Alliance

Acute Care Members55 Acute Care Facilities

1,003 Senior Living Facilities1,423 Home Health Care Facilities

24 Surgery Centers47 Imaging Centers

19 Community Health Centers3,000 (+) Physicians

Objective

Continually improve members’ financial and operational

performance through collaborative forums

and knowledge transfer

YA accomplishes its objectives YA accomplishes its objectives through a through a collaborative process….collaborative process….

Members enhance learning by

participating in committees and forums

Member Support

• Dedicated Account Manager to support members

• Updates by Yankee Senior Team at member facilities

• Benchmarking Service Team and Management Engineers

• Clinical Resource Support (Clinical Pharmacist, Perioperative Nurse)

What is Yankee’s involvement?What is Yankee’s involvement?• Spent a half year evaluating tools available to

the market and determining our role

• Currently utilizing two tools• Premier’s My Spend • DDS

• 10 Yankee Alliance Hospitals participating in our program

• Provide members with “Optimization Resources”

Spend Analytic ToolsSpend Analytic Tools

What are they?

AND

Why do we need them?

What is a Spend Analytics Tool?What is a Spend Analytics Tool?

Software programs that collect

clean, normalize, and match a

Hospital’s OWN data; in order to provide

the Hospital with report

generation capabilities.

What does this mean to Cleanse, What does this mean to Cleanse, Normalize and Match Data?Normalize and Match Data?

Cleanse- To fix all of the catalog numbers, Unit of Measure, and description variances and mistakes.

Normalize- To link all catalog numbers, descriptions, and vendor names to one standard.

Match- To link all of a facilities’ items to the items that are on an existing GPO or Local contract.

Data Acquisition ProcessData Acquisition ProcessFrequency

Varies by toolAs frequent as every

two weeksAs infrequent as once

per quarter

Files PO History Invoice History Item File Vendor Master Contract File

Generally these are easy custom reports for your IT departmentto create one time and then schedule to run.

Why do we need Why do we need these tools?these tools?

Healthcare Industry CrisisHealthcare Industry Crisis

Each year the healthcare industry loses $Billions based on

sub-optimal performance of supply chain, lost productivity in

resource intensive services and unnecessary variability in

medical practice.

*Modern Healthcare 2006

Confidential

We still cannot answer basic business questions easily:

What did I buy? Did I pay the right price? Did I use what I bought? Did I charge for what I used? Did I collect what I billed?

Why can’t I use my MMIS?Why can’t I use my MMIS?

• I spent millions on a Materials system…..

• I had a team of consultants assist with the implementation…..

• I maximize my eCommerce capabilities…

• I have even paid to have my data cleansed…..

Answer: Data is not SynchronizedAnswer: Data is not Synchronized

The Healthcare Supply Chain is a non standardized marketplace

The Problem:Different Product IDs throughout the Supply Chain

Mfg. Item Case Pallets Trucks Distributor Trucks Pallets Case Item Hospital Mfg. Item Case Pallets Trucks Distributor Trucks Pallets Case Item Hospital PatientPatient

End User

212345 6789072 212345 6789072

Manufacturer

212345 6789072212345 6789072

GLN, HIN, DUNS, ???

Mfg. # Mfg. # Dist. # ??? Hosp. #Item data , Data Sync, ship notice, invoice, recall

request for quotation, planning schedule, POElectronic Commerce Information Flow

FACTORY

Healthcare Industry

Product ID – Every participant in the supply chain may use a different product ID and there is no standard for unit of measure. {No common Identifier for products}

.

Each participant in the Healthcare Supply Chain has a different product number for the same product. Makes ordering, recalls, and proper identification to the patient difficult.

