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
We Can't Keep Doing the Same Things and Expect Different Results
Mark Van Sumeren, Managing Director at Health Industry Advisor, discusses the perfect storm facing healthcare: tariffs increasing costs, Medicare demands growing with the aging population, and critical workforce shortages.
• Tariffs on medical supplies and devices creating immediate cost pressures with no easy way to offset them
• By 2029, all baby boomers will qualify for Medicare, driving unprecedented demand for healthcare services
• 60% of healthcare revenue comes from Medicare and Medicaid, with reimbursement rates that don't cover costs
• Healthcare organizations showing a bifurcation - some maintaining slim margins while others operate at losses
• Cleveland Clinic's daily huddle system creates organizational alignment and rapid problem-solving
• Effective supplier collaboration requires transparency about financial needs tied to mission fulfillment
• Decision-making in healthcare remains glacially slow compared to other industries
• Organizations must "break the rules" rather than continuing strategies that haven't worked
• Rural communities face the greatest risk of losing healthcare access entirely
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https://takingthesupplychainpulse.buzzsprout.com
If you want to be a guest on the show, reach out to Fred directly at fcrans@stonge.com.
This is Megan with St Onge Company, here to welcome you to this week's episode of Taking the Supply Chain Pulse, where we speak with returning guest Mark Van Summeren, a Bellwether League Class of 2021 and Managing Director at Health Industry Advisor. Mark's background in both supply chain and healthcare leadership brings a unique perspective to today's episode. Let's jump right in and hear from Mark Over to you, fred.
Speaker 2:I wanted to go over some of the things that are taking place in healthcare in general and see how those apply to and how supply chain may be affected. Mark has a unique background of being active in both supply chain and overall health care leadership circles, so he interacts with a lot of folks across a gamut of activity. Mark, thanks for joining us.
Speaker 3:Fred, it's my pleasure as always. Thanks for inviting me back. I must not have done too terribly the first time. You're giving me a second chance perhaps.
Speaker 2:No, no, no, no. You always do well, buddy. Yeah Well thank you for that. So so, mark, things are so quiet in the country in general right now, and in health care in particular. There's probably nothing out there that we need to be concerned with or addressing. Is that correct?
Speaker 3:Surely you jest, surely you jest.
Speaker 2:Yes, I don't jest and don't call me Shirley.
Speaker 3:That's right. That's right. It's been an unbelievable and challenging whirlwind and you know certainly the short-term, intermediate-term challenges that we're facing coming out of the changes in Washington. I mean, it's just getting our arms around. What it means for us and how this will play out is the real challenge. And of course, I'm talking about the primarily the tariffs. But we have to think beyond that, in addition to the other changes that are proposed or contemplated, et cetera, changes that are proposed or contemplated, et cetera, nih funding, which is a tremendous impact on the health care industry, particularly for the academic side of our business, but really has ramifications all the way through, and then threats to primarily, I guess, to Medicaid funding.
Speaker 3:But those are all issues that you know.
Speaker 3:There's not a lot of certainty as to how they will play out.
Speaker 3:The only certainty is is that they are disruptive and really set us all back on our heels to try to figure out what are we going to do from here.
Speaker 3:The uncertainty comes from what's the end game, because there are certainly some folks that are a lot smarter than I am. As they look at what's going on with tariffs, they view it, as you know, maybe somewhat symmetrically, as a negotiating ploy in trying to exact better terms and relationships for our own products and services and that maybe we'll see that scale back. The evidence isn't there yet, but certainly that's one outcome, as I've been telling people, is that, regardless of the intent and the direction, in about 12 months things are going to change dramatically because we're going to move into the midterm elections and the midterms are going to change the calculus and everything. And again, I don't say that as that means that the pain will be gone. What it means is that we're just going to be dealing with some uncertainty, probably until we get to that point to really understand you know, where are we heading in the next two to three years?
Speaker 3:But it's a challenge as a supply chain officer trying to figure it all out.
Speaker 2:Yeah, well, you know, you live in Michigan. I do I believe. Correct me if I'm wrong, but I believe the Ambassador Bridge, if not the most frequently traveled pathway between the US and Canada, is certainly one of the most. Your economy is impacted regularly by Canada. I'm sure there are parts of Michigan that are receiving electricity from Canada.
Speaker 3:My lights are still on, thankfully.
Speaker 2:And you've always. I mean I want to try to stay out of politics, but it's almost impossible to here. You live in a state that has really been interesting because it's a swing state that went Republican. This time it has one of the strongest in my opinion, best Democratic governors in the country, certainly someone that knows how to stand up for herself and what she believes in. So disruption is not new to you. What's the atmosphere there about health care and Canada and all that stuff? I mean your local atmosphere that you're dealing with.
