Taking The Supply Chain Pulse
St. Onge’s Healthcare Hall of Famer and industry icon, Fred Crans, chats with leaders from all areas of healthcare to discuss the issues of today's- threats, challenges and emerging trends and technologies in a lighthearted and engaging manner.
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Taking The Supply Chain Pulse
Navigating Healthcare Supply Chain Challenges: Insights from John Strong
Discover the intricate world of healthcare supply chain management in our enlightening conversation with John Strong, a leading expert. From his beginnings at Lutheran General Hospital to his significant roles at Premier and Consortia, John shares his remarkable journey and the evolution of value analysis. Learn how this crucial methodology, which has its roots in World War II, revolutionizes cost efficiency and outcomes in modern healthcare.
Hello again everybody. This is Fred Kranz from St Onge coming to you today with another of our podcasts, taking the Supply Chain Pulse. Today we have one of the best known and most influential folks in the healthcare supply chain, john Strong, whom I've known for about 35 years, I believe somewhere around in there, I think that's right.
Speaker 1:Longer than either of us would care to mess up to, and we're going to cover a lot of stuff. John has a rich history. I'm going to ask him to tell a little bit about himself, but we're going to be talking about a lot of covering a lot of areas. So, john, why don't you start out by, first of all, thanks for being here? John really appreciate it. John is a fellow bellwether. Uh, when did when were you inducted in the bellwether league, john?
Speaker 1:uh 2011, fred. Oh so you, you're. You were real good, you got in early yeah, it was fairly early I got in where the list of candidates was winnowing down. I got very lucky Anyway. So, john, why don't you tell us a little bit about yourself, your background and how you got to where you are today and what you're doing in your current role?
Speaker 2:Okay, sure, fred, happy to Thanks first for the nice introduction. My career has been divided roughly into three parts. The first part I spent in healthcare supply chain management and I was very blessed there. In the last hospital I worked for Lutheran General Hospital in Park Ridge, illinois. They were very entrepreneurial and so they liked what my team was doing in terms of reducing expense and improving revenues and those sorts of things, and so they let us go out nationally and do supply chain consulting. We also contract managed and outsourced supply chain departments across the country and we set up one of the first hospital service centers in the country with about 45,000 square feet of warehouse space, our printing business and also our home health care business as well.
Speaker 2:From there I went to Premier and was responsible for their group purchasing organization and did that for about seven and a half years, learned a great deal about that, spent a little time consulting after that with Concepts in Healthcare Tom Hughes in Boston, and then I was recruited to become the first president and CEO of Consorta, which was a Catholic-led group purchasing organization with about 350 hospitals.
Speaker 2:I did that for a number of years and went to work. Finally, after we merged it into Health Trust Purchasing Group, I went to the Greater New York Hospital Association, spent a couple of years there and then, in the third part of my career, I've been doing consulting, starting in 2011. I've done a lot of consulting now with manufacturers, primarily small and midsize manufacturers who are trying to launch products and better understand the nuances of the healthcare supply chain. So, with three other partners, I co-founded a company called Access Strategy Partners which has been operational, I guess, since 2018 or 2019, and we've been continuing to work with a number of small, midsize and, in some cases, large suppliers across the country and helping them commercialize product. And so that's sort of what I'm doing today and looking forward over the course of the next couple of years to continue to maybe slow down a little bit and move toward retirement.
Speaker 1:I don't know if some of us will ever retire. I don't know. It's too much fun being in the fray.
Speaker 2:Well, you make a good point. I've said for years I was really going to retire and I haven't done it because I enjoy it and find it to be fun too, fred, I think this is a great industry, it's great to be a part of it and it's been a wonderful career for me, for sure.
Speaker 1:And you're still making significant contributions. Let's talk about something that I think a lot of people miss, and that is the role of value analysis. When you and I started, the committee we served on was probably called the New Products Committee. That got replaced over the years as we tried to become more disciplined in how we went about things to the Product Standardization Committee standardization company.
Speaker 1:That's right Committee. And then, finally, I think, with the work of the value analysis pioneers like Bob Yokel and Barbara Strain and some others, the concept of value analysis entered the discussion. First of all, could you tell us, could you define value analysis for us?
