Mayo Retools Procurement Strategies

Healthcare Purchasing News • Joseph Dudas

The Mayo Clinic Supply Chain supports a three-region Integrated Delivery Network (IDN) with an annual expense stream of approximately $3 billion. While approximately 20 percent of that total is focused on the acquisition and servicing of equipment, it is only recently that Mayo Clinic decided to take a step back and selfassess this area of the supply chain.

The team has accomplished a lot over the years and successfully negotiated purchases with exceptional value, as well as some of the largest purchases in the industry. For example, the total capital expenditures for a four-room treatment facility in Rochester will be approximately $188 million, and a similar four-room treatment center in Arizona will be $182 million. However, what Mayo Clinic Supply Chain found was that the information technology, processes and human resources did not reflect a vision appropriately aligned to that of category management, nor the institution it supported.

It made sense then to start with a newly stated vision: "The acquisition of capital medical equipment, service and maintenance must contribute to the provision of safe, high-quality and cost-effective healthcare, while providing access to new and innovative technologies. Given the realities of a post-reform environment, achieving an appropriate balance between the financial and operational needs of Mayo Clinic will be required."

This refreshed vision obviously focuses not just on buying equipment at great prices but looks longer term by focusing strategically over the life of any asset purchased. Along with this vision, the team proceeded with the category management methods, information systems and organization changes required to manage life cycle opportunities.

Applying Category Management

It so happened that while taking this broader look at the enterprise needs, one of the larger master agreements was scheduled to expire. Rather than renewing the agreement, the team decided to take a fresh look at this opportunity. Mayo's traditional master agreements were really designed to make the procurement process easier by eliminating the need to redundantly negotiate basic terms and conditions. In the past, this made sense, but given Mayo's objectives to manage their assets strategically as well as improve the operations, the need for a fresh approach was obvious.

Instead of renewing the agreement, the Mayo team took the opportunity to contract for all the service and maintenance needed to cover the asset base, negotiate upfront discounts for routine purchases, establish defined group buy periods as well as significantly streamline the entire procure-to-pay process, with a single monthly invoice and payment. The result was an estimated $1 million in annual incremental value.

Like many, Mayo also struggled to execute group buys that met the expectations of the buyers and sellers. Group buys at Mayo Clinic had traditionally been tied to the annual budget cycle, where they would look at anticipated demand and plan buying based on best available information. While this seemed like a logical approach, the reality is that budgets are established and prioritized based on business needs and organizational constraints that do not align well to an optimal purchase. Departments were asking when the group buy would be, and Supply Chain was asking them when they would like it. When Supply Chain took a fresh look, they realized that it was really the business cycle (repetitive annual events) that drive an optimal group buy calendar, and that they could easily create a calendar to which the budgeting cycle could align. As a result, Mayo now pre-establishes their group buys and gives all parties ample time to organize demand and supply. As a result, they feel they can deliver maximum value.

The Mayo Clinic category management methodology was utilized to codify and communicate the process for running both master agreement and group buy initiatives. There are five primary steps in the process:

  1. Initiation, where the team is assembled and schedule established
  2. Insight, where data is collected and analyzed
  3. Innovation, where the business requirements are developed
  4. Implementation, where the contract is negotiated
  5. Improvement, where the contract is executed and managed

Closing The IT, Analytics Loop

Mayo Clinic's information pertaining to this expense category was especially immature and inadequate. There was very little meaningful information available as to what was purchased, what was owned, what the ongoing service, maintenance and supply costs were and what future expenditures might be.

To address the information void, Mayo started by assessing the data it had. There was no naming standard in use as to what departments called an item, there were multiple identifiers (asset numbers) and there was no way to group or categorize the expense. In fact, it was not uncommon to see multiple asset tags/bar codes affixed to a single asset, which surely confused many. The team quickly evaluated options, convened and established the ECRI Institute standard (UMDNS) at the item level, and as in other supply chain areas, decided on the market-facing contracting categories established by Novation (Mayo's GPO) as the internal standard.

With data standards established, Mayo could create the needed connectivity within its systems, such as the asset management system (Four Rivers), budget system (custom) and ERP (Infor). Mayo also could envision a data warehouse and reporting system that would adequately provide the information described prior (scheduled to come online within the next 18 months).

While a lot of work remains, Mayo is confident that in the near future internal analytics will be on par with that of other supply chain categories, such as medical/ surgical, medical devices and pharmacy. That leaves them with only the need of a robust benchmarking system. Supply Chain currently uses a few of the more popular databases but feel there is a lot of room for improvement. They turned to Novation for help in this area, because Mayo is a VHA Lynx user today and would really like a standard set of category management tools that work seamlessly across expense categories. Mayo started their efforts by asking suppliers for standardized quotes, and Novation for a tool where they could retain and reference them. Novation has asked that other VHA and UHC members to do the same, and eventually feel that a transparent understanding of the market will result.

Aligning The Organization

All the tools and process in the world will not help without people using them. Mayo Clinic is blessed with smart dedicated staff, but without clarity of roles, responsibilities and expectations as well as adequate resourcing, the results will not change.

As a result, Mayo shifted resources within their procurement team, as well as realigned their contracting staff, to related portfolios of categories (hospital, surgery and imaging for example). Mayo also established a closer working relationship with its GPO, where they share staff and objectives.

The remaining task was to create an enterprise-wide committee that could oversee and support the staff which is called the Capital Equipment Integrated Team (CEIT). Mayo Clinic is a physician-led organization, and for that reason, this is a physician-staffed and led team. While administrators support and execute the day-to-day activities associated with procurement, they look to their physician partners to establish the overall strategies that drive process improvements as well as initiatives. Confidence has grown, and as a result, clinical leadership has now empowered this team by authorizing them to allocate much of the capital budgeted set aside for equipment expenditures.

Mayo has established what is believed to be a solid strategy, but this represents only the first phase and a solid infrastructure. In the future, collaboration and higher levels of innovation will be possible. Mayo hopes that by sharing what has been done others might do the same and together move this part of our supply chain forward as an industry.


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