Case Study: Behavioral Health Across a Health System A Deeper Look When a health system identifies a service line to redefine and improve, they benefit from a team of consultants who speak their language, understand their business and have the deep bench to implement changes swiftly. Follow Mercy Health on their journey to improve their Behavioral Health service line by increasing capacity, marry best practice design with best practice medicine and successfully create healing environments for behavioral health patients across their large system, spanning two states.
The System Approach BEHAVIORAL HEALTH
In an effort to provide a full spectrum of health services to every community Mercy Health serves, Behavioral Health was identified as a priority service line for improvement. With facilities throughout Ohio and Northern Kentucky, the System sought to bring parity to their hospitals and elevate the
Redesign and construct renovated and new behavioral health units throughout a health system while remaining operational.
Behavioral Health services across the System. The design and construction team analyzed each facility to determine the minimum census that needed to be maintained during construction as well as whether renovation, new construction or a combination of the two options were the best solution for each facility. They also explored the benefits (cost savings) of employing a bulk purchasing plan to save the client significant capital funds. The
SOLUTION Diligently plan for and test phasing opportunities to allow for both quickest construction and optimal census levels during construction. Bring the same dedicated consultant team to each campus to decrease learning curve and increase project success likelihood.
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savings from this strategy alone saved Mercy Health in material, equipment and fixture costs. Across the System, the intent to create healing environments is being accomplished with patientcentered treatment, resource areas for walk-in clients, private spaces for visitation and space dedicated for exercise. Benefits of the new models include shared leadership work spaces, implementing a team staffing model and multi-disciplinary workspace instead of nurse stations.
SPEED TO MARKET DIFFERENTIATOR - BULK PURCHASING Danis Building Construction Company was contracted to provide construction management for five behavioral health projects in September 2013, at the following facilities: •
Lourdes Hospital – Paducah, KY
Mercy Clermont Hospital – Cincinnati, OH
Mercy St. Charles Hospital – Oregon, OH
St. Elizabeth’s Medical Center – Youngstown, OH
St. Rita’s Medical Center – Lima, OH
Each of these facilities was to receive similarly finished spaces - systems, finishes and fixtures were to be fit out with parity. The same room layout and operational approach is also being implemented at each facility. With a short schedule and multiple projects of similar nature, it was decided that purchasing many of the repeatable materials, equipment and fixtures across projects in bulk would save funds, improve efficiencies and ensure the desired standardization across the System.
The following items were selected as candidates for bulk purchasing: •
Solid Surface Materials (shower surrounds, specialty pre-manufactured base, etc.)
Doors, Door Frames and Door Hardware (anti-ligature hardware and door alarm sensors)
Gypsum Board Products (specifically specialty abuse resistant drywall and accessories)
Resilient Flooring Products (carpet, sheet vinyl, rubber tiles and rubber base)
Epoxy Flooring (patient toilet and shower rooms)
Toilet Accessories and Fire Protection Specialties (anti-ligature, security and detention type items)
Plumbing Fixtures (showers, toilets, sinks, etc.)
Air Devices (HVAC grilles, registers and diffusers)
Lighting Fixtures (fixtures, sensors, network lighting controls and devices)
At the time of this decision, only the Mercy Clermont project had been designed - the other projects were only in early conceptualization. Without quantities and knowledge of site-specific conditions that might alter the needs of each item, Danis created a process to protect Mercy’s assets given the unknowns. The following details of this process are a few examples of the challenges presented and the solutions that led to a successful bulk purchasing effort. Incomplete Design / Unknown Quantities
Logistics and Manufacturing Coordination
Cost Escalation Risk
Subcontractor and Vendor Relations
Tracking and Reporting
Unit Pricing Based Upon Quantity Ranges
Understanding Potential Site Specific Risk
Planning and Agreeing to Flexible Terms
On Time Deliveries
Delegated Scheduling and Logistics
Limiting Handling Requirements
Vendor Assumed Escalation Risk
Favorable Market Factors
Detailed Bid Package Scope Documents
Creating Definitive Separation of Scope
Quantity, Accessory and Risk Delegation
Open and Clear Communication
Creating Understanding and Trust
Monthly Tracking and Reporting to the client
Closely Coordinating Estimating, Invoicing, Payments and Deliveries