Speaker 2:Value analysis, you know, has a rich history and it started as an industrial concept back in the mid-1940s, during World War II, by General Electric Company. It was designed to look at alternatives to products that were in short supply during the war, and it was also designed to look at people and processes and how they were interacting, for example on an assembly line, and what the results of those interactions were. And so a very early example was the fact that the GE Refrigerator Company in Kentucky was rejecting every second refrigerator that came off the line because the way they were handling them, they were getting scratched and had to be repainted at the end of the production process, and so GE figured out a way to stop scratching them. And really value analysis to me is looking at the cost of products in use, what the inputs are, what the outputs are and how you can make changes whether it's through changes in material, changes in process or changes in people to affect change and theoretically lower the price and the cost of the entire procedure and materials obviously is one key piece of that.
Speaker 2:But, as you pointed out early on, I'm afraid in some cases I've seen in the last few years we're using the term value analysis, but it's really a new products committee type approach and it's really designed to keep products out, not look at the benefits, the deep benefits that a product can bring by reducing time, improvement in outcome for the patient, improvement in outcome for the patient, improvement in process for the clinician and things like that. And so I do worry that value analysis is sort of in the eye of the beholder sometimes. Certainly there's lots of people out there doing it right and they're receiving wonderful benefits from it. But it's much more than just a new products committee approach, like you were talking about earlier.
Speaker 1:Yeah, and I just did a discussion on another podcast with one of our consultants and we were talking about value analysis and the design of supply storage areas in patient areas, and the whole idea in my thought process is value analysis applies a process to the selection and approval of products to be used for certain things and ultimately it can help you skinny down the number of SKUs that you're carrying in a given area. You may, instead of having four times of four types of exam gloves, you may have one type, which then again adds to the ability to do a better job of designing the storage areas.
Speaker 2:I think that's absolutely true and in your example it's important because if you are successful in standardization of things like exam gloves, for example, and are carrying one line instead of four, theoretically, then you need less storage space and you can change the footprint and the design of your storage areas to accommodate products but not overstock products, but not overstock.
Speaker 1:Well, yeah, and as a follow-up, suppliers still complain about the fact that in most purchasing situations, it all comes down to price. If value analysis is working for hospitals, why is that still the case?
Speaker 2:Well, I think that in many cases, as you know, the last few years have been rather tough on hospitals coming out of COVID, and I think the first thing that the C-suite looks for is cost savings from the supply chain, and in many cases that supply cost savings is urgent. The CFO, for example, might be looking for it very quickly, and so price is the first thing that gets attacked. But in the case of value analysis, I've always believed that there are far larger savings if you look at the cost of the product that you're using, what substitutes are available and, at the same time, can you improve outcome for the patient and can you improve process for the patient and can you improve process for the clinicians working with the patient. And it might be reducing the use of one brand of product that requires four down to a second, possibly a little bit more expensive product that not only costs more but reduces the number to say one, and so, instead of using four of a widget, you're using one of a widget, and it may be incrementally more expensive, but it does the job more efficiently.
Speaker 2:I think the other thing is that many supply chains are still judged on the basis of documented and quantified cost savings, and the easiest way to do that is price, of course, or a reduction of price, and so there's a tendency to do that, and value analysis itself isn't all about just the price of the product and going from product A to product B, but it's also reducing time. It's also about reducing benefit and perhaps improving outcomes. Those are much harder to measure, of course, and in some cases, if you've ever worked for a CFO, they may accept that as soft savings, but they're not going to document it towards your achievement of a goal to reduce the supply expense.
Speaker 1:Yeah, and what always really bothered me about that was that documenting improved outcomes. Because there's such a lag. Okay, If part of an improved outcome is there were no readmissions, for example. Okay, Right Now. How are you going to be able to document that and tie it to what you've done on the front end, Because there's so much time between the time you start and the time when you measure that final outcome.
