GHX business case
The Northwest Supply Chain (NCSC) is comprised of 13 hospitals who have a combined deiced/surgical spend of over $MOM per year. For the purpose of this business case it has been determined that the scope will be focused on the 6 largest hospitals as they will drive the greatest value in terms of savings. Currently 19% of invoices are being processed electronically. 73 % of goods are on contract; however, the challenge Is that there Is no guarantee that these Items have been purchased at the lowest electronic method to validate correct pricing.
Whilst 5 of the 6 sites operate on independent ARMED ERP installations and Dryden uses Great Plains the current IT infatuation limitations does not provide a comprehensive and all inclusive view for NCSC to maximize their EDI capabilities, validate pricing, unit of measure, SKU or back order issues in real-time. This situation also does not allow NCSC to reduce manual processes when dealing with invoices, since the vast majority is still being received in a paper format. The result is a system in which staff lacks visibility to problems when they occur, thus reducing efficiency and increasing costs.
The proposed system by GHZ will validate contract pricing to ensure NCSC is paying the lowest and correct rice on all agreements, as well as capture an estimated 50-55% of all invoices electronically so they can be managed within their systems, thus allowing AP to take advantage of early payment discounts and other supplier incentives. Due to the manual nature of the current environment, the result is an existing structure that does not provide visibility to hard dollar cost savings, the ability to measure savings, or the opportunity to streamline operations. This, in-turn, hinders contract compliance and ultimately actual, real savings.
Based on the information provided by NCSC, it is estimated that the cost savings opportunity from the proposed system is $495,989 per year, for all 6 sites. This would be realized through contract compliance, ensuring the best pricing is captured, identifying off-contract spend that should be on contract, moving to new LAIN wide agreements where possible and streamlining AP. Additional savings of up to $687,748 could be realized in a 2nd phase if NCSC moved to an on-going Data Management and cleansing tool, which would provide more in-depth product information that would assist in identifying further contracting opportunities.
The recommended solution from GHZ will provide a reoccur-to-pay process that will offer the following benefits: Achieve savings of $495,989 per year Measure savings on an on-going basis (validate ROI on investment) Streamline processes at all 6 hospitals 3 Provide NCSC with visibility to all medical/surgical spend through GHZ Provide the capability to coordinate spending with other Coo’s if desired Quick solution implementation (approve. Months) so savings occur sooner Continued representation in the national SO advisory council, which is designed to further drive out costs by better aligning the work effort for the SO/Suppliers/GPO Allow NCSC to add additional oodles in the future (Item Master Maintenance, Enhanced Reporting) Savings Continuum GHZ is recommended since it has the only end-to-end solution in the healthcare industry that addresses all key areas of our supply chain.
GHZ also has extensive experience and a proven track record in Canada that will provide a progressive approach to creating value and efficiency through the combination of solutions that, when Joined together, will address Ann.’s needs. Further, GHZ has implemented the Champlain Health Supply Services, both of which use the two MIS/ERP companies deployed in the NCSC (Armed and Great Plains Dynamic/Calm), as well as with two Medium sites namely PROcure (Armed) and Mohawk. These successful projects with proven savings targets will help ensure that NCSC will be able to obtain their objectives with respect to operational and hard dollar savings. Current Process As defined in the scope of this project, NCSC is comprised of 6 hospitals in the North West LAIN which all run on separate MIS/ERP installs. This is further complicated by the fact that some sites lack EDI capabilities and currently use another GPO, all of which will need to be coordinated in-order to drive efficiencies. While the creation of NCSC is a good first step, Coo’s across Canada have not been able to achieve their desired outcomes until they were able to address the following gaps. Match each of the international organizations below with one of its functions
Multiple POP Processes: as some suppliers have the ability to send documents electronically via Electronic Data Interchange (DE’) and many smaller/medium suppliers do not have EDI capabilities, procurement functions that include processing orders electronically, by phone, fax, and email cause the procurement staff to interact with these modalities differently based on their and the supplier’s unique limitations. Multiple Systems: Multiple manual and electronic systems are required for racking, Pop’s, Pop’s, backorder, invoices and deliveries.
