Editor's note: This blog is part of Fiscal Fitness, a regular H&HN series exploring the cost containment strategies hospitals are employing in response to reimbursement pressures and an uncertain economic climate. Read more at our Fiscal Fitness page.

Seven years ago, around the time Brent Johnson began working for Utah-based Intermountain Healthcare in its supply chain operations, he learned the integrated system had 37 suppliers for spinal surgeries. Johnson, who was hired by Intermountain at the recommendation of an outside consultant after 21 years in the electricity utilities field, found those and other inefficiencies baffling, noting that the health care supply chain "did not utilize a lot of the best practices other industries used."


Five years ago, the system decided to confront variation in clinical, supply chain and workforce operations head on, with a bold, comprehensive program whose aims include reducing supply chain costs by 10 percent each year. To reach those lofty goals, Johnson now has 25 strategic managers under his command, and Intermountain has 110 ongoing projects around supply chain costs.

Those efforts have led to cost savings of $221 million since Johnson joined Intermountain. But sustaining that effort requires constant innovation, and the system has an ambitious plan for the future with the potential to generate substantial savings going forward — the development of an internal warehouse system that will allow Intermountain to eliminate the need for much of its outside distribution. Leveraging its existing standardization efforts, Intermountain is building a $35 million facility in Salt Lake City that will house products bought directly from distributors. From there Intermountain will be able to deliver overnight to its facilities; roughly 80 percent of Intermountain's nursing floors and clinics are within 50 miles of the warehouse, Johnson notes.

"For high-volume, critical items we'll be one touch to the nursing floor," Johnson says. "It's a best practice in outside industry."

Improving efficiencies in supply chain take more than coordination and forward-thinking, though; it's critical to gain face-to-face staff buy-in as well, says Intermountain Senior Vice President Greg Poulsen. Convincing physicians accustomed to leeway with their purchasing decisions to relinquish some of their decision-making authority can be difficult and time-consuming, Poulsen notes.

To that end, Intermountain regularly holds meetings with physicians to discuss cost and quality data on medical devices and other key equipment. Those meetings have led to some surprising conversations, Poulsen says.

"I think some [physicians] have been surprised at the magnitude of differences" in price, Poulsen says. "They had assumed, based on what the manufacturing rep had told them, 'we're the most cost-effective.' We put data in front of them and what kind of deals we had with various manufacturers, and the discussion had been more successful than we had expected."

All of the initiatives, Poulsen says, have the same goal in mind — to standardize as many processes as possible in order to best support optimal patient care.

"Our idea is to make sure the components of care we provide actually contribute to outcomes rather than being an expensive and wasted effort," Poulsen says.

Email your own cost containment stories to hbush@healthforum.com, and they may be featured in an upcoming Fiscal Fitness blog.