Speaker 2:Well, you're 100% right, it is a time conundrum, and in some cases it's also a conundrum to try to find the data. And so with Epic and other electronic medical record systems now you can certainly get far more data out of the system, but it's still a challenge to go in, and it requires in many cases a manual exercise to determine which patients are readmitting before and after the use of a product or the delivery of a service, for example the use of a product or the delivery of a service, for example.
Speaker 1:Yeah, and you know if you're using a disposable product that costs $5 and you successfully use one of those, but you can get a similar quote, comparable product for $1, but you use seven of those, oh, which is more cost-effective? And who does the math? So, shortly after the pandemic passed, many purchasers of disposable medical supplies and this gets right back to what you're talking about returned to their habit of sourcing from China, either on their own or through their distributors, their distributors. And that, in my opinion, is because, as soon as the honeymoon is over and we've had our little celeb celebratory thing about we save the day again. The same order comes down from the c suite save us money and get rid of people. Um, and so are we missing opportunities by not doing more to support onshore or nearshore manufacturers?
Speaker 2:Yeah, I definitely think we are, fred. I was talking to somebody who owns a PPE manufacturing company here in the US earlier this week, as a matter of fact, and she was telling me that during the height of the pandemic, of course, they had many customers and as soon as the pandemic eased and the trade routes opened to China again, a number of customers switched back because there was some incremental savings to be had by buying from China versus having it manufactured here in the United States. And I think it's a very short-sighted approach to forecasting the fragility of supply chains when you flip-flop back and forth on that. Having a steady source of supply, of course, is one of the foundational elements of logistics and the management of your supply chain, whether you're manufacturing or providing care to patients. And it seems to me that, yes, there's going to be more cost involved pennies maybe on a piece of PPE by buying it from a manufacturer in the United States.
Speaker 2:But on the other hand, we now look at the world situation again and we see that after COVID, we now have war brewing in the Middle East.
Speaker 2:The Suez Canal has become under attack almost on a daily basis. The Panama Canal has been having its own issues with water flow and it's a very unfriendly world out there friendly world out there and I always believed, when I was actually running supply chain departments, that having a good source of supply and reliable distribution was key to my success. I always believed that if someone's order fill rate from the storeroom got down around 95%, chances are you were going to get called on it, and if it got down much lower than that, you were probably going to get fired. And as a result, I always looked at where my sources of supply were, who could deliver adequately and on time and that sort of thing, and I think the art of that has been lost a little bit to the bright light of cost savings and I think that onshoring some of these products in today's world makes sense, particularly for large users of product where it might be difficult to fill in the needed amounts of PPE or other supplies that are currently being sourced from China.
Speaker 1:Yeah, another problem with the Suez Canal is that if the ships go in sideways, that causes a problem too.
Speaker 2:It does and it can take a long time to fix that.
Speaker 1:I mean, you know, got to get the right guys steering those things. Actually, seriously, one of the problems that was caused recently in the United States is the crash into the bridge in Baltimore, because Baltimore is a huge port and that really disrupted service right there.
Speaker 2:It's an excellent example of all the bad things that can happen, and so I think that if you can find reliable, reasonably priced manufacturers here on shore, there are benefits to that that if another world crisis or God forbid another pandemic occurs in our lifetime, you're going to be in much better shape than those who have been trying to buy as cheaply as possible for as long as possible.
Speaker 1:Yes, staying ahead of the curve is important, so the pipeline of new technology is as strong as ever, even though funding has been problematic the last few years, With remote work, product shortages that need to be filled and staffing shortages. Do these manufacturers have a chance of getting the attention of hospital buyers?
Speaker 2:Well, it's a good question and one that I confront almost every week with some of my clients, and for some of them it is very frustrating, and one of the reasons they come to our firm for help is that they are having trouble with their message, they're having trouble defining the value proposition of their product and they're having trouble getting that out and into the hands of people who would be interested in the product in the hospital, for all the reasons that you just stated.
Speaker 2:And so I think there is a certain amount of that that's going on, and it's not the fault of supply chain or nursing or anybody else.
Speaker 2:It's just the fact that everybody has been heads down dealing with sort of one crisis after another since the pandemic.
