|1

Executive Summary

The Impact of Supply Chain Transformation in Health Systems Case Study: Mercy Health, U.S. Dr. Anne Snowdon RN, BScN, MSc, PhD, FAAN Chair, World Health Innovation Network Scientific Director & CEO, Supply Chain Advancement Network in Health Odette School of Business University of Windsor

|2

Executive Summary Introduction This case study is one of a series titled The Impact of Supply Chain Transformation in Health Systems. This particular case examines the implementation of a transformational supply chain strategy across Mercy Health (Mercy), headquartered in St. Louis, Missouri. The purpose is to examine real-world evidence of progress and impact of supply chain transformation in the health system, designed to achieve improved outcomes such as safety, quality and performance. The following case examines the leadership strategy, outcomes and impacts of supply chain transformation on Mercy’s financial and operational performance. Case study findings have emerged from qualitative analysis of observations, public reports, online publications and key informant interviews of stakeholders across Mercy.

Mercy U.S. Supply Chain Strategy In the early 2000s, Mercy leadership believed there was a better approach to overcoming the challenges of the business model of the American healthcare system, characterized by rapidly changing funding models, as well as misaligned and inefficient supply chain operations. By 2017, Mercy had been named among the top 15 health systems in the U.S., recognized for their expertise in health system supply chain. Mercy is the fifthlargest Catholic health system in the country, including 33 acute care and 11 specialty hospitals (specifically heart, children’s, orthopedic and rehabilitation), with over 700 physician practice facilities, 40,000 co-workers and 2,000 physicians.

Mercy Supply Chain Implementation Strategy Mercy’s strategy focused on three key objectives: (1) high-value care delivered by clinical programs, (2) sustainable change in operational performance and (3) strengthened financial outcomes across the system.

Leadership Strategy Leaders had the vision of transforming supply chain as a strategic asset across the Mercy organization to unify the system and to strengthen its performance and fiscal sustainability. The key driver of the strategy was the change in reimbursement models for health services, which resulted in declining revenues even as demands for care increased. Supply chain management and optimization was viewed as a strategic asset critical to Mercy’s success. The leadership vision was to transform clinical, operational and financial performance of the health system by creating an integrated supply chain strategy that consisted of four strategic goals:

|3

1. Engage Clinicians: Give clinicians a voice, engaging them in making unified strategic purchasing decisions. 2. System Alignment of “One Mercy”: Align organizational stakeholders to empower leaders to focus on the entire organization, particularly its broader, mutually established goals. 3. Minimize Waste: Overhaul and optimize the ordering, packaging and delivery of products. 4. Release Provider Time for Patient Care: Enable providers to spend more time on patient care by introducing efficient, seamless supply chain processes. To operationalize their vision of supply chain transformation, Mercy leaders created a spin-off corporate entity now known as ROi (Resource Optimization & Innovation) Inc., a service delivery company, to manage all supply chain services for the entire Mercy system.

Supply Chain as a Strategic Asset to Drive New Revenue: ROi Inc. Mercy’s strategy focused on creating a consolidated supply chain infrastructure across the system. This infrastructure would function as a strategic asset to optimize supply chain processes and create a new revenue stream by leveraging their supply chain expertise and services to serve other health systems. ROi services focus on optimizing and advancing supply chain infrastructure and processes across Mercy, serving as a system “integrator” to bring the many Mercy hospitals together under one operational infrastructure model. ROi teams worked with each hospital to optimize supply chain and streamline supply chain processes, eliminating all costs of outsourcing to external commercial companies for contracts, transportation and distribution of products. ROi offers this comprehensive suite of services to execute Mercy leadership’s vision of “One Mercy,” supported and enabled by a fully integrated supply chain infrastructure.

Establishing ROi’s Market Leadership: “The Perfect Order” Mercy collaborated with industry partner Bectin Dickson (BD) to be the first U.S. health system to achieve a significant milestone, the “perfect order”—a supply chain industry standard that consists of end-to-end integration of global standards (i.e., GLN [global location number] and GTIN [global trade item number] tracking numbers) to enable complete traceability of every barcoded product across all supply chain processes, from manufacturer through to use during patient care. This milestone was achieved over two phases. Phase 1 involved establishing the technology infrastructure for complete electronic transactional processing. Phase 2 consisted of implementing GS1 global standards as the language of traceability to track every product from manufacturer to the point of care. The supply chain capacity and expertise developed by the ROi team have

|4

supported Mercy in its strategy to leverage supply chain transformation to optimize financial, operational and clinical performance. Since its inception, ROi’s annual reports have identified cost savings for Mercy of over $1 billion as a direct outcome of optimizing and transforming supply chain processes across the system. Mercy is now recognized nationally as a leader in supply chain transformation.

