Chris Oleksy, Founder and CEO, Oleksy Enterprises03.10.16
In my last article, “Configuring Your Journey Through the Healthcare Ecosystem in 2016,” I suggest that navigating the ever-changing healthcare ecosystem has many similarities to navigating Jurassic Park. In Jurassic Park, there is an underlying tug-of-war created by the eccentric park creator, John Hammond. Hammond “spared no expense” to circumvent normal life with science in order to create a park where attendees would face a human psyche tug-of-war; pay a fee in order to experience something very unusual and likely unsafe, or don’t. In this scenario, the choice is ours whether we go to Jurassic Park or not.
Unfortunately, much of today’s healthcare ecosystem’s tug-of-war pits saving money against patient care, which has many within the space concerned and feeling they have no choice. Many are calling this the “eat or be eaten” cycle. I have a better explanation for it: a tug-of-war between the supply chain and the “care” chain. What’s the difference?
The simplest way to think about the supply chain is maximizing the process of planning, sourcing, making, delivering and returning physical goods. The healthcare value chain expands upon the supply chain and places focus on discovering and inventing new therapies and products; passing these therapies and products through the supply chain; and managing that through solid customer relationship management (Figure 1).
In 1996, I was invited by management consulting services company Pittiglio Rabin Todd & McGrath (now a division of professional services company PricewaterhouseCoopers) to be on a team as an industry thought leader to develop a supply chain model called the Supply Chain Operations Reference Model (SCOR). SCOR has become an American National Standards Institute (ANSI) standard model today which is the go-to material for configuring supply/value chains. Much of Figure 1 came from that thinking.
But over the past 30 plus years I have spent in the medical device industry, I have come to realize that the model should be expanded to include the caregiver and patient or potential patient, instead of just saying “sell and service” (Figure 2).
Herein lies today’s tug-of-war: do we focus our attention on a push philosophy and push what is affordable toward the patient (supply chain approach)? Or, do we determine what is best for the patient, and then configure the value chain to support it (care chain approach)? I contend we are in a push (supply chain) mode, and losing focus on the patient—and here is why.
The passing of the Affordable Care Act (ACA) has required virtually every component of the healthcare ecosystem to re-evaluate itself to ensure it meets the needs of upstream and downstream constituents, which has created a massive tug-of-war. The tug-of-war I am describing is not a political one, but an apolitical one. Whether your views are conservative or liberal, the same tug-of-war exists.
Care institutions of all sizes have had to scramble to meet requirements such as market basket adjustments; Medicare reduced reimbursement for 30-day readmission rates for various conditions; value based purchasing; disproportionate share payment reductions; and hospital acquired infection reimbursement reductions. And these are simply a few of the vast changes enacted. The ACA is requiring care facilities to operate in ways much different than ever before. Many have argued that this is long overdue.
Others have stated that it puts an undue level of rigor on these institutions which work against improving patient care. In other words, care institutions spend more time improving the supply chain financials simply to survive under new ACA requirements than they do the care chain where the patient is the focus.
As an example, to take cost out to replace the lack of reimbursement, care institutions have had to change their operating mechanisms in how they work with their suppliers via their supply chains. From gown suppliers to medical device OEMs, the changes have been dramatic. Many care institutions have eliminated internal sourcing functions in favor of group purchasing organizations (GPOs) that have installed electronic portals, which in many cases commoditize products that should never receive commodity status. This is a classic example of supply chain focus over patient, care chain focus. It’s one thing to buy hammers for a home improvement store. It’s another thing to buy the next disposable device used in heart bypass surgery.
Another classic supply chain vs. care chain example in care institutions is the use of capital equipment vs. disposables. In over 30 years of experience in thousands of situations, I have seen life improving therapies using capital equipment eliminated because “nobody can afford capital”—so let’s just go down the “disposables” path. In some cases, it worked out and ended up being OK for the patient. In other cases, the decision purely driven by supply chain economics was not in the best interest of the patient care chain.