Speaker 2:There's been the financial issues, of course, but then there's also the issue now with shortages, and Premier just came out with a study this week that showed that a significant number of procedures over the last few years, based on their survey data, have either been postponed or canceled as a result of lack of materials, and it's a real problem, and I think that it's costing a midsize hospital and an additional FTE just to deal with all the shortages that are out there when you combine both medical surgical supplies with pharmacy and other products. Pharmaceutical shortages are at an all--time high. I think there's more than 330 active shortages right now in the united states something like that and, um, in a country such as ours, I just find that to be incredible and uh, uh, it's uh, uh, just unacceptable in many ways. Um, the fact that there's, uh there's an allocation process now for glass blood collection files that's going to go on through the end of the year is sort of startling.
Speaker 1:So what are the causes for those shortages?
Speaker 2:I think it's a combination of things.
Speaker 2:I think that there's certainly the desire by manufacturers to ensure that they're compliant with the FDA, and so, in some cases, they shut down plants and production lines to make sure that they are compliant.
Speaker 2:Clean them all those sorts of things. Clean them all those sorts of things. I also think, though, that in some cases, the shortages are brought about by the fact that there's not a lot of profit left in making some of those products, particularly pharmaceuticals. Cbs did a good job on 60 Minutes about 18 months ago about identifying those problems, and if you're a rational manufacturer and capitalist, you look at whether you're going to spend the money to improve and keep your FDA compliant versus the profits you're making against it, and I think in some cases, it just is cheaper to go to discontinue the product than it is to make the investment in continuing to produce it, and so, as a result, I think in some cases, we've seen that the number of manufacturers has been whittled down to a point where the supply chain has become very fragile, and so I think that's also problematic in some cases.
Speaker 1:Well, I think it was just yesterday the Biden administration came up with what was it? Several I don't know how many new items over the next two years are going to see significant pricing reductions. And then there's also the work of Mark Cuban's group out there to genericize a lot of drugs because the profits in Big Pharma are rapacious. Is that fair to say?
Speaker 2:I think that there's a lot to be said about some of that. I think what you're referring to yesterday was the Biden administration released the 10 drugs that they were able to negotiate this year for the first time, drugs that they were able to negotiate this year for the first time, and I think the figure was they're going to save $3.5 billion a year, so roughly $35 billion over 10 years. Unfortunately, that's just the tip of the iceberg and I think that it ignores. You know, I used to discount this theory as a supply chain executive, but I do think that there's a certain profit that needs to be made to develop new drugs, new products and those types of things and invest in research and development.
Speaker 2:And, as I taught students back about 10 years ago, I talked about the fact that you can drive such hard bargains that you do put people out of business or you seriously injure them. So there's a fine balance there that has to be achieved, I believe, between too much profit and corporate greed versus being able to invest and have products that are indeed innovative and work well for patients. The other thing that's a challenge and it's been a problem for decades is the fact that the United States is sort of ground zero for pharmaceutical development and we bear all those costs of development. We bear a lot of the costs of manufacturing the product, and so, if you look at the Scandinavian countries, for example, they've legislated what the markups can be on those products and they're significantly lower than what Americans pay for pharmaceuticals.
Speaker 2:And that's going on throughout Europe, and so, over time, it's sort of like squeezing a tube of toothpaste and as it gets more and more squeezed in terms of pricing, it's the US consumer that ends up paying. I do think to your point about Mark Cuban. I do love Mark Cuban and I salute him for what he's been doing, and we will see how that continues to evolve and grow over the next few years. It's a dynamic change, and one that I think is overdue for the healthcare supply chain.
Speaker 1:Frankly, yeah, well, one of the things that's always gotten me that really in my craw was what you said at the beginning ah yes, we have to pay for all the research and development. And then I think of this product that was being used regularly to treat blood pressure abnormalities in certain heart patients. And then those certain heart patients started having wonderful things happen to them that had not happened before. The drug was already out there. It was a compound. Probably the most costly part of the compound was the blue dye, number three, so that it could match the color of all the other pills by that manufacturer. And now it goes for sale at $15 wholesale and $20 retail and all the argument about research and development goes down the drain because it was discovered to be wonderful by accident.
