Atop The Packing Order

Healthcare Purchasing News - March 2007

by Rick Dana Barlow

Keeping doctors happy by supplying them with the products they need and want to do their jobs can be a winning strategy. Keeping doctors happy by supplying them with the products they need and want to do their jobs, but containing, if not reducing, overall costs is an even better strategy. Accomplishing all of that because your organization controls its own production and purchasing processes with the endorsement of its customers’ senior administrators and the support of the clinical staff is priceless.

Nearly nine years ago Lee Memorial Health System, Fort Myers, FL, and Sarasota (FL) Memorial Health Care System joined forces to establish and manage a self-contracting and self-distribution joint venture operation. The LeeSar Regional Service Center functioned as both systems’ supply chain management company, while sister company Cooperative Services of Florida served as their buying group for products and equipment.

Last year, LeeSar plunged headfirst into an area that frustrates and rankles many hospital supply chain managers – physician preference products – giving itself perhaps the first true test of its business acumen and clinical capabilities. It launched an internal custom packing program in July that began with some backfiring by the doctors and nurses but quickly settled into a smooth ride. And now eight months later it’s gaining enough speed and momentum to expand beyond its original premise.

LeeSar’s strategic concept and the motivation behind it, the teamwork developed and nurtured among staffers, clinicians and business partners, the successful implementation, operation and planned expansion of the program, as well as its potential applicability by virtually any sized facility with the confidence to try it inspired Healthcare Purchasing News to name LeeSar Regional Service Center’s custom pack operation as its 2007 Surgical Supply Innovator.

MAKING IT HAPPEN

At LeeSar a staff of seven – one manager and six technicians – assemble 65 different custom packs for 13 different clinical and surgical areas within the Lee and Sarasota Memorial systems. They produce more than 85,000 custom packs per year, accounting for 60 percent of Lee’s and Sarasota’s total pack consumption patterns, according to Kelly Duncan, LeeSar pack operations manager. The remaining 40 percent represents standard, off-the-shelf packs.

They service all surgical specialties, plus interventional radiology, emergency room and obstetrics, as well as some ancillary packing services. These include three non-sterile kits – one for new mothers, one for babies and one for in-room medical procedures that may include sterile products but the finished pack isn’t sterilized. They have added some specialty, but non-urgent, product packs for the ER, a pack of procedure drapes and straight razor blades used for minor office procedures by an affiliated pediatric physicians practice, and packs for the charitable organization Project Perfect World. But all of their time, effort and products for Project Perfect World packs are donated, Duncan noted.

LeeSar’s process is simple. Contracted manufacturers deliver pack components to the 60,000-square-foot warehouse. Duncan’s team assembles the packs and then ships the finished products to a third-party, American Contract Systems (ACS), where they are sterilized and returned to LeeSar for distribution to Lee and Sarasota Memorial clinicians.

Duncan and Gayle Reynolds, LeeSar’s and Cooperative Services’ CFO both rave about ACS’ operations and contributions to LeeSar’s custom pack program’s development since the program’s planning stages back in November 2005. In fact, Duncan and Reynolds singled out two particular vendors who were extremely helpful in getting LeeSar’s program off the ground: ACS and Kimberly-Clark Health Care.

For a virtually self-sufficient supply chain company like LeeSar to lean on two outside sources for assistance may seem curious, if not disingenuous. But it’s neither.

It’s by design. First, LeeSar needed to start somewhere. ACS and Kimberly-Clark merely stepped up to the plate with ample expertise that offered some direction. Second, both vendors were instrumental in LeeSar persuading and winning over skeptical clinicians that this would work. Third, LeeSar determined that it didn’t make financial or operational sense for the facility to run its own sterilization process at the time, and it needed a vendor to help them standardize on textiles quickly and pervasively with little to no service disruptions.

