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Sourcing & Procurement

Premier Wants to Change the Healthcare ‘Landscape’ with Tools to Safely Reduce Costs

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David Hargraves, senior vice president of supply chain, says Premier emphasizes collaboration with partners.

Premier Inc. exists to improve its healthcare members’ outcomes while safely reducing their costs, says David Hargraves, senior vice president of supply chain. “We collaborate with our members on every major decision in all the work we do,” he notes. “It’s an alliance.” Premier’s alliance includes 4,000 U.S. hospitals and health systems, as well as 175,000 other providers.

In fact, the Charlotte, N.C.-based healthcare improvement company with a strong group purchasing arm, feels so strongly about collaboration that its supply chain leaders recently traveled to Washington, D.C., with about 25 of Premier’s largest members and their supply chain executives to speak directly to the senators and representatives from their states.

“That may not be typical of a group purchasing organization to do, but we went to Washington, D.C., to make sure Congress heard from healthcare providers about improving the system,” Hargraves says. “That’s just one solid example of how Premier uses our advocacy for greater change.”

Multiple Assets

Named one of the World’s Most Ethical Companies® 12 years in a row, Premier is well-equipped to help health systems thrive. Its assets include group purchasing, technology, consulting and its strong advocacy efforts. “That set of assets that we bring to bear on members to reduce cost helps us change the healthcare landscape,” Hargraves explains.

Technology that serves up actionable insights and intelligence is a core tenant of Premier’s strategy. For example, healthcare providers that use Premier’s technology score 21 percent higher in CMS’s Overall Hospital Quality Star ratings and its members also perform 30 percent better in achieving savings payments in bundles, shared savings and other value-based payments.

Through its advocacy and collaboration efforts, Premier and its members strive to holistically transform healthcare from the inside through quality care enabled by technology, safe cost reduction and strategic clinical partnerships.

The Big Three

While there are many challenges plaguing the healthcare industry, Hargraves says the top three relevant to the supply chain are financial, large-scale cost reduction through consolidation, and drug shortages and supply disruptions.

Healthcare providers of all shapes and sizes, but mostly the large acute care providers, are struggling financially, Hargraves says. “Operating margins have dropped 47 percent on average, and hospitals’ median margins fell to an all-time low of 1.6 percent in 2017,” he explains. “Think about that and the thin margins the providers have to operate on. The government controls a majority of their payments and the cuts that are coming will reduce revenue and challenges those margins.”

To combat that, healthcare providers turn to the supply chain for help controlling costs. “Cost management has to be a core competency of healthcare providers,” Hargraves adds. “Cost has always been important, but never as much as it is today. Large cost transformation projects have elevated the role of supply chain leaders today.”

An increase in provider consolidation to achieve large-scale cost reduction is a direct response to the financial challenge. Both suppliers and providers scale through mergers and acquisitions, resulting in newly formed healthcare providers to drive system integration and standardization.

“After a merger or acquisition, all the technology is standardized and variations in the way care is delivered are eliminated,” Hargraves explains. “That’s a challenge and a tremendous amount of work, but when it’s done and done well — which is where Premier’s expertise and technology come in — it can have a material impact on the bottom line. The healthcare provider winds up much healthier and more stable, and Premier is 100 percent part of that process.”

The third biggest challenge in healthcare today is the increasing frequency of drug shortages and supply disruptions. There are more than 140 drugs in shortage at any given time and the reason is because some products used for daily care might be supplied by only one or two manufacturers, creating an unhealthy marketplace.

Premier launched ProvideGx, a new generic drug venture, in January 2019 to successfully resolve national drug shortages. By its one-year anniversary, the company had brought 17 shortage drugs back to market.

“In a lot of cases the manufacturer stopped producing the drug, so we got our members together, aggregated demand and went back to the manufacturer to try and get them to restart production and end the shortage,” Hargraves says. “Supplier collaboration, investment, demand aggregation and identifying the gaps are all the core tenets of supply chain best practices, and we developed an innovative way of going to market to solve more problems for our members.”

E-Enabling the Supply Chain

Premier is focusing on the next wave of change in healthcare, which is the intersection of cost and quality. “How do you tie the supply chain to those technologies and processes that improve quality?” Hargraves asks.

Healthcare providers are looking to Premier to assist in the acquisition cost of a product and that product’s impact on the total cost of care. The supply cost is a subcomponent of the total landed cost, which in healthcare is referred to as the “total cost of care.” “Total cost of care and supply expenses for all non-labor expenses are the maturation or transformation that is occurring in healthcare today,” Hargraves notes. “We are leading the way for that transformation.”

One of the ways Premier is leading the way is by e-enabling the supply chain. “We believe you need technology to do it efficiently,” Hargraves explains, “and if utilized correctly, the technology will enable better outcomes.”

Premier has identified 40 areas that could be e-enabled to make healthcare providers more efficient and lower costs. “We are the market leader for data analytics and making acquisitions to lengthen that which we already have,” Hargraves says.

For example, Premier’s S2S Global direct sourcing subsidiary is a first of its kind in the industry. S2S Global vertically integrates the supply chain by providing Premier members with factory-direct products, driving meaningful cost savings along with supply chain transparency. “The healthcare provider always sees double-digit savings,” Hargraves notes. “That’s an interesting area to drive savings through direct sourcing.”

In October, Premier acquired Medpricer, one of the nation’s leading technology-based solutions, to optimize healthcare provider savings across purchased services contracts. Medpricer is a software-as-a-service provider of technology solutions that enable hospitals to analyze, benchmark and source purchased services contracts independent of any existing group purchasing organization affiliation.

“Purchased services, or services that providers have chosen to outsource such as lawn care and waste collection, account for up to 30 percent of a typical healthcare provider’s non-labor expenses,” Hargraves explains. “It’s a very large spend for our members, but because these services are so disparate, it’s traditionally been a challenge for providers to gain transparency into, and then reduce, the spend.”

Not all of Premier’s technology is driven by acquisitions. In October, Premier launched its own e-commerce platform, the stockd. marketplace, curated for healthcare providers in the non-acute space to easily purchase items such as linens and gloves. By surveying more than 1,000 non-acute care providers to understand their purchasing challenges, Premier leveraged its GPO expertise and experience to build a solution that delivers cost and resource efficiencies.

Technology is a top focus for Premier when it comes to investment, as are subject matter experts who can help its members make progress in the hard-to-penetrate areas of spending, including capital, construction, purchased services and physician preference items. “In looking out for our members’ interests, I recognize that it’s not always feasible for healthcare providers to find and hire supply chain experts themselves, so what Premier has done for them is hire experts and deploy them within our members’ regions,” Hargraves explains. “It’s an example of how Premier marries group purchasing with on-the-ground expertise to help lower cost, improve quality and utilize resources in a more efficient way.”

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