Arnold Palmer Hospitals Supply Chain

1
Arnold Palmer Hospitals Supply Chain

• Procurement Case Study
• Istanbul, 06/12/2006

2
Overview

• Arnold Palmer Hospital
• Since 1989, it is one of the nation's top
  hospitals dedicated to serving women and
  children
• located on the downtown Orlando Regional
  Healthcare campus
• over 2,000 employees
• 431-bed facility totaling 676,000 square feet in
  Orlando, Florida
• Also including 96 pediatric beds, 72 obstetric
  beds, a 78-bed Neonatal Intensive Care Unit, a
  35-bed Gynecology Unit and a 20-room Labor
  Delivery Unit.
• only hospital in the Southeast - and one of only
  six in the USA - dedicated exclusively to serving
  the special needs of children and women,

• Also member of Orlando Regional Healthcare
• Which is one of Florida's most comprehensive
  private, not-for-profit healthcare networks.
• Comprises 8 hospitals including Arnold Palmer
  Hospital
• Also owner of Healthcare Purchasing Alliance
  (HPA)

3
Procurement History

• Before
• Arnold Palmer was a member of large buying group
  one servicing also 900 members
• Advantages
• By the help of large purchasing units, low cost
  opportunities per product type
• Disadvantages
• Frequently changing suppliers
• Missing local opportunities with local suppliers
• Bureaucratic and standardized structure,
  diffucult to manage exceptions

4
Current Situation

• Arnold Palmer established Healthcare Purchasing
  Alliance (HPA) in 2003
• with 7 regional hospitals.
• under control of Orlando Regional Healthcare
• Smaller than large buying group but still
  considerable volume (with 200 million in annual
  purchases )
• First year saving was 7million dollar shared by
  8 members
• Yearly cost is 400,000
• Long term contracts with suppliers guaranteeing a
  committed volume

5
Procurement in Service Industry

• Procurement is more focused on product innovation
  and direct spending opportunites in manufacturing
  industry. (Buyer-vendor collaboration)
• In service industry procurement is also focused
  on indirect spending issues. Because most of the
  products purchased in service industry is kind of
  supportive structure for serving capabilities.
• On the other hand InArnold Palmer Hospital
• Case is more like manufacturing in service
  industry.
• Opportunities manifest themselves through Medical
  Economic Outcomes Committee (Like Subject Matter
  Expert Committee also responsible for cost based
  issues)
• Includes subcommittes per deparment
• Includes Nurses , Doctors and other experienced
  medical staff as subject matter expert committee.

6
Procurement in Service Industry-2

• To understand difference between the HPA and
  large purchasing group in one case - Custom
  packs. (used in operating room) As far as we
  understood from the text the process tree is

Distributed
Assembled
Manufacture
Define the eligible Manufacturers and
other parties
Assess the opportunities for quality issues
Find the potential suppliers
Identify Need
McKesson General Medical
Medical Economic Outcomes Committee
HPA
Specific custom packaging co
Specific Manufacturers
HPA
Key Users

• The main difference is The HPA allows Arnold
  Palmer Hospital to be creative in this way. With
  major cost savings, standardization, blanket
  purchase orders, long-term contracts, and more
  control of product development, the benefits to
  the hospital are substantial.

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Question 1How does this supply chain differ from
that in a manufacturing firm?

• Manufacturing firms is more focused on new
  product innovation building efficient
  buyer-vendor collaboration.
• In healthcare services sector, purchasing options
  are evaluated with a goal of better medicine
  while achieving economic targets. In service
  industry procurement is also focused on indirect
  spending issues. Because most of the products
  purchased in service industry is kind of
  supportive structure for serving capabilities.
• In service sector, personnel are often deeply
  involved in purchasing decisions.
• Normally for service sector different companies
  purchases the similar and standardized products
  in terms of RFP requirements.
• However in manufactoring firms, most part of
  purchasing is based on direct spending which
  needs customization and should be firm based.
• The case structure for this hospital is in the
  middle of service industry and manufacturing
  industry in terms of decision phases.

8
Question 2What are the constraints on making
decisions based on economics alone at Arnold
Palmer Hospital?

• Medical Economic Outcomes Committee at Arnold
  Palmer Hospital, tries to maximize the economic
  and medical benefits simultaneously. Its not
  possible to base the purchases solely on economic
  advantages.
• Supply chain management should focus on the total
  impact of care, not merely product acquisition
  costs in the service industry. It should look
  strategically at value, to positively affect both
  the patient outcome and the costs of care, not
  just price.
• Not only major cost savings but also they should
  consider quality, standardization, blanket
  purchase orders, long-term contracts, and more
  control of product development issues.
• From this perspective Medical Economic Outcomes
  Committee is kind of approval committee to
  evaluate the quality standards for eligible
  suppliers in terms of economic targets.

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Question 3What role do doctors and nurses play
in supply-chain decisions in a hospital? How is
this participation handled at Arnold Palmer
Hospital?

• Doctors, nurses are dealing with the medical
  supply directly. Changing or unfamiliar supplies
  make them uncomfortable at their practices.
• So, at Arnold Palmer Hospital, doctors and nurses
  are members of Medical Economic Outcomes
  Committee, who can evaluate the purchasing
  options
• They have also authority on procurement decisions
  in terms of quality and standadization problems.

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Question 4Doctor Smith just returned from the
Annual Physician's Orthopedic Conference, where
she saw a new hip joint replacement demonstrated.
She decides she wants to start using the
replacement joint at Arnold Palmer Hospital. What
process will Dr. Smith have to go through at the
hospital to introduce this new product into the
supply chain for future surgical use?

• Development of custom products is possible with
  collaboration low level supply channels.
• A new hip joint replacement from the Doctor
  Smiths Example requires the evaluation of the
  Medical Economic Outcomes Committee and
  re-organization of the vendors.
• She should also follow the same process for
  custom pack

Distributed
Assembled
Manufacture
Define the eligible Manufacturers and
other parties
Assess the opportunities for quality issues
Find the potential suppliers
Identify Need
Specific Distribute Co.
Medical Economic Outcomes Committee
HPA
Specific custom packaging co
Specific Manufacturers
HPA
Key Users Doctor Smith
11
GPOs Economies Of Scale In Contracting

• A successful sourcing/contracting strategy
  requires a significant amount of resources.
• Health Industry Group Purchasing Association
  (HIGPA) states
• Goods and purchased services account for 45 of
  hospital expenses
• 72 - 80 of every hospital supply dollar is
  acquired thru group purchasing
• GPOs saved hospitals 14.8 to 22 billion in
  1999, which represents 10-15 of total supply
  purchases
• 95-98 of hospitals in the US belong to one or
  more GPOs
• The 1 GPO value sited by hospitals, is
  contracting.

If group purchasing organizations did not exist,
it would cost hospitals an average of 353,000
per facility to perform the same cost comparisons
and contracting functions as GPOs.