"ACS was already building and sterilizing about 1 million packs per year for other hospital systems around the country," Reynolds told HPN. "They are experts at FDA requirements and have all the necessary tracking in place. The handing of ethylene oxide must be monitored very closely. This company has a patented process that they have perfected.

"When we looked at the cost they would charge us compared to what it would cost for us to build in all the safeguards required and take on the added liability, we found it more cost effective using the ACS service," she continued. "We decided it really wasn’t in our best interests to do it. Also, since they had the packing expertise we were able to train our staff in their facility with their guidance. This proved very valuable to ensure our end product was of the highest quality. I cannot say enough about how great this relationship has been and how accommodating this company has been and continues to be."

Duncan’s team trained for four months with ACS where the packs were assembled before production shifted to the LeeSar facility. "We were very fortunate to find a company that was not only open to our project but also extraordinarily committed to our success," Reynolds noted. "They were always there to help whenever needed."

Meanwhile, Kimberly-Clark brought in specialist teams to help LeeSar’s clinical customers select what they wanted in the packs and then train everyone to implement the process. "We had to standardize on fabric, which is a huge deal in the OR," Reynolds said. "This meant changing some products we currently were using. [K-C] changed products where necessary without charging us restocking fees and they overnighted products for no charge when a change was needed immediately. They were incredibly responsive to the needs of the clinicians and to the needs of us at the packing facility. Their experience was critical to our success."

How did the K-C connection develop? K-C already supplied products for ACS to use for its own custom pack customers outside of LeeSar. "When we brought up our concept to ACS and [LeeSar and CSF President and CEO] Bob Simpson explained his visionary approach, ACS and Kimberly-Clark both wanted to be involved."

What’s more, LeeSar is in expansion mode. In the next phase, LeeSar plans to implement a centralized sterile processing operation by the end of 2008. "We’ll be adding our custom packs to that process right away," Reynolds indicated. The timing is impeccable. Lee Memorial recently acquired two hospitals, and within the next year LeeSar plans to provide services to another not-for-profit healthcare system, which Reynolds didn’t identify. While they don’t plan to alter the footprint of their facility they are prepared to increase the number of shifts to three from the current one.

MEETING THE NUMBERS

The LeeSar program may seem costly to manage but that’s illu-sory at best. The program’s overall cost effectiveness, which includes quality, revenue and clinical customer satisfaction, far surpasses expense concerns and justifies its existence. Pack accuracy is 100 percent; fill rates average 99 percent, Reynolds noted.

LeeSar has recorded about $100,000 in savings to date, according to Reynolds, and they anticipate saving $300,000 after expenses, or about 7 percent. LeeSar’s and CSF’s supply contract negotiators contributed to the total, as well as having some excess capacity in the distribution center, she added.

Because this process is "highly labor intensive" labor costs represent the "most significant" portion of overall expenses, Reynolds said. Expenses also include building lease and maintenance and related costs, utilities, the ACS sterilization contract and supplies, all of which LeeSar factors into its customer charges so the departments share in those costs. Surprisingly, real estate remains affordable where LeeSar is located even as land value throughout much of Florida has been escalating. LeeSar’s building, including insurance and taxes, costs about $7 per square foot, Reynolds added.

"I need to emphasize that we did not really do this for savings alone," Reynolds insisted. "In fact, it is and was just a small reason why we did this. Not only do we want to be in control of our own destiny when it comes to costs but we wanted more control of what components were put in the packs, we wanted to keep the amount of substitutes to a minimum and we wanted better flexibility for the end user to request changes. Since we have our own buying co-op we already had excellent relationships with the vendor community, and that allowed us to have control over the components – cost and type. It also allowed us to use the non-sterile version of the products that we already had under contract for sterile versions that were in use."

One key motivator: Change orders. "We continuously saw our costs escalate whenever we made a change in a pack," Reynolds said. She added she’s heard estimates of changes causing price increases of up to 6 percent on average for components and assembled packs.

