Yes, healthcare, supply chain can generate income and revenue.
By R. Dana Barlow
Editor’s note: The following article originally appeared in the December 2024 issue of The Journal of Healthcare Contracting.
Outside of the healthcare provider organization market segment, companies generally regard the supply chain with a modicum of respect for managing assets used in the manufacture and sale of products. This links the supply chain in most other market segments directly to the top-line revenue stream as well as to the bottom-line expense stream.
Supply chain within the healthcare provider organization market segment, however, typically fails to experience similar benefits and rapport.
Supply chain as a department and function may serve as specialists in strategic sourcing, product and service evaluation, contracting, purchasing, logistics, distribution and process facilitation – all of which typically fall on the expenditure side of the budget. But a growing number of entrepreneurial supply chain teams also are creating, developing, launching and sharing revenue-generating processes and products to promote and reinforce additional value to their provider organization and to others. These teams not only work to control costs but also to generate income.
Some of these entrepreneurial provider-based supply chain teams have launched a bevy of revenue-generating enterprises to help their own operations and processes as well as those of affiliated facilities and provider customers. The menu can include running consolidated/shared service centers where they sell supply chain services such as contracting, distribution, inventory management, laundry and sterile processing to affiliate facilities; group purchasing services for bulk and cooperative buying; software-based products that facilitate ordering, tracking and tracing, management consulting and process facilitation; mechanical products for materials handling and stocking; or even investing in domestic manufacturing ventures for backorder- and stockout-susceptible personal protective equipment (PPE), intravenous fluids and other relevant products.
Among this burgeoning group of supply chain-emerging income incubators, several shared their experiences with the Journal of Healthcare Contracting, not only highlighting what they did and why, but also explaining what motivated them to do it, the entrepreneurial spirit necessary and how to sell supply chain-generated income ventures to a C-suite that may expect them to stay in their original lane to control costs.
MultiCare Health
The Tacoma, Washington-based integrated delivery network (IDN) foresees tremendous growth and opportunity in harnessing business intelligence and digital expansion, according to Jason Moulding, Chief Supply Chain Officer (CSCO).
“Our Supply Chain division has been heavily investing in business intelligence and insights for the past several years,” Moulding told JHC. “We embarked on our digital transformation journey back in late 2019 just before COVID-19 which was very fortunate, as we had a foundation to quickly build dashboards for inventory management when days on hand became an important ratio. Now our Supply Chain Resource Analytics team has grown significantly and the amount of disparate data that we can collect and ‘paint a picture’ with has improved financial, clinical and operational efficiencies. This is an area of our supply chain that we’re going to continually invest in as I believe it’s our competitive advantage and value that we bring to our organization and our customers.”
WHAT THEY DID: An internal supply chain team created a suite of software products to help clinicians and administrators more effectively and efficiently manage operations.
“One of the major functions within MultiCare’s Supply Chain Management is our Innovation and Application Development team,” said Matthew Palcich, system director, Resource Analytics. “Over the last couple of years, we have partnered internally with stakeholders and subject matter experts to develop multiple offerings leveraging a combination of reporting expertise and low-code application development.” Palcich listed some of the key areas of development as in:
- Procedural Analytics Intelligence – a dynamic and flexible data eco system leveraged to compare physician cost per case, reimbursement and quality metrics to drive improvement across the full spectrum of procedural areas.
- Substitute Item Database – integrated workflow, approval and data capture of substitute activity leveraged to enable speed to execution and data enrichment for operational teams.
- Savings /Initiative Tracker – Single source of truth for all savings initiatives and results that is linked to data sources, intuitive user experience for data entry, and transparent results for value-based reporting to senior leadership.
- Demand Planning Suite – a highly integrated application focused on identifying lead time variation, demand signals and inventory availability that is quick to stand up targeted initiative-based reporting for supply shortages and visibility to run daily operations and senior leadership.
Because these products were developed internally by a dedicated team rather than relying on third-party vendors, MultiCare Health enjoyed a number of benefits through their methodology, according to Naresh Thapa, assistant vice president, Supply Chain Strategy & Integration.
“This helped us quickly pivot to and align with our own organizational need and strategy around analytics,” Thapa indicated. “Having a dedicated team allowed us to conduct internal assessments and gather feedback from our stakeholders. This also led us to identify areas where tailored solutions could drive significant improvements. Our in-house solutions have a greater return on investment compared to purchasing external ones.
Strategic foresight aided in recruiting team members, Thapa noted. “When you have a good strategy and vision of where you want to be, hiring the right talent becomes bit easier,” he said. “We recruited individuals, both internally and externally, with the right mix of technical skills and having operational experience. The products that we developed have proven to be successful within our organization. Once we got good traction internally, we started pitching these to our colleagues in the community. We are already engaged with other healthcare systems in implementing the products that we have devoted.”
MultiCare also launched Myriadd Supply Network as a business-to-business, nonprofit venture that offers aggregation for contracting and distribution, non-labor expense management and operations improvement consulting, led by Moulding as president.