Speaker 3:Yeah, well, first of all, you brought up the Ambassador Bridge, and our little bit of trivia is the Ambassador Bridge. When you travel from Detroit into Canada, you drive south, which most people don't necessarily appreciate, but you do drive south in Canada, and it is a very significant trade route, trade crossing between the US and Canada, and I saw a headline I think it was earlier today saying that you know that Michigan is at the epicenter of a lot of these challenges with the tariffs and the trade wars that are going on right now because of the automobile industry, the suppliers, because of everything that goes out in terms of trade with important trading partners, not the least of which would be Canada, but certainly Mexico as well. So there's a great deal of uncertainty. There's a lot of, you know. There's an interesting dynamic and I don't want to get into politics either, other than just the observation that you have the union leadership around the state which is very much seems to be in support of the tariffs because of the protection of industries like that. So it creates an interesting dilemma on both sides of the aisle about you've got kind of a shifting of the alliances, if you will, as to how do we support these things.
Speaker 3:But but nonetheless, we are at the heart of it. We still do have our electricity, thankfully, even though a lot of it, as we've been told, come from, comes from Canada. But we have not been shut off at this point in time and our our bills haven't gone up higher, any higher than than other parts of the country. But we are here facing it and trying to understand what will happen. We are here facing it and trying to understand what will happen. But getting back to health care, you know, you know, looking at what we can expect from tariffs, I mean those are pretty sizable increases and a lot of our medical devices or supplies, particularly at that end of the continuum, still come from offshore. Despite our efforts and our rhetoric coming out of COVID, we still source a lot of product from outside the country.
Speaker 3:So that has a very direct and immediate impact on our cost of delivery at a time that we just don't have the degrees of freedom to make adjustments for that. We can't go out and raise revenue, raise costs to our patients. So do we just eat that cost? Do we economize a little bit more? Delay services, delay use, lower utilization, a lot of those things.
Speaker 2:It's just a tough challenge. You know, what we haven't even talked about at all yet is that 60 percent of health care organizations revenues come from Medicare, Medicaid and growing and increasing every year.
Speaker 3:Now here's an interesting fact. So I'm wrapping up one of the companies that I serve on the board have for 11 years now 11 years now. We were just wrapping up a five-year strategic plan and they focus on five years because they require rather important capital investments that need to play out over three to five years. So a longer time horizon is important. And what struck me as we were looking at 2029 is we ultimately went to 2030 as the terminal year, but 2029 is of interest because that is the year that the youngest baby boomer qualifies for Medicare.
Speaker 3:So think about that. So we are still moving rapidly to an age when, you know, most of a sizable portion of the population will be covered by Medicare or Medicaid, but Medicare is certainly rising and will continue to rise, and the utilization or demand for health care services from 65 to 75 is disproportionately higher than younger, and over 75, it's even higher than that. So the demand curve is going to go unabated. I can't see a way that there's going to be more money to pay for that care and there's going to be less ability to shift the cost of that care to commercial payers, because it's just a smaller base.
Speaker 2:What are we going to do.
Speaker 3:We can't keep doing more of the same because that's not going to fly. Here's the other dynamic. So I tend to think longer term, because of how I focus on strategy and long-term planning is not only do we have a revenue demand imbalance about to hit us square in the face over the next four or five years, more so than we have to this point, we're going to have a workforce availability that falls square against us. We just won't have the doctors, nurses, technicians, et cetera, to deliver that care. What are you going to?
Speaker 2:do A couple of things about that. Number one I think that the pandemic drove a lot of people to retirement. That's number one. And I read an article recently where women doctors tend to retire earlier than men, than male doctors. So that's another trend. Men than male doctors, so that's another trend. Uh, and then what you're talking about demand the largest growing uh demographic in the country is the population of 85 plus. So I mean, not only are they becoming more people um eligible for medicare, medicaid, medicare, uh, but the ones that are live longer and live longer and utilize much disproportionately more services, like by a factor of I don't know what it is, I don't quote it, but it's a.
Speaker 3:It's a multiplier, it's not a percentage increase.
Speaker 2:It's a X, was it two X three X? I Medicaid, 30% private insurance and 10% self-pay or no pay. You just can't expect to shift the expenses over to 30% because they are in a business who runs on the Nancy Reagan principle of just say no anyway, denying claims, the Nancy Reagan principle of just say no anyway, denying claims. So it's a catastrophic situation for health care organizations. Now you and I worked at projects at a time where we would go in and what was called non-salary expense reduction projects and we'd tell people to get better prices and manage their inventory better and we might be able to suggest that they use different protocols for different things to save money. But even those savings, which were easy to medium hard, are not enough to get people through now. So what do supply chains and organizations have to start considering in order to remain in business, let alone remain profitable?
