No matter what Novant Health does, the operation puts the patient first. “In every decision we make, the patient comes into the equation,” Vice President of Strategic Sourcing and Supply Chain Mark Welch explains. “They are always in the forefront.”

That philosophy has proved successful for Novant Health, a Winston-Salem, N.C.-based integrated system of physician practices, hospitals and outpatient centers. The organization was formed in 1997 with the merger of Carolina Medicorp in Winston-Salem, and Presbyterian Health Services in Charlotte, N.C.

Today, Novant Health has 13 acute care locations and stands as an industry leader, Director of Finance and Supply Chain Kim Hull says. Although the system is very large, “We’ve done a lot of work to make sure we have consistency,” she says. “[We have] a great culture of teamwork and support all of the markets internally to achieve that overall remarkable patient experience.”

Finding Opportunities

Welch, who has been with Novant Health for 10 years, is responsible for the system’s supply chain and sourcing teams. Under his leadership, the system focuses on developing purchasing strategies and price points that support its goals.

With EVP and Chief Medical Officer Dr. Tom Zweng, Welch has developed clinical variation reduction teams (CVRTs) that meet on a frequent basis to look at variations and opportunities to reduce costs. For example, Zweng says, the costs of hip and knee procedures and implants can vary widely, so Novant Health has researched ways to go from using eight different implants for a hip or knee replacement procedure to three.

“We look to see what are the preferred implants amongst the surgeons and review what the volume is with the different implants,” Zweng says. “We partner with industry and see where they will meet us with pricing and support. There are a lot of different conversations between the supply chain, the industry, physicians and physician leadership.”

But Novant Health is not looking for the cheapest route, Welch asserts. “We’re looking for the best product with the best outcome at the best price,” he says. “We have to reduce costs across our systems so we can provide quality care.”

Keeping Track

Novant Health has partnered with Healthcare IQ, a data management organization based in Palmetto, Fla. “They’re a benchmarking company at their core with data process cleansing and strong data support,” Welch says. Novant Health submits its purchase order and contract information to Healthcare IQ. 

“We use their tool to determine what pricing we need,” he says, noting that this process required the creation of user-defined categories (UDCs) for Novant Health’s products and services. “We met with our physician partners, and through collaboration, we assigned all products to a unique Novant Health UDC. This UDC is the driver of our sourcing process.”

 Today, “We have 94 UDCs for medical service-type items and 97 service-defined categories,” Welch says. Novant Health also developed scorecards that enable it to track and report savings at the UDC level. 

With the creation of the scorecards, “We know exactly what the realized savings are,” Hull states. “We track our realized savings by knowing specifically what is used in the patient case and reporting those results at the UDC and contract commitment level.”

The scorecards also allow Novant Health to track spending. If it is paying more for hip and knee implants than it was given on a contract, “Then we use our data analytics to resolve the issue and understand what is happening internally,” Hull says. “We need to make sure that we’re paying that contracted cost and nothing higher.”

A Better Understanding

Welch is proud of Novant Health’s work. “We’ve averaged $37 million to $43 million in cost reductions every year for the last seven years,” he says, noting that this process has benefited the patient by reducing variation and increasing more predictable outcomes.

But getting those results has not always been easy. “There’s some old school vendors out there that believe there’s a price and we’re going to pay it,” Welch says. “We’re trying to build more strategic partnerships instead of adversarial negotiation.”

This involves developing an understanding of each other’s goals. “We try to explain to them what our health system is doing,” he says. “[We’ll look at] their goals on profitability and we’ll show them what ours are.”

Novant Health felt some resistance from a few physicians in getting them to change their practices. But the network has supported those providers by educating them about the differences in costs between products, Zweng says, as well as offer the needed support to transition from one manufacturer to a different manufacturer.

“The providers are supportive of [these different initiatives],” he says. “[We’re] showing them the variations that are out there, [such as] the variation of the thousands of dollars in hip and knee implant costs.”

Ahead of the Curve

Welch sees a strong future for Novant Health, where the system’s portfolios and relationships will be built out stronger. “Our sourcing managers have good, healthy relationships with the physicians, whether they work for Novant or work in a Novant facility,” he says.

Hull also predicts that Novant Health will stay ahead of the curve by investing in the right markets and equipment. “I think you’ll see over the next two to five years, more of these stand-alone hospitals wanting to join an organization like Novant Health,” she says. 

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