“Myriadd plays a crucial role in driving revenue for our organization,” Thapa said. “The Myriadd Supply Network generates additional revenue through our aggregation group by collecting administrative fees and reducing supply expenses. Myriadd Strategies focuses on optimizing supply chain processes and integrating advanced analytics. This helps enhance efficiency, reduce costs, and improve operations, leading to significant savings.” Myriadd works with Vizient as its aggregation solutions and GPO partner in the venture.
MOTIVATION: At first, internal satisfaction and success drove innovation, followed quickly by the desire to share expertise.
“We have been intentionally investing in our analytics division within Supply Chain,” Palcich said. “Our ambition to become the preferred vendor of choice for health systems significantly influenced our strategic decision to prioritize analytics and application development as core competencies. As we observed substantial internal improvements and cost efficiencies in the last three years, it became evident that other health systems could also benefit from the applications we developed and continue to make it better. Consequently, expanding our approach externally was a natural progression in our journey towards continuous improvement and optimization.”
Being a provider gave them a leg up, according to Thapa. “Our value proposition lies in our unique position as healthcare providers addressing healthcare-related challenges,” he noted. “Our competitive advantage comes from our direct experience in solving these issues firsthand. My goal is to turn this division into a revenue center. Investing in innovative solutions can lead to long-term savings and efficiencies.”
MultiCare works with four other healthcare systems, according to Thapa, with the proceeds reinvested in the organization.
C-SUITE EXPOSURE: COVID-19 certainly elevated Supply Chain’s recognition within MultiCare, Thapa observed. “The importance of Supply Chain has been significantly recognized in the wake of the global pandemic. The focus has shifted from merely reducing supply costs to creating value across the entire system,” he said. “To enhance visibility at the C-suite level, it’s crucial to demonstrate ROI by highlighting strategic value. This involves identifying new revenue streams and future-proofing the organization by staying ahead of technological advancements and trends. While our work has traditionally centered on cost reduction, developing problem-solving tools that also generate revenue effectively lowers the Supply Chain’s cost to serve the organization, paving a new path for cost reduction.”
Banner Health
The Phoenix-based IDN sought to control its own destiny by setting up its own regional GPO, called Supply Chain Value Network, that it operates with its consolidated service center that has been active for two decades running, according to Doug Bowen, senior vice president, Supply Chain Services.
WHAT THEY DID: Banner developed and grew SCVN organically – first internally before expanding outward to affiliate providers. “SCVN allows Banner to offer contracts and all supply chain service offerings to selected independent healthcare sites,” Bowen noted. “These partnerships create supply chain synergies to improve Supply Chain operations across all enterprises and throughout the continuum of care. Since 2017, SCVN has been a huge success and has created significant incremental value to the supply chain for both Banner and the other participants.”
MOTIVATION: Bowen’s team viewed this as something atypical and different for supply chain. “We saw this as an opportunity to bring in revenue that would help us fund supply chain improvements, move us in the direction of being a revenue generating department, reduce the impact of inflation and create incremental value,” he said. “We have marketed the program mainly to those facilities that were already Banner affiliates through our national GPO where we can identify additional value through our SCVN contracts. In addition to that we have marketed to some organizations outside of Banner where we have relationships within that organization.”
C-SUITE EXPOSURE: Running the CSC for 20 years certainly helped. “For us it was an easy sell as we utilized our existing resources to work on the SCVN GPO contracts so there were no incremental costs – just new revenue in the form of incremental administrative fees,” Bowen said. “We have now added one resource to handle the management of the sales reports and administrative fee reconciliation.”
Cleveland Clinic
The Cleveland-based IDN concentrates on clinician, physician and surgeon involvement to the point that the philosophy remains ingrained, according to Steve Downey, Chief Supply Chain and Patient Support Services Officer, Supply Chain Services.
WHAT THEY DID: Supply Chain formed an operational link between the professions and a joint venture offering supply chain services. “Cleveland Clinic spent significant effort getting physician alignment with supply chain,” Downey said. “We developed our medical director model, created new ways to partner and drove best practices. [See “Physician/Surgeon-Supply Chain Relations Fueled by Circle of Trust,” September 2024 JHC] That then led us to form Excelerate, a joint venture with Ohio Health, Cleveland Clinic and Vizient, to serve as a clinically driven supply solution for health systems. It leverages the supply alignment and selection practices that Cleveland [Clinic] and other top hospitals have used to narrow their supply formulary in the hardest-to-manage category of physician-preferred items (PPI). There are now dozens of hospitals using the program saving millions in value. Suppliers appreciate the program because it drives compliance to their products when on formulary.”
Revenue generated by Excelerate is funneled back into the organization. “Funds from the program cover the costs of employees serving it, such as sourcing,” Downey assured. “There are clinicians supporting Excelerate, including from member hospitals.”
Downey cautioned against viewing what Excelerate offers as a “canned” program that could be applied elsewhere because of the customized nature of its solutions for clients. “The strength isn’t a packaged program to implement, but our clinicians and supply chain teams helping member hospitals create whatever specific structure works for them, then partnering with them on supply decisions,” he clarified. “As the products are vetted by the clinical teams, those clinicians then become available to others to understand the decision criteria. Then the program helps leverage the purchasing at scale, across the collection of committed members.”