Transformation and Performance Mercy leadership and ROi teams have created the supply chain infrastructure to demonstrate the capacity for the perfect order across the Mercy system. The strategy to embed and scale the perfect order across the system focused on three pillars: (1) connecting supply chain to the operational strategy, (2) establishing control over information and data and (3) gaining control of relationships. Connecting Supply Chain to Operational Strategy: Gaining control over operations began with a program analysis that revealed a trend in the perioperative program towards declining revenue, largely due to changes in bundled care reimbursement models. Projected revenues identified a risk of this program becoming a cost centre rather than a source of revenue. Supply chain optimization, including introducing point of care scanning in the perioperative program, created the critical connectivity between supply chain and clinical teams. Clinicians demonstrated a better understanding of the value of inventory management, while supply chain staff learned firsthand of the challenges that clinicians experience in managing products and processes when delivering patient care. Establishing Control Over Information and Data: This was a key priority in order to create visibility of care processes and outcomes, and to overcome variation. The value of seamless data captured across Mercy’s programs created the opportunity for informing decisions on standardization of care, accurately capturing case costs and leveraging traceability data for comparative effectiveness analysis and post-market surveillance. Automation of product inventory linked to financial and clinical information systems enabled clinical teams to capture the necessary data, informing decisions to strengthen safety, quality of care and operational efficiency. Gaining Control Over Relationships—Achieving Clinician Engagement: A robust clinician engagement strategy brought together clinicians from all Mercy hospitals to inform product procurement decisions, standardize products and care practices, and analyze data to strengthen quality of care. Building relationships of trust between supply chain and clinician teams was a key goal of Mercy’s strategy. Point of care scanning and inventory management infrastructure created real-time data to support problem-solving and overcome challenges in clinical settings. Physicians worked collaboratively across the system as a team to strengthen operational, financial and patient care quality.

|5

Findings Operational Impacts: The operational effects included increased efficiency and productivity in the perioperative program, which has since increased both surgical case volumes and revenue. Point of care scanning strengthened clinician workflow and preference card standardization improved frequency of preference card optimization by 284 percent. Financial Outcomes: A 29.5 percent decline in labour cost per case over the four years the strategy was achieved, reduced from $799/case in 2014 to $523/case in 2017. Supply cost per case has declined 33.3 percent, reduced from $2,055/case in 2014 to $1,371/case in 2017. Mercy has achieved a growth in revenue of $81,242,551 over this four year period, approximately $20 million per year, since introducing the supply chain strategy in the perioperative program. Quality of Care: The outcomes included a 71 percent reduction in serious reportable adverse events, the introduction of automated safety alerts for product expiry and recall for clinicians, and tracking and traceability of product UDI to inform quality of care outcomes.

Conclusion The cornerstone of health systems in the U.S. is revenue and financial sustainability, largely due to the privatized structure of health systems in the country. Unlike publicly funded systems in Canada and the U.K., U.S. health systems must focus on financial and operational performance in order to be viable and thrive. In this case, Mercy implemented a robust and comprehensive supply chain strategy with a key focus on financial, operational and quality performance, leveraging supply chain infrastructure as a key asset to achieve performance outcomes. The outcomes of this case demonstrate the value and impact of a highly integrated supply chain strategy. Building on the strengths achieved to date, Mercy leaders envision the future Mercy system as one focused on value, informed by clinician leadership to identify optimal patient outcomes and determine value based on accurate, real-world evidence. Supply chain infrastructure creates visibility across the system to identify opportunities for strengthening value for patients, clinicians and the Mercy system. In this case, Mercy has transformed the notion of supply chain from being a cost centre to becoming a strategic asset—able to drive quality and operational excellence while strengthening financial outcomes and creating new revenue. The highly automated and integrated supply chain infrastructure being scaled across the Mercy system demonstrates the strategic value of supply chain infrastructure. This will position Mercy as a centre of excellence for comparative effectiveness research and postmarket surveillance to inform value for patients. Moreover, Mercy’s integrated leadership and decision-making strategy mobilized clinician leadership to support and inform

|6

strategic decision-making positions. As a result, Mercy is poised to achieve a sustainable and high-performing system that is informed and driven by real-world evidence of value.

Produced by: Dr. Anne Snowdon, Academic Chair, World Health Innovation Network, and Scientific Director & CEO, Supply Chain Advancement Network in Health, Odette School of Business, University of Windsor Original release date: February 2018 World Health Innovation Network T: 519.253.3000 x6336 E: winhealth@uwindsor.ca Windsor, Ontario