Mercy and ROi Recognized for Supply Chain Innovation

By ROi's Kathie Woehrmann

The journey of a spine implant from manufacturer to the hospital – specifically, the rods, screws, hooks and plates commonly used in back surgeries – is a complicated one with many handoffs.  It’s costly, too.

However, a group of surgeons from Mercy, the nation’s sixth-largest Catholic health care system, and the supply chain organization it founded, ROi, are doing something about it by changing the way implants are marketed, distributed and serviced in health care. So far, the results have captured significant savings in the cost of spine implants for Mercy, among other clinical and operational benefits. Due to the success of the new spine implant distribution model, Mercy and ROi were recently recognized as the inaugural health care provider recipient of Gartner’s Supply Chainnovator Award. “The 2014 winners all shared the common bond of taking risks and breaking new ground in supply chain performance to benefit customers and broad sets of stakeholders,” said Dana Stiffler, research vice-president at Gartner.

In addition to the Gartner Supply Chainnovator Award, Mercy’s senior vice president of operations, Vance Moore, served as a keynote speaker at Gartner’s Supply Chain Executive Conference on May 22. In his keynote address, From Survive to Thrive – How Supply Chain Can Influence a Transformation, Moore covered how old incremental improvement methods must give way to transformational strategies that leverage the best people, processes and technology in health care and how the supply chain can lead the way through the change.

Excessive Costs

“This started more than 18 months ago when we studied the SG&A (Selling, General & Administrative) expense trends in the spine industry and discovered the excessive costs that we, as health care providers, pay to suppliers to support spine surgeries,” explained Gene Kirtser, president and CEO of ROi. “The SG&A expenses we pay in health care are much higher than in other industries and needed to be addressed. We re-imagined how spine surgery could be supported under a lower cost, higher quality, internalized service model. We worked with physicians, hospital administration and original equipment manufacturers (OEMs) to see what could be done to cut these costs out while keeping patient safety at the forefront.”

A New Delivery Model

By partnering with the OEM, ROi contracts, distributes and services spine surgeries at Mercy’s hospitals at a reduced cost. The process eliminates “middlemen” and consolidates the number of implant suppliers selling to Mercy. Through the new distribution model, the third-party roles of Group Purchasing Organization (GPO), distributor and sales representative are brought inside and managed by ROi for Mercy. This includes hiring full-time co-workers to manage the sales and service elements of spine surgeries.

Dr. Alan Scarrow, president of Mercy Clinic in Springfield, Mo., was the spine surgeon lead on the initiative, collaborating with Mercy’s supply chain leaders. He explained, “There is a significant downward trend in revenue for all aspects of health care including spine surgeries. In order to sustain our mission as a health care organization, we have to cast a critical eye on the cost of the care we provide.”

He added, “The spine implant distribution model helps us achieve that goal. By shortening the distribution chain between the manufacturer and patient, we have significantly lowered the cost of our annual spend for spinal implants and continue to provide the same level of quality care to our patients.”

Results

Through this internalized service model, Mercy and ROi have seen these results:

• Consolidation from 10 different spine implant vendors to one
• 54 percent reduction in consignment inventory held by Mercy
• Decrease (by 6 minutes) in per case time in the operating room
• Double-digit percentage savings on the average cost of a spine implant
• Reduction of “up-selling” products to surgeons by third-party suppliers

In addition, Mercy Hospital Springfield has been designated as a Center of Excellence in the U.S. for spine procedures, demonstrating the drive to make health care more accessible, with higher quality and lower cost. “We believe this model can become a new way of doing business in health care,” Kirtser said. “We want to continue collaborative relationships with the suppliers in our industry to re-imagine the supply chain and make a positive difference in patient care while reducing common costs.”