Correct Contract Price: same item may be on multiple contracts at different prices (I. E. Purchasing GPO items from a more expensive local contract). Contract Maintenance: contracts are maintained manually, thus making it difficult to update agreements or research items on a timely basis. There is no automated process to update contracts in the current system. Contract Compliance: though 73% of items are on contract, rogue off contract spending does occur, but due to the limitations of the current system cannot be tracked. Assure, price or part number is correct to ensure invoice matches POP.
Early Payment Discounts: the current system receives 19% of invoices electronically. This means that the remaining 81% have to be scanned, which reduces Ann.’s ability to increase early payment discounts, on the remaining invoices if desired. The result is a multiple system process in which NCSC cannot maximize the value and efficiencies of their ERP to capture all procurement activities within one system. Further, the current configuration does not allow NCSC to identify hard dollar savings on existing entrants, nor highlight opportunities to bring non contract goods onto agreements to further reduces costs. Reason for Change NCSC, like other Shared Services Organizations is looking to reduce the cost of healthcare delivery while maintaining or increasing service quality. Current healthcare annual increases to hospitals in the 2012 fiscal year are 1. 5% (2012 Ontario Budget), which is below the Ontario overall inflation rate of 1 . 7% (Ministry of Finance Canada) The result is increased pressure on the hospitals to reduce costs and/or services to meet the increasing gap in their budgets. These pressures will only increase over time as the current population ages and therefore requires more care.
Through automation, a hospital can typically reduce the time and cost associated with manual transactions by 40% to 60%1. It is estimated that hospitals overpay by 2% to 7%, for contracted supplies, which based on data provided by NCSC would mean savings of up to$l if all GHZ solutions were deployed. However, based on funding limitations of NCSC, the scope of this opportunity has changed in order to maximize the savings opportunities identified within the 6 NCSC sites. It is conservatively estimated that savings would be $495,989 if current contracts and AP automation are utilized correctly.
These savings occur because hospitals typically have multiple contracts with multiple prices for the same item, permitting buyers and suppliers to conduct business at less than optimal prices. This does not include additional savings of $687,748 that could be realized through the utilization of the Item Master Maintenance tool which was originally part of the RAP. 3 Also, 60% of supply costs in prominent hospital sites stem from Physician Preference Items (PIP)4 since they tend to increase in cost by 17%, compared to 3% for standard items; streamlining these could provide even greater savings.
PIP products could be identified across the LAIN using clinical staff to standardize products for NCSC, which would reduce the number of items purchased as well as their costs, since larger price controlled agreements could then be implemented. Bremen, T. , Rein, Building Supply Chain Capabilities in the Healthcare whitepapers/hypothetically . PDF, (Accessed: 1 October 2010) 2 ERIC Institute (2009), Wasting Millions By Making Purchases Solely On Physician Preferences? Not In My Hospital, pig. , [Online], Available at: http:// www. Attainments. Org/woebegone/uploads/2010/06/Physician Preference Items. PDF, (Accessed: 1 October 2010) 1 Global Healthcare Exchange (2010), Procurement Optimization: A Holistic Approach, A GHZ White Paper for HealthCare Executives, pig. 2, [Online], Available at: http:// www. GHz. Com/tibia/918/Default. Asps, (Accessed: 1 October 2010) Global Healthcare Exchange (2010), A GHZ Case Study: Chivvied, [Online], Available at: http://www. GHz. Com/Despoilment’s/Bridging/DMS/Download. Asps? ND-core Download=1023=15, (Accessed: 4 October 2010) 4 Automation of the entire supply chain, from item research to payment, would help identify the items being purchased at incorrect costs, plus identify non-contract teems which should be added to contract agreements. This will help NCSC to work with the hospitals to rationalize their spending and better manage costs. For example, Champlain Health Supply Services (CHESS), which operates on several different ERP systems, began implementing the GHZ suite of solutions in January 2010.
