On the way to becoming the best of the best.

Memorial Hermann Healthcare System saved $48.7 million and strengthened its commitment to provide the nation’s best care delivery.

Memorial Hermann Healthcare System had the strategic insight to anticipate the effects of health care reform and realize that a consulting partnership with VHA would help them achieve their vision to be the best of the best among the nation’s health care systems. With $48.7 million in supply chain savings and door-to-discharge improvements, it is well on its way.

A health care leader in Houston and southeast Texas, Memorial Hermann Healthcare System is known for clinical expertise, patient-centered care and leading-edge technology. System employees aspire to achieve a High Reliability Organization status by eliminating harm and delivering the highest level of care to every patient, every time. Their efforts are paying off with remarkable achievements including zero hospital-acquired infections, zero blood transfusion reactions during the previous five years and a 99% adherence to core measures, among others. In recognition of this outstanding performance, Memorial Hermann established the High Reliability Certified Zero Awards and presented 28 awards to system hospitals achieving no adverse effects in core measures in more than a period of one year.

Challenge: Facing the numbersWith one-third of Houston’s residents uninsured and 23% of the system’s volume being self-pay and Medicaid patients, Memorial Hermann faced significant challenges. System leaders also identified that, at current operating costs, the organization would be upside-down financially, facing a $400 million gap between cost of care and reimbursement in the next few years. “We have a deep commitment from our mission to take care of all people in need, so we have to be much more efficient,” says Dan Wolterman, Memorial Hermann’s president and CEO.

Non-Salary Cost Reduction | Door-to-Discharge

Memorial Hermann Healthcare System Houston, Texas

An integrated health system, Memorial Hermann is known for world-class clinical expertise, patient-centered care, leading edge technology and innovation. The system, with its exceptional medical staff and more than 20,000 employees, serves southeast Texas and the greater Houston community. Memorial Hermann’s 11 hospitals include three hospitals in the Texas Medical Center, including a level 1 trauma center, a hospital for children and a rehabilitation hospital, and eight suburban hospitals.

⊲ VHA member success story

“The engagement with VHA has resulted in Memorial Hermann’s supply cost per net operating revenue dropping from around 15.5% to between 13.5 and 13.7%, which is one of the lowest in the country.”

Dan Wolterman President and Chief Executive Officer Memorial Hermann Healthcare System Houston, Texas

“We realized we needed to move to a new level of operational performance,” says Michael Shabot, MD, system chief medical officer, MHHS. “We could foresee significant funding cuts, so we needed to reduce our cost of operations while providing a higher quality service. We thought that was possible and that’s why we partnered with VHA.”

Solution: Transformational changeMemorial Hermann partnered with VHA on a Non-Salary Cost Reduction and Door-to-Discharge™ engagement. Guided by its “best of the best” vision, Memorial Hermann’s goal was to achieve transformational changes in day-to-day operations that would reduce the overall cost of patient care while maintaining or improving quality. “We’ve got to be able to provide equal to or better quality care with less expenditure and become more efficient,” says Marshall Heins, chief facility services officer, MHHS.

VHA helped Memorial Hermann significantly reduce supply costs, optimize processes and improve utilization of supplies and services while promoting physician and clinician behavior change. “From a pure hospital perspective, what we were concerned the most about was over-utilization and it was a tremendous challenge,” explains Steve Sanders, president and CEO of Memorial Hermann The Woodlands Hospital.

The goal: Supplement expertiseMemorial Hermann wanted to leverage its size to reach cost savings of $30 million in two years. The $4 billion health system has an annual spend of $530 million on supplies and drugs, $100 million on purchased services and $150 million on capital.

“With a system the size of Memorial Hermann, any decision you make is going to have a huge impact, so we need to make the right decision based on the right data,” says Sanders. Partnering with VHA gave Memorial Hermann access to additional expertise that helped them make the right decisions. In addition, Perry Flowers, MS, RPh, system pharmacy executive, describes the VHA consultants as clinically astute, operationally savvy, and perceived as peers and subject matter experts.

Implementation: Building on successMemorial Hermann already excelled in supply chain operations,

contracting strategies, physician engagement and clinical integration. And executives knew they needed the same type of excellence

when planning for the system’s financial future.