Speaker 2:Well, and there are those examples out there. There's no question about it. The other thing is, there's lots of middlemen that affect the price of pharmaceuticals in particular, but also medical supplies as well. The Wall Street Journal, over the past couple of weeks, has run articles that have talked about the margins obtained by the pharmacy benefit managers, and the folks that are supposed to be driving prices lower in some cases are recommending that patients buy a higher-priced compound because they're getting a higher rebate for it, and oh, by the way, they're contracting for all of that in Europe, so they get to keep the administrative fees when they purchase the products as well. And so you know, Congress is investigating that right now, and it's a classic example of you know how many middlemen can you have to get the products from A to Z right?
Speaker 1:I know how many middlemen can you ask to get the product from A to Z right. I know. What really gets me, though, is you know I'm very cynical about some of these things, and my statement I usually make is there's more money to be made treating symptoms than finding cures. And I know that's a cynical statement, but the thing is, jonas Salk took no money at all for the Salk vaccine zero Did it gratis. And I believe that the person in Canada that discovered insulin did the same thing nothing. And yet you know, you see the other end of the spectrum all the time, you know.
Speaker 2:Well, you do. And you also see resistance to change by clinicians because of their training and new products and processes in some cases show terrific outcome for the patient, but because they've been trained a certain way and they may be 10 years from retirement, they're reluctant to be retrained to do something a little bit different. And again it's sort of where value analysis meets clinical training and what are you going to do? And there's, I would say, at least a third of the population of clinicians can at certain points be very resistive to changing practice if they're getting what they believe to be good results from the old way.
Speaker 1:That's a fair point. Well, let's change the subject a little bit. Sure, is new supply technology the only answer to solving what seems to be intractable problems in the supply chain as hospital systems consolidate.
Speaker 2:Well, you know, when I started out, Fred, if I was going to do any kind of data work, I did it on a green accounting pad with a calculator right, and I was lucky to have a solar-powered four-function calculator to do it, and so I hearken back to those days. The problem that I see as we go forward with all the talk about how you use AI in the healthcare supply chain is that, number one, it costs a great deal of money. And number two, if you just apply it to processes that are not inherently good to begin with, you're going to end up in some cases with unexpected results. And so I think that if you've got computers and you're using your laptops and computer systems and your barcode scanners and all of those things and getting good results, that's a good place to be, and I think that it's worth looking at AI and what it can do.
Speaker 2:But AI isn't going to be the cure-all for manufacturing shortages. Ai isn't going to be the cure-all for distributors who are out of stock on a particular product. Ai isn't going to solve the problem that Mr Jones appears in the ER at 3 am and requires something that's locked up in the storeroom. All of these things are things that also require intervention by real human beings, and so, while I think AI can be useful, it certainly needs to be examined in its role. I also think that you have to have solid policies and procedures in place, along with solid people who can actually run all of the functions required of an efficient health care supply chain.
Speaker 1:You're absolutely right and you know. We were talking earlier about terms that we sort of adopt without knowing their real meaning, like value analysis. I think another term that we've brought in after the COVID crisis was resilience. That's another one, and then AI is a term that is used everywhere, now everywhere, and people don't know the difference between AI, generative AI, whatever you know.
Speaker 1:And people don't know the difference between AI, generative AI, whatever you know, TaylorMade now has a driver that, because of AI, has 11 sweet spots on the face of the driver. Now, that is just marketing. That is not the correct use of the term. Ai right.
Speaker 2:Right? Well, the sad news is they can develop a driver with 11 sweet spots and I probably couldn't hit any one of the 11 with the driver. So you know it's a problem.
Speaker 1:I met their CEO I think it was at an IDN summit about six or seven years ago and he was commenting on my John Daly pants right. And I said hey, you know, you shouldn't have stopped me because you owe me $400. And he said what do you mean? And I said well, every year you guys market a new driver that's guaranteed to give me 10 yards extra. Okay, I've been buying one of those new drivers as soon as they came out, every year for the last 10 years, so I should be driving 40 yards further than I've than I, 100 yards further than I'm driving now, and I'm not doing that. So you owe me a rebate. And he just broke up laughing yeah, so finally, just about finally. Often supply chain is brought in as an afterthought in various provider sites of care. This is really true. Why is it that a lot of hospital C-suites do not see supply chain as a strategic advantage and one that can contribute greatly to a hospital or a system's strategic direction?