Problems Found due to Product Identification *

* Source: Department of Defense Data Synchronization Study

Manufacturer Distributor GPO Customer

Missing Middle Levels of Pkging

15-20% 1-4% 20-25% 15-25%

Hard “Packaging Quantity” Errors

1% 1% 2% 2-5%

Unit of Measure Confusion/Misuse

2-6% 1-3% 2-5% Unknown

Missing Packaging—not Middle Level

3-8% 3-8% 3-7% 5%

Manufacturer Name Problems

NA 2-5% 1-4% 30%

Obsolete Products 1-4% 2-5% 1-8% 5-15%

Missing Product Brand Names

2-5% 5-10% 5-10% 20-25%

Incomplete Item Descriptions

5-15% 3-12% 5-15% 10-20%

Wrong Customer Unit Prices

Unknown 1-2% NA 1-2%

Customer Paid More Than Lowest Contract Price

NA Unknown NA 3-6%

Percentage of Total

Business Name Item Number Type Item NumberBD Mfg Catalog Number 329461

BD GTIN 00382903294619

BD GTIN 30382903294610

BD GTIN 50382903294614

CARDINAL HEALTH PV Order Number BF329461

OWENS & MINOR PV Order Number 0722329461

OWENS & MINOR PV Order Number 0723329461

AMERICAN MEDICAL DEPOT Vendor Catalog Number 777127217

AMERICAN MEDICAL DEPOT Vendor Catalog Number 777127218

GOVERNMENT SCI SOURCE Vendor Catalog Number FSC1482679CS

GOVERNMENT SCI SOURCE Vendor Catalog Number FSC1482679PK

ALLIANCE JOINT VENTURE Vendor Catalog Number 888021932

THOMAS SCIENTIFIC Vendor Catalog Number 8938M25

THOMAS SCIENTIFIC Vendor Catalog Number 8938M28

VWR INTERNATIONAL Vendor Catalog Number BD329461

Bad Data: Multiple Product Numbers(329461 - 1/2 mL BD Lo-Dose™ U-100 insulin syringe with 28 G x 1/2 in. BD Micro-Fine™ IV permanently attached needle)

Bad Data leads to multiple customer problems

What you “see” may not be what you want or get

What you “see” may not be what you want or get

Multiple Manufacturer NamesMultiple Manufacturer Names

What is it? What is it?

Difficulty in ordering Difficulty in ordering

Order 50 receive 500 or

Order 20 cases, receive 20 boxes

Order 50 receive 500 or

Order 20 cases, receive 20 boxes

Multiple Product NumbersMultiple Product Numbers

Inconsistent Item DescriptionsInconsistent Item Descriptions

Packaging IssuesPackaging Issues

Old product dataOld product data Attempting to order obsolete products

Attempting to order obsolete products

Hospital ImpactHospital Impact Premier contracts with over 300 Manufacturers

One Yankee Pilot Hospital has over 1800 different names Less than 23% of the manufacturer names match Premier

Premier has written over 1,300 contracts that cover almost a million items The average manufacturer uses 3 valid catalog numbers per

item Premier only has 1 catalog number per item in its contract file The Pilot Hospital has less than 1% of the contract items used

contain the same catalog number as the number used by Premier (234 exact matches out of 29,466 actual contract items used)

Cost of Dirty DataCost of Dirty Data 60% of all invoices have errors

Each individual invoice cost $40 - $400 to reconcile

Erroneous data increase supply cost 3-5%

$2 to $5 Billion dollars is lost each year due to supply chain inefficiencies

Source: 2003 CHeS and Healthcare eBusiness Collaborative Study

Suppliers Transportation Manufacturers Distributors GPO’s Providers/Consumers

Synchronizing the Healthcare Supply Chain

GLN

Farm Item Case Pallets Trucks Distributor Trucks Pallets Case Item Store Farm Item Case Pallets Trucks Distributor Trucks Pallets Case Item Store CustomerCustomer

End User

212345 6789072 212345 6789072

Supplier

212345 6789072212345 6789072

HARVESTING

GTIN GTIN SSCC GTIN GTINItem data , Data Sync, ship notice, invoice, recall

request for quotation, planning schedule, POElectronic Commerce Information Flow

Grocery Industry

The Solution:Same Product ID’s - Other Industries

GTIN - Global Trade Item Number - Identifies trade items (products and services) sold, delivered, warehoused, and billed throughout the supply chain. {One Identifier for products}

SSCC – Serial Shipping Container Code - System identification for logistic units. Contains the GTIN identification

In most other industries such as the Grocery industry there is a consistent Product ID throughout the supply chain.

Supply Chain Models

Manufacturing Distributing Provider

PATIENT

Product

Cash and Information

Healthcare Supply ChainHealthcare Supply Chain

Efficient Supply Chain Efficient Supply Chain

Who is Working on this in the USA?

Organized in 2001Most of the Largest GPO’s Two eCommerce ExchangesThe DOD and VAAdditional Affiliate Members

CHeS Purpose: Working Together to Adopt and Promote Uniform Industry Data Standards.

