June 15, 2005

During the past two years, Providence HC has managed to save $47 million thanks to good IT investments, a better B2B strategy, efficient process changes and a single-business approach to previously decentralized procurement.

Providence HC is an eighteen-hospital system that runs from Alaska down to Southern California. "Traditionally, this and other Catholic organizations have been locally operated and controlled," says Dave Hunter, director of systems for Providence HC. "But some years ago senior management decided we needed to operate more as a business."

In this context, operating as a business means buying like one -- in a centralized, automated fashion geared to cutting processing costs and obtaining the most advantageous contracts.

"We were using a decentralized system," recalls Hunter. "We had a database at each of our 18 locations." Those locations were using electronic data interchange (EDI) to hook up to suppliers and, as Hunter explains, "EDI was taking too much time to implement and maintain."

Not just systems but processes were decentralized, with Hunter describing the old method as "cat-herding...there was no distinct influence. Part of the organization would be ready to go and you'd say, 'Hold that thought for six months while I get your peers in another area together.'"

This ended with a strong mandate from senior management and the board. Management and ownership alike saw a big opportunity in the supply chain, and knew that clinicians, physicians, and other buyers would have to learn to operate as one in order to take advantage of it.

Hunter says that, of Providence HC's annual $500 million spend, there's about 5 percent yearly inflation. "Our CFO, Mike Butler, challenged us to flatline costs," Hunter reveals. "We wanted to save $25 million a year over the next three years." This, of course, would mean that internal savings would negate the adverse impact of price inflation.

In the two years since the challenge was issued, says Hunter, Providence HC has realized $47 million in savings. The systems component of this success can be attributed to Providence HC's participation in the Neoforma-run Novation marketplace. It's a cheap, centralized alternative to EDI, and to date Providence HC has 35 suppliers aboard.

Don't think of Neoforma as simply a marketplace. It also serves as a services partner. "We use their staff's assistance to go out and negotiate with suppliers that Novation may not be contracted with, but that would be better for us because of the West Coast location," Hunter says.

It helps that Providence HC's group purchasing organization (GPO), VHA, is also part of the Novation network.

In addition to the savings that have thus far been enabled by Neoforma and the centralization of procurement decisions (these days, Providence HC gathers buyers in Seattle and talks over contracts in detail, getting everyone on the same page before decisions are made), Providence HC plans to realize more savings when its name enterprise resource planning (ERP) system goes live at the end of the year.

"We're going with Lawson for human resources, finance, AP, and procurement," says Hunter, adding that the integration between Lawson and the Neoforma marketplace will bring more efficiency to the relevant purchasing and supply chain processes.

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