Just like care institutions, medical device OEMs are taking an introspective look at themselves to determine how they best manage their up- and downstream constituents. Dealing with the pressure of upstream GPOs and portals can be difficult enough. The impending but fortunately delayed device tax adds additional pressure to their supply chains. In many cases, this has created an unfortunate shift. Where many OEMs were once considered product leaders or care giver-/patient-intimate, they have now been required to become operation-centric, placing incredible pressures on their supply chains. Just like in care institutions, many argue that this is long overdue for OEMs. There are also outspoken critics that argue this shift may be in the best interests of shareholders but not in the best interest of patient care, or the care chain.
Additionally, just as OEM customers (care institutions) are doing, many OEMs are deploying their own electronic portals in lieu of having in-house, world class sourcing teams. If these portals are used incorrectly, they have the ability to de-humanize the sourcing process and lead to component commoditization, misaligned offshore sourcing of components, IWYL (I win you lose) friction between OEMs and their suppliers, etc. I have seen multi-year partnerships destroyed in favor of economics. I seem to remember this taking place in the domestic automotive industry—and it didn’t turn out very well, did it?
Additionally, much discussion has surfaced lately concerning how many OEM consolidations are more geared towards “synergies” than patient care; once again, a classic example of supply chain vs. care chain focus. Some of those synergies could be products/therapies that many caregivers like doctors depend on but are now orphaned, and the supply chain can no longer support them because the OEM has simply gotten too big to focus on the product lines.
So, what’s the bottom line? We are navigating our own Jurassic Park. We do have a tug-of-war taking place. There is a right and wrong way to use electronic portals. There is a right and wrong way to use GPOs. There is a right and wrong way to do supply chain optimization. There is time to use capital equipment and a time not to. But what we cannot allow as a society is to ignore the care chain which encompasses the caregiver and the patient. Shouldn’t it always start and end with them? We need to consider the needs of the patient, and then all entities of the care chain be aligned to support that goal.
A friend of mine recently said, “Not only are we not buying hammers for a home improvement chain—not focusing on the patient care chain is as dumb as a bag of hammers!”
Chris Oleksy is Founder and CEO of Oleksy Enterprises and can be reached at chris@oleksyenterprises.com.
Unfortunately, much of today’s healthcare ecosystem’s tug-of-war pits saving money against patient care, which has many within the space concerned and feeling they have no choice. Many are calling this the “eat or be eaten” cycle. I have a better explanation for it: a tug-of-war between the supply chain and the “care” chain. What’s the difference?
The simplest way to think about the supply chain is maximizing the process of planning, sourcing, making, delivering and returning physical goods. The healthcare value chain expands upon the supply chain and places focus on discovering and inventing new therapies and products; passing these therapies and products through the supply chain; and managing that through solid customer relationship management (Figure 1).
In 1996, I was invited by management consulting services company Pittiglio Rabin Todd & McGrath (now a division of professional services company PricewaterhouseCoopers) to be on a team as an industry thought leader to develop a supply chain model called the Supply Chain Operations Reference Model (SCOR). SCOR has become an American National Standards Institute (ANSI) standard model today which is the go-to material for configuring supply/value chains. Much of Figure 1 came from that thinking.
But over the past 30 plus years I have spent in the medical device industry, I have come to realize that the model should be expanded to include the caregiver and patient or potential patient, instead of just saying “sell and service” (Figure 2).
Herein lies today’s tug-of-war: do we focus our attention on a push philosophy and push what is affordable toward the patient (supply chain approach)? Or, do we determine what is best for the patient, and then configure the value chain to support it (care chain approach)? I contend we are in a push (supply chain) mode, and losing focus on the patient—and here is why.
The passing of the Affordable Care Act (ACA) has required virtually every component of the healthcare ecosystem to re-evaluate itself to ensure it meets the needs of upstream and downstream constituents, which has created a massive tug-of-war. The tug-of-war I am describing is not a political one, but an apolitical one. Whether your views are conservative or liberal, the same tug-of-war exists.