Percentage of uninsured residents of greater Houston area33%

Heart and Vascular $1.8 million

Door-to-Discharge $1.1 million

Non-Clinical Services $14.6 million

Pharmacy $8.6 million

Surgical Services $9.9 million

Total Joints and Spine $5.4 million

Clinical Practice $3.8 million

Ancillary Services $3.5 million

Savings include:

$48.7M: Total savings from Memorial Hermann’s Non-Salary Cost Reduction and Door-to-Discharge Engagement

VHA’s supply and clinical consultants applied proven processes and utilized data and analytics to help Memorial Hermann improve all areas of cost from acquisition of supplies, purchased services, and capital, to utilization of supplies and clinical services. Additional initiatives improved operational workflow and patient throughput in several hospital service lines.

“You never have enough highly skilled folks to tackle every opportunity,” says Dan Humphrey, system supply chain executive. “By engaging VHA, we brought on additional expertise which allowed us to attack opportunities we had not been able to go after before. A lot of the VHA engagement has been around enhancing the contracts we have in place, freeing up resources and enabling us to retrain staff.”

“VHA committed to bring some of the very best talent in the country into our system to fix this problem with us,” explains Wolterman. “They did just that with outstanding individuals who are very talented, who not only knew their field, but were able to fit in with our organization, our people and our culture.”

Clinical consultants worked with Memorial Hermann’s physicians and clinicians on several significant issues including identifying therapeutic changes in pharmacy and recommendations for improving patient throughput in cardiovascular services. One initiative focused on surgical sealants. Engaging physicians across the system in evaluating different products resulted in narrowing utilization to one or two products in each category. “By doing this, we improved not only our consistency in using these products, but we got a much better price,” says Shabot.

Leveraging the consultant’s expertise, unique processes and industry-leading business intelligence, Memorial Hermann was able to propel the success of the engagement. With more than 300 savings initiatives ranging from $2,000 to $2 million, a sophisticated tracking tool was developed to manage the process and present regular updates to the steering committee. “The consultants brought me business intelligence I didn’t have on my own and that was valuable to me,” says Flowers.

$530M Memorial Hermann’s 2010 spend on supplies and drugs

13.6% Memorial Hermann’s supply cost per net operating revenue

Getting buy-in from thousands of physicians and clinical staff was critical to the success of the engagement. The existing clinical program committees, comprising physicians from various specialties across the system, provided a forum to evaluate data on cost, quality and utilization, and to actively engage clinicians for decisions about supplies and implantables. Solid data on cost and utilization from VHA’s PriceLYNX™ and VHA’s Physician PreferenceLYNX™ informed their decisions.

“Physicians are driven by data, especially by their own data,” says Shabot. “To the extent we can save funds in areas where it doesn’t make a clinical difference, those funds are available to buy new surgical robots, build new facilities, refurbish ICUs, and provide other facilities that we can use for patient care. Physicians know that we’re able to fund the things that they want through the savings we are able to achieve.”

Results: $48.7M savings in less than two yearsThe engagement exceeded expectations, reaching nearly $49 million in savings and reducing Memorial Hermann’s supply cost per net operating revenue from 15.5% to approximately 13.6%, which is one of the lowest in the country. “It has far exceeded our expectations in terms of financial results, patient quality and care,” says Heins.

“We’re so much more efficient in supplies and we’re being recognized nationally for our success.”

Solutions highlighted: Non-Salary Cost Reduction and Door-to-DischargeVHA’s supply chain and clinical experts identify and implement cost savings in supplies and physician preference items, as well as in utilization, patient throughput and workflow productivity. Our unique approach reduces costs and implements processes that sustain improvements. VHA has one of the industry’s largest health care consulting services, with 150 experts who average 25 years of health care experience. These seasoned resources use the industry’s broadest set of tools and best practices acquired by working with more than 5,000 supply chain improvement engagements.

For more information, please contact VHA at 800.842.5146 or vhacustomerservice@vha.com.

“This engagement was just round one of a multi-round episode that’s going to get us to very high quality care, very high safety care and very low cost care. That’s where we are going, and this was a very good learning episode for Memorial Hermann.”

M. Michael Shabot, MD System Chief Medical Officer Memorial Hermann Healthcare System Houston, Texas

⊲ VHA member success story