Furthermore, LeeSar is a bit more flexible and nimble in its approach than the mainline custom pack vendors. "We don’t have the high overhead that some of the ‘big guys’ have, including high-paid account reps," Reynolds said. "Other vendors have to do large runs of individual packs. It is more economical for them to do so. Since they service so many other hospitals it takes at least six weeks in many instances to even get on the production schedule. At any given time, depending on the pack, they may have up to three months of finished goods in their distribution center and another couple of months in production, plus the 30 days we keep on-hand in our distribution center.

"With the way we do things currently we can produce a pack in one week, including sterilizing time, if necessary," she added. "This takes a lot of cost out of the process and gives us a great deal of flexibility."

As a result, clinicians can see component changes to their custom packs within 30 days and have more control over product substitutions, courtesy of CSF contract negotiations.

Another benefit is the reduction of waste generated by using only standard packs. "If you work only with standard packs you end up trashing some of the items that you don’t use and then pulling the product you do use," Reynolds said. "With custom packs you can alleviate much of that type of waste." But LeeSar and CSF still contract for standard packs for clinicians and procedures that do not require customization. "Sometimes, this just makes sense," she added. "It is not an ‘all or nothing’ proposition." But the success of the custom pack program enables LeeSar to create facility- and physician-specific packs more quickly and cost effectively.

CONVINCING THE CLINICIANS

Not surprisingly, LeeSar encountered considerable resistance when they broached this new concept with the clinicians who feared disruption of the status quo.

Duncan and Reynolds recalled the hesitation. "In the beginning they did not think we could do it," Reynolds said. "They thought they would be in a bind and that this would turn out to be a mess."

Duncan admitted that the clinicians’ fears stemmed from previous bad experiences with backordered products and incomplete packs discovered at inopportune times. "They wanted their products and didn’t want us changing their world without their knowledge," Duncan said.

But Duncan, Reynolds and Simpson enlisted clinician participation from the very beginning, including the evaluation and selection of pack components, a complete understanding of how the production process would work and how the new program would contribute to high-quality patient care and the fiscal health of their respective organizations. And they had CEO support from the customer systems.

"We kept them engaged throughout the process and we made sure they received the accolades – all the way up to the CEO – they deserved for all their help and support," Reynolds said.

In addition, LeeSar hosted detailed tours of its facility and field trips for clinicians to ACS so they could see its packing and sterilization processes in action. "Once the clinicians saw how ACS operated, the animosity was gone," Reynolds recalled.

"They definitely had ownership in the process and now are thrilled with the outcome," she continued. "They have more input into what is in the packs and are in better control of their costs. We would not have been a success without their efforts."

Duncan, who is a certified surgical technologist with 20 years of OR experience, also actively visits Lee and Sarasota Memorial facilities – one system at least weekly and the other three times a month – to evaluate performance, gauge clinician satisfaction, solve any potential problems and maintain an open communications line with customers. "It makes a difference," she said.

Plus, Duncan’s surgical technologists tour the ORs that use the products they pack to see them in operation. "That’s when they start to understand the implications of what they do," Duncan said. "Until then, they didn’t understand the ramifications of leaving a component out of a pack and how that affected patient care." Those efforts contribute to quality.

"We tell our people to pack their packs as if they were going to be used on their family members and to treat every patient that way," she said. For Duncan, it was prophetically personal. She assembled a pack that was used on her husband who underwent surgery involving the da Vinci surgical robotic system. "I had no idea that the pack was going to be used on my husband," she said.

"This project’s successful completion was a result of the cumulative and collaborative efforts of OR teams, materials management, supply chain management and the vendor community," Reynolds noted. "It takes an amazing group of people and strong committed partnerships to accomplish what some would say is impossible. The management team at LeeSar Regional Service Center was able to find those people and partnerships when they chose to pursue a project that would drastically change how custom sterile packs were built, distributed and serviced throughout our owner hospital systems. It is a representation of the great things that can happen when the right team is put together to address a common goal."