At press time in October, Michelle Clouse, executive director, Excelerate Clinical Partnerships, quantified their current membership reach at 229 hospitals and rising. “I believe the biggest value that we bring is understanding – as a provider ourselves – the benefits we realize throughout the organization by having a clinically aligned supply chain,” she told JHC. “Because we’ve been through it, we can talk with members about their journey and meet them where they are to support them along the way.”
MOTIVATION: In short, they saw a gap. “It was a real need, driving standardization for quality, operational and financial reasons,” Downey insisted. “The team then assessed the market and saw that no one was doing a clinical-aligned, health system-operated GPO model. It takes patience though; many programs take years to come to maturity.”
Downey acknowledged that many organizations already may have implemented their version of a clinically aligned supply chain. “But building it as a service for others, and then growing and leveraging that size and scale to a point where it generates value for the membership is the long part,” he added.
C-SUITE EXPOSURE: The C-suite looked for results. “The new solution should have enough revenue potential and be worth the time and effort required,” Downey noted. “Executives also look for ways to help fellow health systems, and having a solution that proved effective at yours and being able to help someone else with that program generates collective value. The team also needs a track record of success – start small and build up the reputation of execution and ability.”
Bon Secours Mercy Health
Senior executives at the Cincinnati-based IDN recognized that the organization’s supply chain operation needed to progress to the next level, according to Dan Hurry, CSCO, Bon Secours Mercy Health, and president, Advantus Health Partners.
WHAT THEY DID: Hurry convinced the C-suite that in the name of simplicity the next step in the organization’s development was to extract its supply chain operation and spin it off.
“We took the supply chain entity within the ministry moved it into an independent organization, a company that we set up called Advantus Health Partners,” Hurry noted. Advantus offers a cornucopia of supply chain services, including clinical engineering and healthcare technology management in partnership with GE Healthcare, as well as dietary, environmental services and patient transport services to Bon Secours Mercy and other Advantus members. Against the backdrop of the pandemic-related supply shortages and to support domestic production, they also invested in Emerge Manufacturing, a local firm that makes a variety of in-demand medical products.
Advantus works with more than 120 other acute care facilities and more than 1,000 non-acute care facilities outside of the Bon Secours Mercy network, according to Hurry.
MOTIVATION: The organization itself planted the seed as far back as 2016 because they “felt the need to find innovation within their supply chain model and wanted to go at-risk and find somebody that was a change agent, so they recruited me,” Hurry recalled. He shared a vision and strategy and achieved some incremental wins during the next several years that built credibility and generated trust with proven results even before Bon Secours merged with Mercy Health.
When the pandemic emerged in early 2020, Hurry admitted that he and his team faced some brief trepidation and hesitation about launching Advantus. “Some asked, ‘Should we wait?’ and I absolutely said, ‘No way,’” he recalled. Hurry felt the global crisis would demonstrate their model and capabilities in real time with real results. Advantus debuted in 2021.
“The reason we did it was really twofold. One, we wanted to [demonstrate] a continuous effort to optimize the supply chain model for the ministry while also offering to the marketplace the ability to bolt on to what we’re doing in the ministry for those who maybe could use some support. We also saw it as an opportunity to convert it into a revenue-generating entity back to the ministry. So, it works hand-in-hand with generating continuous value for others while leveraging the expertise we have in place. The business model is rather simple.”
Hurry’s motivation for Advantus is the desire to keep supply chain simple by offering a menu of services. “How do we keep it easy? How do we make it most effective for others without complicating it?” he noted. “We do have some traditional things that are as simple as plug-and-play with the agreements or contracts or partnerships we have in the marketplace. But the biggest thing that we bring forward that we believe is a differentiator is the services that we provide. We can be an available outsourced entity where we come in and run a supply chain for somebody, we could be the leadership for a supply chain at an organization or we can even provide micromanagement solutions, whether it involves surgical navigation, which in short form is resources that we apply to the surgical suite (for the OR or cath lab) to help optimize a supply chain within that area or it involved clinical resource project managers that cover a broad array of clinical products.
“We’ll also interface with people in the C-suite all the way to those that might be at a dock to help support, throughput, opportunities, initiatives and everything in between, or we can just come in and help people assess where they are, maybe on their journey within their own supply chain optimization, and show where can we help them maybe either augment what they’re doing, accelerate what they’re doing or bring new insights that they may not have seen already,” he added.
C-SUITE EXPOSURE: Supply chain’s influence and success is built on results produced, according to Hurry. “Whether we like it or not in the healthcare industry, supply chain always seems to be considered a secondary or tertiary role,” he indicated. “So, you need to prove that you’re different and you need to do it through credible results. I’ve seen a lot of people just mimic others and say, ‘Well, they’re doing it over there.’ You need to figure out the solution within your own walls, the culture of your own organization, the politics that come within the walls of any organization, but diligence, perseverance and results are always going to win.”