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Implementation UNKNOWN QUANTITIES - HOW TO PROTECT THE CLIENT AND STILL PAY BULK RATES Based upon market research as well as existing and planned patient beds, the System’s behavioral health team provided estimated bed counts and proposed square footage requirements for each facility. Based upon the Mercy Clermont design concept, fixtures and materials per square foot and per patient room/bed were calculated then extrapolated across the entire network. These estimates were provided to vendors for bulk pricing. Vendors proposed unit pricing for different ranges of quantities. The base unit price proposal from each vendor was for the known quantities for the Mercy Clermont Project. That base price could then be compared to the highest quantity range unit pricing that reflected awarding all of the network projects to a single vendor (five behavioral health projects). The unit price variance, depending on quantity chosen, shows the savings that are achieved when purchasing each item in bulk. Each awarded vendor will be compensated per the unit price associated with the actual quantity of product after design and procurement is completed. Purchase orders are awarded for each project, which allocate or track the appropriate cost to each contract/location. As vendors deliver items, they receive progress payments that conclude each project at the appropriate agreed upon average unit price. This protects the owner and contractor from an early termination penalty in case the entire agreed upon quantities are not purchased. LOGISTICS / MANUFACTURING WITH UNKNOWN QUANTITIES The greatest savings associated with bulk purchasing is achieved when products can be manufactured simultaneously to increase the manufacturing efficiency of each item. Additional cost savings can be achieved by protecting the buyer from cost escalation. Since the projects had unknown quantities and exact timing was unknown, these efficiencies could not be achieved. The risk of manufacturing/procuring more quantity than needed and the logistics/cost of storing materials for future use outweighed the potential savings. The request for proposal to the vendors of each item required that they deliver the goods on an ‘as needed’ and ‘on time’ basis. Each vendor was responsible for storing, handling and/or delivering materials, as well as for manufacturing timing. This protected the owner and contractor from risk associated with each. ESCALATION RISK ALLOCATION By committing to a preliminary schedule for each project with an estimate of final construction on the last project by December 2015, the risk of escalation was also the responsibility of each vendor. In post-award examination of the process, it was discovered that market factors, short schedule and the guarantee of the quantity ranges led vendors to agree to lock-in today’s rates for items that were not ordered immediately. This led to significant savings.
Behavioral Health Safe Hardware PAGE 4 | case study: bulk purchasing
\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ DELEGATED RESPONSIBILITY TO LOCAL TRADE/SUBCONTRACTORS Danis was able to involve the local subcontractors in sharing the procurement risk, further protecting the client and aligning best practice construction with todayâ€™s market. This was especially evident in the Mechanical, Electrical and Plumbing trades. With careful coordination and clear communication between the Construction Manager, designers, subcontractors and vendors, procuring the correct quantities ensures the correct accessories and options are included and available when needed. FAIR BUSINESS DEALINGS WITH LOCAL TRADE/SUBCONTRACTORS The procurement process is an important part of any subcontractorâ€™s business model. When subcontractors build relationships with material supply vendors, they gain bid advantages by leveraging those relationships or utilizing buying power within their markets that others cannot duplicate. This process leads to both bid advantages and increased margins. Many times, the initial reaction to the direct purchase process is that this advantage or opportunity for increased margins is taken away from the subcontractors. Through open and clear communication, we were able to navigate the process and ensure that subcontractors, material suppliers, and their business models were respected. The total value and cost basis for each directly purchased item was openly communicated to each of the bidding subcontractors within the bid documents. They were then afforded the opportunity to include the overhead recovery and normal margins they desired in their bid proposal. In post-award and post-construction surveys, subcontractors stated that they felt the process was transparent and fair. On the material supply vendor side, payment and procurement terms and conditions were clearly communicated. This allowed them to provide more competitive proposals due to the definitive payment terms and ability to accurately project cash flow. After assessing final cost and receiving feedback from the vendors involved, it is evident that the client realized significant economic benefit by combining projects, increasing buying power and bulk purchasing the fixtures, equipment and materials. PROJECTED AND ACTUAL SAVINGS TRACKING Danis provided monthly tracking of projected and actual savings as the projects progressed. Estimated savings were used to increase precision in estimating each project at the various design stages. See attached current tracking log for actual savings and projected future savings at this time.
2% - 3%
Doors / Frames / Hardware
5% - 8%
HVAC Grills, Registers and Diffusers
Lighting Fixtures and Controls
ITEM Solid Surface Materials
Flooring (Resilient and Carpet) Flooring (Epoxy) Accessories Plumbing Fixtures
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