Care institutions of all sizes have had to scramble to meet requirements such as market basket adjustments; Medicare reduced reimbursement for 30-day readmission rates for various conditions; value based purchasing; disproportionate share payment reductions; and hospital acquired infection reimbursement reductions. And these are simply a few of the vast changes enacted. The ACA is requiring care facilities to operate in ways much different than ever before. Many have argued that this is long overdue.
Others have stated that it puts an undue level of rigor on these institutions which work against improving patient care. In other words, care institutions spend more time improving the supply chain financials simply to survive under new ACA requirements than they do the care chain where the patient is the focus.
As an example, to take cost out to replace the lack of reimbursement, care institutions have had to change their operating mechanisms in how they work with their suppliers via their supply chains. From gown suppliers to medical device OEMs, the changes have been dramatic. Many care institutions have eliminated internal sourcing functions in favor of group purchasing organizations (GPOs) that have installed electronic portals, which in many cases commoditize products that should never receive commodity status. This is a classic example of supply chain focus over patient, care chain focus. It’s one thing to buy hammers for a home improvement store. It’s another thing to buy the next disposable device used in heart bypass surgery.
Another classic supply chain vs. care chain example in care institutions is the use of capital equipment vs. disposables. In over 30 years of experience in thousands of situations, I have seen life improving therapies using capital equipment eliminated because “nobody can afford capital”—so let’s just go down the “disposables” path. In some cases, it worked out and ended up being OK for the patient. In other cases, the decision purely driven by supply chain economics was not in the best interest of the patient care chain.
Just like care institutions, medical device OEMs are taking an introspective look at themselves to determine how they best manage their up- and downstream constituents. Dealing with the pressure of upstream GPOs and portals can be difficult enough. The impending but fortunately delayed device tax adds additional pressure to their supply chains. In many cases, this has created an unfortunate shift. Where many OEMs were once considered product leaders or care giver-/patient-intimate, they have now been required to become operation-centric, placing incredible pressures on their supply chains. Just like in care institutions, many argue that this is long overdue for OEMs. There are also outspoken critics that argue this shift may be in the best interests of shareholders but not in the best interest of patient care, or the care chain.
Additionally, just as OEM customers (care institutions) are doing, many OEMs are deploying their own electronic portals in lieu of having in-house, world class sourcing teams. If these portals are used incorrectly, they have the ability to de-humanize the sourcing process and lead to component commoditization, misaligned offshore sourcing of components, IWYL (I win you lose) friction between OEMs and their suppliers, etc. I have seen multi-year partnerships destroyed in favor of economics. I seem to remember this taking place in the domestic automotive industry—and it didn’t turn out very well, did it?
Additionally, much discussion has surfaced lately concerning how many OEM consolidations are more geared towards “synergies” than patient care; once again, a classic example of supply chain vs. care chain focus. Some of those synergies could be products/therapies that many caregivers like doctors depend on but are now orphaned, and the supply chain can no longer support them because the OEM has simply gotten too big to focus on the product lines.
So, what’s the bottom line? We are navigating our own Jurassic Park. We do have a tug-of-war taking place. There is a right and wrong way to use electronic portals. There is a right and wrong way to use GPOs. There is a right and wrong way to do supply chain optimization. There is time to use capital equipment and a time not to. But what we cannot allow as a society is to ignore the care chain which encompasses the caregiver and the patient. Shouldn’t it always start and end with them? We need to consider the needs of the patient, and then all entities of the care chain be aligned to support that goal.
A friend of mine recently said, “Not only are we not buying hammers for a home improvement chain—not focusing on the patient care chain is as dumb as a bag of hammers!”
Chris Oleksy is Founder and CEO of Oleksy Enterprises and can be reached at chris@oleksyenterprises.com.