Based on its internal metrics, which were validated by Mountainous (Ministry of Finance of Ontario providing funding), CHESS projects net savings of $1. MM in fiscal year 2010 and targets an additional $32. MM in the next eight years, starting in 2011. The average $4. M per year in savings represents a 3% NET cost reduction in its annual medical/surgical budget of $MOM (see schedule 1 for CHESS press release). It should be noted that CHESS savings are actually closer to 5%, but have been reduced by allocating increased costs from expired legacy contract agreements against the GHZ savings.
Since most suppliers are already members of the GHZ exchange and represent approximately 80% of med-surge spend, it will be a simple matter to gain the necessary volume and information to drive those cost savings. It should be noted however that Ann.’s project will be 2. %, as the scope of this proposal does not include ongoing Item Master maintenance. The GHZ system once implemented at NCSC will still utilize the ARMED and Great Plains ERP systems, but would use the GHZ products to review and manage POP/Pop’s, Contracts and Invoices.
This information is presented on a dashboard that can be configured by user role, so that each user can view pertinent data in real time. NCSC could combine all the data for the LAIN to conduct further analysis in-order to further reduce hard dollar costs. The recommended future state is out of scope of this business case, but is included to how what the complete end to end solution. The additional products include Naval, which will provide NCSC with the ability to update a Virtual Item Master on an on- going basis. This will provide additional data that will allow NCSC to use UNCAPS opportunities to consolidate or add new items to contracts.
This second phase, if implemented is estimated to save NCSC up to an additional $687,748/year. 7 As with any implementation of new solutions and processes, some risks are involved. The following are the identified risks that could be entailed in the GHZ solution implementation: 1 . Change Management: The largest risk in this project lies in user behaviors. Changing users’ behaviors to adapt to new workflow and processes can be challenging as employees have designed methods to deal with the unique limitations of their systems. 2. Resources/Expertise: NCSC has limited resources available to implement this project.
GHZ will manage the project using its staff to implement products, best practices and training across the region. 3. Time: Ensuring that the project is fully implemented within a short timeshare is important as users will want to see tangible benefits quickly or they might lose interest. . Maximizing Returns: A danger in a project of this scope is that organizations may stop short of fully executing the plan due to risks described in the points above. If this occurs, the LAIN will have a hybrid structure in which users must use manual or older inefficient procurement methods which cause diminished cost savings.
The impact to NCSC would be significant if the GHZ solution was not completely implemented in a timely fashion. Based on the value study prepared for NCSC, the savings after implementation would be $188,000 which is in line (proportionate) with the results achieved by other Coo’s in Canada. This amount would increase when NCSC includes PIP products. For illustration purposes, the combined spend based on the information provided by NCSC is $19. MM per year. If Pip’s account for 20% of total purchases, they could save an additional $585,peeper year.
It should be noted that the 20% is only one third of the amount stated in the article Procurement Optimization: A Holistic Approach, A GHZ White Paper for HealthCare Executives. 8 $19. MM = $kick OPTIONS LAIN would have to: a) Reduce patient services b) Delis some services and have patients or private insurance pay the costs c) Add user fees to the system ) Hire more staff e) Enhance existing computer systems to manage increased volume f) A combination of the above This option would not solve the problem or the long-term reality that there will continue to be increasing pressure on the healthcare system as the population ages.
This situation would be exacerbated as it is likely that the LAIN would require either additional people and/or computer systems to handle the demands of an aging demographic while still depriving the users of the necessary information and tools to drive costs savings. 2. GHZ: The solution being proposed from GHZ is an integrated platform for commerce comprised of e-commence (C+, Mattered), contract repository (Contract Center), and electronic invoice (810) capabilities that will allow NCSC to automate approximately 50-55% of their invoices..