Speaker 2:I think the answer, fred, is that they don't in many cases stop and think and look at supply chain as something other than the place that stores goods, buys goods and gets them to the right place at the right time. And I was blessed when I worked at Lutheran General Hospital, to have a CEO who did believe that supply chain was a strategic advantage, and in fact, george Caldwell is in the Healthcare Hall of Fame and was a terrific mentor to me. He saw, after I'd been there a couple of years, that our whole team had really generated terrific savings and that's why he allowed us to go out and do some entrepreneurial things. But he also allowed us to sit at the table with senior executives as we were talking about acquiring a hospital, as we were creating new sites of care clinics and all of those types of things, and I think that we were always able to add insight into what the opportunities and challenges were in terms of provisioning those businesses. And in some cases we avoided expensive renovation to parts of the main hospital building where the architects had said well, this is a good place to put the additional receiving deck. Well, we didn't share that opinion and as a result, we quantified why it would be better located in some other areas, and part of it was about the human resources needed if you were going to locate it in one place versus the other, and so those types of things often get overlooked if you're not involved in construction, design and planning.
Speaker 2:I was given a title that placed me at the same level as all of the division chairs in medicine, and I was able to go out and talk with them and work with them to buy exactly what they wanted but at the same time, get it at a price that was far lower, because they were willing to provide people to help me negotiate at the negotiating table with the manufacturers and say, look, we're willing to buy anything or we're willing to buy this or that, and we saved millions of dollars just by virtue of the fact that we could find things that doctors actually really wanted and still get them at a price that was acceptable to the hospital budget.
Speaker 2:And so there's just all kinds of ways that I've always believed that supply chain can be a part of the conversation, but in many hospitals that I've done consulting work in over the years, it's just not there, and they're lucky to be able to get a consultant to come in and help try to solve some of the problems. But as far as I'm concerned, it all starts at the C-suite, and if the C-suite is watching and sees what's going on and the supply chain executives do a good job of documenting their results, they should be given more and more latitude to participate in these types of things.
Speaker 1:Yeah, you know, I think it starts at the C-suite. But attitude to participate in these types of things, yeah, you know, I think it starts at the C-suite. But I also think that if you close your eyes and think of when you and I started out in the business, a lot of the people that were well first off, just as we went from new products to product standardization to value analysis, we went from purchasing to materials management to supply chain, and the folks who staffed those positions in the old days did not consider themselves c-suite folks, did not think strategically and therefore were not perceived by the people in the c-suite to be strategic. So I think the change is taking place, that now the current and evolving generation of folks that are coming to their positions much differently and much better trained and educated than we were, are having an opportunity to start and build that capability to be recognized as C-level people.
Speaker 2:I think that's very well said and I think there's a great deal of truth to it. I also think the other thing is that informed supply chain departments really develop on an annual basis a strategic plan and they demonstrate what they're going to be working on and what they're using their budget for on an annual basis. And through that process and also having good control over who in the hospital is purchasing and who is not, you can really affect change and the bottom line for the hospital.
Speaker 1:Well, John, this has been great. One last thing what didn't I ask you about that you'd like to talk about?
Speaker 2:Well, I'd be happy to talk about the election with you, fred, but I think we'd both get in trouble, so we'll leave it at that today.
Speaker 1:Yeah, we keep politics out of these discussions all the time. That is a wise thing. Two things you don't want to talk about are politics and religion. Those are things that do not bode well. So, john, thanks for taking time out to talk with us. This has been great and I appreciate your being here. I appreciate your friendship for all the years and I know we'll be seeing each other in a little while. Probably. We'll be seeing each other, maybe at RM and certainly at the Bellwether League event.
Speaker 2:Yep, that's for sure. Thank you for having me, Fred.
Speaker 1:Yep, thanks and take.
