St. Joseph for the long Term

Edition: December 2003 - Vol 11 Number 12
Article#: 1724
Author: By Sharon M. Ruff Richter

Eight-year GPO and distribution contracts are the key to this IDN’s strategy.

St. Joseph Health System, a not-for-profit Catholic healthcare system based in Orange, Calif., is a strategically integrated System IV network. It owns 14 hospitals and manages 12 more in Northern and Southern California, west Texas and eastern New Mexico. SJHS has $2.5 billion net revenue and $400 million in supply chain spend (not including its managed hospitals), $95 million of which is pharmaceutical.

With those numbers, SJHS could succeed with self-contracting, yet when the system undertook a supply chain reengineering project in 2001, it took its own, distinctive route. The IDN switched its GPO allegiance, turning to MedAssets HSCA, as well as its primary distributor, signing on with Cardinal Health. Recently, the IDN extended those contracts for eight years.

The Mandate

In 2001 SJHS, like most other health systems, was experiencing significant cost increases in supplies, says Jim McManus, vice president of finance. At that time, CFO Joe Randolph asked McManus – who has a background in finance rather than supply – to craft a supply chain strategy that would reduce supply costs, improve distribution and allow SJHS to be proactive in contracting. McManus was charged with building long-term relationships with partners who were not just interested in quick sales, but who would help drive out costs.

Subsequently, SJHS contracted with Cardinal Health for distribution and consulting services, and decided to re-evaluate its relationship with Premier Inc. “We needed a GPO that would be more proactive at helping us achieve our goals on both the service side and the contracting side,” says McManus. “In addition, we wanted to have input into the contracting process and the ability to build a Custom Catalog of our own contracts. The information link to validate contract information and line-item pricing was important to us, too.”

So was communication. “We valued the ability to have a discussion with somebody at the GPO level, to assist us,” McManus says. “Not just ‘Here are the contracts . . . use ’em!’ We wanted somebody who offered added services and would be willing to help us navigate our way through the process.”

Although McManus was looking forward to working with St. Louis-based MedAssets HSCA, he got even more than he had hoped for. “We expected two or three people on our account, and we ended up with 19 MedAssets people at our first meeting with the hospitals. Today, there is still a double-digit MedAssets crew who touch our accounts, and many of them do so full-time.”

Currently, St. Joseph has four kinds of contracts in its custom portfolio:

• MedAssets HSCA national contracts.

• St. Joseph Health System Advantage contracts, which are managed by MedAssets HSCA.

• Non-MedAssets HSCA contracts.

• Local agreements for individual hospitals.

“Development of a Custom Catalog allows us to capture all of our contract and supply spend in one area,” McManus says. “It allows us to look at what may not be aggregated appropriately for leveraging, so we can go out and negotiate a better contract.”

Using MedAssets HSCA’ Strategic Information program, SJHS can compare the GPO’s contracts and line-item pricing with those in the system’s Custom Catalog, in order to ensure valid pricing and correct contract selection.

Working with Other Partners

MedAssets HSCA works well with other SJHS business partners, including Aspen Healthcare Metrics in Englewood, Colo., which handles SJHS’s physician preference contracting, says McManus. “[MedAssets HSCA] understands that physician preference contracting is a different world altogether than commodity contracting,” he says. “When we told them we were working with Aspen, they were interested in that conversation. They’ve since developed their own relationship with Aspen.”

MedAssets also works well with Cardinal, says McManus. “Both companies are always at the table talking to each other, as well as to us.” And MedAssets HSCA’s contracting staff has facilitated discussions with SJHS hospital directors of materials management, OR, lab, food service, radiology and pharmacy, who come together periodically to consider options on clinical and financial contracts. These facilitation efforts have led to sound decisions, better contracts and cost savings.

Logical Conclusion

Altogether, MedAssets HSCA and Cardinal Health have helped SJHS exceed its three-year, $26 million savings goal, says McManus. In the laboratory, SJHS has reduced costs for distribution and lab products approximately 11 percent. In food service, the savings amounted to about 4 percent. In the area of airflow therapy beds, the IDN has saved about 9 percent, or $115,000.

For its part, SJHS has agreed to use MedAssets HSCA contracts whenever possible. So far, the hospitals are delivering 55 percent to 60 percent compliance, with the ultimate target being 80 percent compliance.

McManus sees two things on the horizon. First, Cardinal will become SJHS’s non hospital distributor. (The previous distributor was McKesson Medical-Surgical.) In addition, the IDN will begin to experiment with e-procurement, something it had deliberately put off until its contracting and distribution areas were under control. “We’ve listened to several pitches and right now GHX is looking good,” McManus says.

But the big news is that SJHS has extended contracts for both MedAssets and Cardinal for eight years. McManus’ mandate was for long-term partners. He believes he’s found them.

Sharon M. Ruff Richter is vice president, industry research and analysis, for U.S. LifeLine Inc., the Carlisle, PA-based Information Division of MDSI, publisher of Repertoire.

U.S. LifeLine publishes the Major Accounts Exchange (a.k.a. The MAX), an online supply chain community of news and industry intelligence. Richter can be reached via e-mail at