CHeS Initiatives:

Customer Identification (GLN)

Product identification (PDU)

Product Classification (UNSPSC)

http://www.chestandards.org

Provider Data Receipt• Premier receives data via GDSN• Distributes to Baptist via Lawson

Manufacturer Loading• 10 items from Sage• 11 items from BD• Documentation of Challengesand Lessons Learned

Hospital(Baptist /Lawson)

+

DOD Healthcare GDSN Pilot

GPO(Premier)

Manufacturers(BD, Sage)

On BoardingPartner(Ontuet)

On BoardingPartner(Ontuet)

Global Registry

1SYNC Data Pool

GDSN

Phase II Execution & Participants

Medical Industry Product Data Utility - Powering the Supply Chain

MMISVendors

eCommerce

Exchanges

FederalData

Provider

Distributors

GPOs

Medical industry PDU provides and synchronizes clean manufacturer Medical industry PDU provides and synchronizes clean manufacturer product data to primary players in the medical supply chainproduct data to primary players in the medical supply chain

ProductData

Utility

While these are great initiatives…..

They are years away from becoming reality.

And hospitals today cannot afford to wait!

Fortunately technology has caught up to be able to provide us with solutions, today!

UNCOVER SAVINGS OPPORTUNITIES

CONTRACT MANAGEMENT

MAXIMIZE TIER SELECTION

AUDIT PRICE PAID

AUTOMATE COST ANALYSIS

BENCHMARK PRICING

Spend Analytic ToolsSpend Analytic Tools

Who offers these tools?Who offers these tools?

• National GPO’s• Premier “My Spend”• Novation “Spend • Amerinet “Diagnostix”

• Advisory Board- “Spend Compass”

• Independent Technology Companies-“Deman Data Systems”

• Consulting Companies

Picking the right Spend tool Picking the right Spend tool to Partner withto Partner with

Things to consider when evaluating Things to consider when evaluating spend analytic tools:spend analytic tools:• Data accuracy (Most Important!!)

– UOM Issues– Data match rates

• Contract matching ability

• Benchmark philosophy

• Actionable reports

• Implementation support

What What businessbusiness objectives are you objectives are you looking to accomplish?looking to accomplish?

1. Identify total spend2. Identify Unsigned contracts3. Non-contract item identification4. Run market share reports5. Automate contract conversions6. Compare contracts7. Price benchmarks8. Savings and utilization trackers

First Identify: What you are looking First Identify: What you are looking for in a tool.for in a tool.

For Example:• Volume vs. Market share analysis

• Contract expiration vs. Contract conversion

• Real time vs. Quarterly

• On-line tool vs. Engaged implementation team

Answering those questions will Answering those questions will help you determine which tool help you determine which tool and which company to partner and which company to partner

with.with.

Current report optionCurrent report option• IMS• Distributor• GHX• Current GPO reports

If you don’t use these “free” and available reports today, how will use all of the Spend Analytic Reports???

IMPLEMENTATIONIMPLEMENTATION

““Putting out fires”Putting out fires”

• It is easy to get caught up in day to day operations

• Pick a good partner to assist and guide your department through this process.

Step 1: Validate DataStep 1: Validate Data

Check sample data sets to verify accuracy of reportsNo tool is perfectHighlight and check large variance’s firstMost tools gain in effectiveness and accuracy the

longer they work with your data

Add in distributor mark-ups, equipment sur-charges, etc. (if your tool allows)

Build faith in tools and data

Prioritize opportunitiesPrioritize opportunities

Start Easy and Get Early Wins.

Divide data into different areas of focusDivide data into different areas of focus

1. Unsigned Contracts– Start Easy– Look at contracts that you are already purchasing

from but have not signed

What are Unsigned Contracts ?What are Unsigned Contracts ?

Products that a hospital is already buying but have not signed the available contracts.

Future Contract Analysis

Peripheral and Biliary Stent Marketshare

3.79%

69.50%

10.03% 1.10%Abbott Marketshare

Boston Scientific Marketshare

CR Bard Marketshare

J&J Marketshare

Tier Maximization

Tier MaximizationTier Maximization

Our reports showed: Unsigned contract savings opportunity of $8,481 Achieved by signing Tier 3 with 70% market share compliance

Manufacturer denied tier 3 with no explanation

Resolution:1) Provided Manufacturer with market share data demonstrating compliance.2) Manufacturer approved the tier position.3) Manufacturer approved a retro credit

Areas of Focus Cont.Areas of Focus Cont.

2. Credits: Audit Price Paid– Tools can compare price paid to signed

contracts– Collect retro credit

As a contract management tool you can load your contracts and audit your invoice pricing to ensure on-going accuracy.

