Health system's supply chain yields savings

In the last eight years, Sisters of Mercy Health System – the parent organization of St. John’s Hospital in Springfield – has saved millions of dollars and prevented thousands of potentially harmful medication errors by adding an in-house supply chain division.

In late 2009, St. Louis-based Sisters of Mercy’s supply chain division, was named the top health-care provider supply chain worldwide, by AMR Research, ranking second overall to Johnson and Johnson, but even as the health system’s efforts gain worldwide attention, its approach continues to broaden.

Innovative distribution
The drivers behind supply chain changes at Mercy and St. John’s are improving patient care and safety, health system officials say. Those changes began in 2002, when Mercy launched its Resource Optimization and Innovation program, cutting out the middleman and buying supplies directly from manufacturers and distributing those goods to system facilities.

All of Mercy’s supplies move through a warehouse at 2909 N. Neergard Ave., the lone warehouse utilized by the Resource Optimization and Innovation program, which has brought $109 million in cost savings and helped to avoid 150,000 medication errors, said St. John’s spokeswoman Cora Scott.

The distribution center’s 35 workers process orders and pack and prepare shipments of myriad supplies, from medications to paper goods, for all 26 hospitals and hundreds of clinics under the Mercy banner, said John Black, vice president of the Resource Optimization and Innovation supply chain.

He estimates that the center fills 250,000 purchase orders a year from 1.3 million product lines.

Approximately 70 dispatch drivers and logistics managers work in a four-state area, shipping to 2,200 locations, he said, noting that the rural locations of some facilities influenced the decision to launch the supply-chain division.

“What distributors are known to do is work to lower their operating costs by cutting out deliveries to certain locations,” Black said.

Hospitals located in larger metropolitan areas – where distributors also tend to set up camp – usually receive deliveries five days a week, Black said, but deliveries at rural facilities aren’t so regular. The Mercy/St. John’s supply chain puts all facilities – including the six hospitals that comprise St. John’s – on a level playing field, regardless of location.

“Five days a week, we deliver to each of the 26 hospitals (and) hundreds of clinics we service,” he said. “And when you think about the delivery locations, we track them down to department level. There may be one physical address, but there could be more than 200 delivery locations inside that location.”

Black said distributors typically operate at a fill rate between 95 percent and 96 percent, but Mercy’s fill rate is 99 percent since bringing distribution in-house, eliminating more than 3,000 back orders a week.

Broad applications
After the supply-chain infrastructure was established, it opened doors for additional efficiencies.

For example, printing services for items such as medical forms, marketing materials, posters and invitations were consolidated from 93 external vendors to one, with Resource Optimization and Innovation warehouses delivering the printed goods.

Information technology also moves through the supply chain infrastructure, with direct buying from manufacturers and in-house designing, building and delivery of computers and other equipment.

Surgical kits also are manufactured in-house through the supply chain, Black said, noting that Mercy used to buy 93,000 custom procedure kits a year.

“We used to buy those and paid somewhere between a 25 (percent) and 40 percent premium,” Black said. “Because we have the inventory management, personnel and the system in place, we were able to design custom kits unique to Mercy.” According to Scott, the custom kits reduce waste and operating room turnover times, and has resulted in cost savings of $1 million to date.

While the supply chain included medications from the beginning, another innovation it influenced was the creation of a drug formulary, which is a standardized list of drugs that are preferred by the health system, reducing duplications among stocked medications.

“There are a lot of ‘me-too’ drugs in the stomach-acid reducing area … all are about 85 (percent) to 90 percent effective, all are equally safe, some have more interactions than others, so there’s no need for a hospital to have all on its formulary,” said Dr. Dominic Meldi, board chairman for St. John’s Health System and medical director of formulary and therapy management. “It’s not cost-effective, and from a staff education point of view, it’s difficult to remember the doses of eight drugs when that can be narrowed down to one or two.”

Automation implications
Most hospitals go through the process of standardizing formularies, Meldi noted, but the ability to have hospitals in four states working together ensure the same formulary is specific to Mercy. It’s also cost-effective, saving an estimated $4 million during its first two years, he said.

Meldi attributes about half of those savings to limiting the formulary, and other savings have come from adding automated dispensing cabinets on each hospital floor. Those cabinets are automatically replenished by the warehouse, Meldi said.

“In the old days, that order that I would have written in bad handwriting would (go through several people). Now, there’s no opportunity for handwriting errors or transcribing errors. That order goes directly to a robot that selects the drug, which is bar-coded,” he said.

Another automated tool – this time for an interactive pump for intravenous drug administration – will soon be introduced at St. John’s Hospital.

Staff training on the smart pumps begins in May, and the pumps will be put into use in June, said Joyce Pierron, manager in nursing administration.

Pierron is working with materials management co-implementer Karla Kellogg to roll out the computerized intravenous pumps, which help double check dosages of medications given through an IV, Pierron said.

“For most infusion pumps, you see the pump and set it for a certain rate and dosage amount,” Pierron said. “But it doesn’t know what you’re infusing and whether you’re infusing at too high or too low of a dose.”

The pumps display the drugs being infused and the rate of concentration. If a dose is too high, it will warn nurses that the dose is above the recommended limit and ask for approval to proceed, she said.

A pump attachment can be used to monitor breathing and send alarms when respiratory rates drop too low. The end result is an added safety measure, Pierron said.

“Between patients in the hospital, treatment of outpatients, surgeries and procedures – you’re probably looking at more than 500 patients who could get some kind of infusion, whether continuous or standby for procedure.”

Other initiatives of the supply-chain division include a reprocessing single-use medical devices, resulting in between $1 million and $2 million in cost savings and a waste reduction of 1 ton a month, and a rapid screening tool for methicillin-resistant Staphylococcus aureus – or MRSA – bacterial infections. That tool reduces isolation times for patients to just a few hours instead of three days, and creates $70,000 in annual cost savings, according to hospital data.