These solutions will be implemented by NCSC with augmented training by GHZ. By utilizing the GHZ suite of products, NCSC would benefit from the following advantages: a) Leverage existing ARMED/Great Pains Systems: GHZ solutions would complement and integrate to Ann.’s existing ERP which means no system replacement cost. B) Information: All information pertaining to Pop’s sent through GHZ will be captured, o all users can view the information they require. This will also include electronic invoices and scanned invoices. ) Metrics: GHZ would provide standard reports within the solution with the ability to export the files for further analysis. This capability would help NCSC determine the effectiveness of the entire system?from an individual user to aggregate spending for the LAIN. The result would be better cost management since NCSC would have internal benchmarks which can be compared to other organizations using GHZ. D) Real Time Information: The solution would provide real time data to aid users in identifying problems and taking proactive measures to solve them as they happen. E) Reduce Costs/Proven ROI: NCSC can reduce its medical/surgical spending by $624,925 in the first phase and an additional $700,000 in the second phase. This could be further enhanced by rationalizing PIP spending. F) Medium: Medium contracts will be uploaded directly into the Contract Center component of GHZ. The contracts so the users can track existing agreements and load new contracts. In addition, the Contract Centre solution will identify the correct contract price, to increase compliance, therefore, reducing costs.
The same technology is also integrated with Health PRO and will be used until such time that all contracts are migrated to Medium. G) Speed of Implementation: The GHZ solution will allow for immediate savings that will help fund the project as cost reductions opportunities are identified. H) Change Management/Expertise in Best Practices: Having implemented projects in Canada and the United States, GHZ staff has a proven track record and knowledge to drive the project to completion in the agreed timeliness.
Projects of this size require solution expertise, Canadian healthcare market knowledge and best practices so the returns are realized quickly all while meeting takeover requirements. The scope of GHZ involvement is outlined in the Scope of Work for this project. I) Use in Canada: NCSC could take comfort in the large amount of Canadian clients utilizing GHZ. These include HOSTS, Alberta Health Services, shelter, Champlain Health Supplies Services, CHAP, HASP (Nova Scotia), SO, Plexus, PROcure, Mohawk and HAMS. ) End-to-End Solution: GHZ is the only end-to-end procurement solution in the market that leverages Canadian data from Canadian suppliers and manufacturers. This, along with the success of CHESS, was the key reasons that ASH, shelter, PROcure, Mohawk and many others chose GHZ as their e-procurement vendor. By providing a procure to pay solution, GHZ is able to tightly integrate the existing IT platforms and processes across the province, so the users in each hospital would have visibility to the entire process within their region while providing NCSC with a complete record of all spending.
In turn, this provides real time information along with analytical capabilities to reduce discrepancies and drive contract compliance. 10 GHZ is the only vendor that can provide an end-to-end supply chain solution that meets the needs of NCSC. Other companies can possibly provide specific components, such as DE’, or append some data to the Item Master, but these solutions will not provide the overall cost savings that NCSC requires to help reduce the increasing costs for medical/surgical goods.
In addition, GHZ is the only solutions provider that has full integrated connections into both national Goop’s (Healthier and Medium) allowing for the smooth transition to Medium contracts. The recommendation for GHZ is supported by the success being achieved at CHESS, shelter, PROcure and Mohawk among other Coo’s in Canada. The products below are integrated to maximize returns and while still effective individually, would not be nearly as effective in achieving the savings required if not a fully operational solution.
Solution Overview: a) Connectivity: Provides an integration platform form for NCSC through a small server located in the demoralized zone behind the hospital’s firewall or data centre to EDI capable suppliers/manufacturers. Currently GHZ has over 100 supplier- division members in Canada that would encompass 80-85% of the total medical/ surgical spending in the LAIN (excludes capital goods). ) E-procurement: The solution creates an EDI connection with virtually all suppliers whether or not they have commerce capabilities.
For those suppliers that do not have EDI capabilities, the solution converts the order to an email format with an embedded hyperlink. The link allows non-EDI vendors to interact with NCSC and the hospitals in the same manner as EDI capable businesses. By using this solution, NCSC will be able to increase the volume of electronic transactions to a minimum of 90% of all orders. C) Real time reporting: A dashboard application is provided which presents orientations in the same format, thus eliminating many manual processes.