Areas of Focus Cont.Areas of Focus Cont.3. Non-Contract:

– Most tool can show you the items that are not on a contract

– Ask yourself a few basic questions:– Can they be added to a contract?– Can they be converted to an existing contract?– Do I need to negotiate my own local contract

4. Negotiating Own Local contracts:– Utilize tools volume and market share reports – Utilize tool’s benchmark pricing to negotiate new

contract

You have the data…

USE IT!

Goals for Non-Contract ItemsGoals for Non-Contract Items Convert to existing contracted

manufacturer.

Add items to an existing National GPO contract.

Facility to negotiate local hospital contract.

Develop your own process flowDevelop your own process flow

Largest area of opportunity

“Not Low Hanging Fruit”

Work closely with GPO and Spend Analytics provider to manage this process

New Contracting OpportunitiesNew Contracting Opportunities

$71,912,254

*Based on 5 hospitals current non-contract spend.

Areas of Focus Cont.Areas of Focus Cont.

5. Contract Conversion– Some tools prove the ability to do automated contract

conversions– More efficiently evaluate and convert to your new GPO

contracts.

6. Standardization and Utilization– How many different glove manufacturers do you have?– Are you using different manufacturers in Interventional

Radiology vs. Operating Room?

– Can you standize to one vendor to maximize your contract tier position?

Contract Conversion OpportunitiesContract Conversion Opportunities

1. New GPO Contract Opportunity

2. Spend Analytics tool can provide facility’s usage, calculate market share and contract’s cost impact.

3. This new process helps the hospital prioritize opportunities and accelerates the contract uptake timeline.

The hospital now has the data it needs to present the cost savings opportunity to the appropriate department head or clinician for clinical approval.

Hospital’s current price

$1,447

Hospital item

numberincluded

New Yankee Alliance

price$950

Cost impact

calculated$497

Trending Product UtilizationTrending Product Utilization

Hospital’s Drug Eluding Stents by Quarter

Track Conversions and Product ChangesTrack Conversions and Product Changes

$2,609.26

$38,896.98

$137,027.00

$79,285.29

$101,717.29$106,292.00

$104,202.00

$113,114.00

0

20000

40000

60000

80000

100000

120000

140000

160000

Jan Feb Mar Apr May Jun July Aug.

Spen

d p

er M

onth

Organizational ValueOrganizational Value• Integrate tool and data throughout your organization.

• Engage CNO, Chief of Surgery, CFO, Department Directors, etc.

– Now that you have the data it is much easier to go the administrators to recruit their support on a conversion or a negotiation.

• Incorporate the data into your Value Analysis Meetings.

What are your hospitals current What are your hospitals current areas of focus?areas of focus?

Incorporate data into already existing projects

Start with your hospitals “hot buttons” or problem areas

Start NEW with expiring and replacement contracts, rather then going back in time.

For our hospitals this has opened up new For our hospitals this has opened up new opportunities, that were previously opportunities, that were previously overlooked…..overlooked…..

1. Trocar Evaluation and Conversion

2. Orthopedic Screw and Plate conversion

3. Standardization on Bone and Tissue Suppliers

4. Peripheral Stent Evaluation and Conversion

“The first rule of any technology used in a business is that automation applied to an

efficient operation will magnify the efficiency.”

“ The second is that automation applied to an inefficient operation will magnify the

inefficiency.”

Bill Gates

Self AssessmentSelf Assessment Do you have an effective contract management system

in place?

Are you evaluating all new GPO contracts and activating them?

Do your buyers check GPO contracts when placing orders and verify confirmation mismatches?

Are you maximizing your eCommerce options?

Are you tracking savings?

Do you have an effective Value Analysis Process?

Challenges:

• Data can be overwhelming

• Not everyone likes working with data

• Not everyone is good at working with data

• Department is way to busy already

Things to consider:

• Evaluate current processes and incorporate data into those processes

• It is much easier to manage on going as part of your daily work, rather then solely as a separate project.

• “Don’t get caught in the trees with endless drilling…..”

Contact AnalystContact Analyst Do you need a dedicated contract manager or

analyst?

An individual that focuses solely on managing your contracts and product conversions

They are not “firemen”!

Best Practice Tip:

We have found that our hospitals that have had the most success and documented the most savings are the ones that have had a dedicated Individual to this project.

Top 3 important aspect of a good report:

1. ACTIONABLE

2. ACTIONABLE

3. ACTIONABLE

IF YOU CAN’T QUICKLY ACT ONTHE INFORMATION PROVIDED IN THE REPORT,

THEN IT MAY NEVER BE ACTED UPON!

Track savings and improved efficiencies!

Use the tool to demonstrate it’s ROI as well as your department’s

hard work.