Risk sharing engagement with Texas IDN yields savings of $6.5M+ Last Updated: August 14, 2014
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Methodist Health System in Dallas provides quality, integrated care for individuals and families throughout North Texas. Methodist Dallas Medical Center, Methodist Charlton Medical Center, Methodist Mansfield Medical Center, Methodist Richardson Medical Center, Methodist Midlothian Health Center, and Methodist Family Health Centers are part of a nonprofit system that is affiliated by covenant with the North Texas Conference of The United Methodist Church.

Challenge

Methodist Health System was looking for innovative ways to reduce operating expenses. The system was already employing a successful, aggressive and ongoing labor management effort. Leadership decided to concentrate on expense reductions in supply chain, but they wanted a partner that would share the risk in helping to improve Methodist’s bottom line as a result of a project.

Solution

Premier, Inc. accepted the challenge. Methodist, an engaged alliance owner, and Premier adopted an innovative supply chain metric to align incentives for improving operating costs. In March 2010, the two began an 18-month supply chain partnership to lower supply expense per CMI adjusted discharge by at least 1.2%. The baseline metric in fiscal year 2009 was $1,413 across Methodist’s three participating campuses. The target was $1,396 – a raw improvement of $17, or $5 million, while maintain or improving clinical quality levels.

Methodist developed a new supply chain steering committee including system leadership, site presidents and vice presidents (ad hoc), supply chain/purchasing leaders, and Premier representatives. Its purpose was to remove roadblocks and approve major initiatives. The entire process worked through a strong value analysis process already in place.

Premier used a project management office model that managed the pipeline, tracked savings initiatives, and managed communication. Premier provided clinical and operational subject matter experts (such as orthopedic/spine experts) that identified and developed savings opportunities and provided implementation support such as training.

Targeted savings included price reductions, utilization reductions, resource consumption, practice changes (such as vendor market share shifts), and inventory reduction. Primary areas included major physician preference items, general surgical and medical products, and ancillary/clinical spend (lab, imaging and pharmacy).

Result

Methodist achieved more than $6.5 million in actual cost savings and an additional $1.2 million in future spend avoidance as a result of the partnership with Premier, and is continuing to realize savings as a result of the partnership’s work.

Methodist leadership identified several success factors – among them, engaging staff at all levels, always including physicians, optimizing supply expenses in key physician preference areas, minimizing new supply expenditures, and choosing a partner willing to share risk