Speaker 3:Yeah, yeah. Well, first of all, what strikes me is a lot of the things that we've talked about for a long period of time. The shift outside the hospital will become an imperative and in Probably needs to accelerate. So and I think that's going to be driven largely by cost, but also by workforce availability we just will not be able to treat the people in the fashion we have. But it drives me to another point, which is in supply chain officers. We tend to fall into the same trap, but I think it runs all the way up and down the up to the C-suite, and that is we define our decision rules within a kind of a set framework that says as long as we're in these bounds, we find a way to do that. I think some of those limitations need to be relaxed, and I say that this way. You know, maybe, maybe the way to think about that is that whenever we hear the, the tired phrase that we can't within this environment, we can't accept that as a limitation on our ability to think of new and different ways to do this.
Speaker 3:And it was interesting we hosted a meeting last week. We had senior executives, from supply chain officers to CEOs, cfos, ceos from both healthcare and retail industries. And one of the more striking moments to me was when one of the health system CEOs talked about when, upon hearing what retail was doing to manage in tight, you know, a pennies type business and health care is a pennies business and some of these retail entries entities are penny's business and they talked about some of the hard decisions they had to make, but they made them in a way that would not impact their ultimate customer. That's what they strive for. They made their toughest decisions there and the retort front was yeah, but from the hospital executives was yeah, yeah, but we've got our mission that you don't have in retail.
Speaker 3:And one of the retail CFOs almost bristled and said if you don't think I have a mission, that I'm paraphrasing. She didn't speak, but her point was I have a mission, I have a brand. I have to protect my product, my business, my service, much in the same way that you have to protect your clinical side of your business. So don't think that the decisions are easier here, but we still make them. And her point was it was almost that stop fooling yourselves or you falling back on the excuse that because we're hospitals or health system, because we're different, we can't do things. We don't have that freedom any longer. We have to make those tougher choices, but doing so in a way that don't sacrifice what the true mission is, what impacts patient care.
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Speaker 2:You and I, a few weeks ago, attended a two-day session at the Cleveland Clinic and I thought to me that was one of the most interesting things I've been to in a long time.
Speaker 2:First off, it started off with that absolutely amazing video about empathy and what we're all here for. But secondly, the Cleveland Clinic shared a lot of its complexity with us. Number one, and for folks out there that weren't involved there were clinicians, there were operations folks, there were all kinds of people telling us what they were doing and how they were doing it and why they were doing it over a two-day period. But the one thing that I saw out of it was number one the whole meeting was about a different way to work together with suppliers, a way to work toward collaborative solutions that would benefit everybody. And number two, the clinic starts off every day, at every level in the clinic, from the people that clean the floors up to the top of the C-suite with these huddles that are like 15-minute huddles, not just local, they are across the entire clinic every day. So they create a commonality of purpose, a commonality of understanding and a commonality of being able to create an environment in which they can work together. What was your take on all?
Speaker 3:that geographic reach of the Cleveland Clinic, ensure that that commonality of purpose, that culture, is so effective and so pervasive. What, to me, stood out about those huddles is they started from the bottom and worked up and then they worked back down. So they start first at the base of the organization and issues that arise every single day that are brought up to the attention, and work their way up to the CEO, and at every point they discuss what impact does it have and what do we need to do about it. And then, once it reaches the top, then the communication back down is here's what we're going to do differently or here's how we're resolving it. But it starts from the bottom, which was fascinating to me, just wonderful. The second piece of that and why I think it was so effective. You know, through the course of the event they shared things that really drove home the mission, which is both a clinical and a research function, and you bought into the why research function, and you bought into the why, why Cleveland Clinic does what it does, why who they are and why they do that. And then they got to the closing.
Speaker 3:Um, uh, talk was by the CFO and the CFO was far more open about their financial situation to that audience than I've ever seen in any setting such as that. He basically was very transparent and he did something that may have been subtle. I actually don't think it was. He didn't talk about hey, our margins are what they are and I need you to help, because who cares what your margin is or somebody else's margin? I've got my own margin to worry about. What he said was all of that stuff Takes investment, takes money. In order to continue to deliver this mission, we need to generate this level of activity that then translate to the margin. So the point of emphasis he was making is it wasn't margin for margin's sake, because who cares if your margin is 1%, 2% or 3% if you're the outside, the only thing you care about is are you a viable, ongoing entity? Will you pay my bills when I send them? But what you do care about is what your mission and what you're trying to drive and if there are requirements to continue to deliver that, how do you fund that?
Speaker 3:That's the point that he made really, really effectively and the feedback that I saw immediately afterwards, and even since that was people. They got it. They said now I understand, it's now. You know the argument of that hey, we're only making 3% and you're making 50 percent, you've got to give us some. That argument is never successful and never will be OK. But the argument is you're a part of my team. We're trying to advance this health care in America. Our role in that requires that we invest this much money every year in order to be able to make that investments. To sustain it requires this much generation uh, cash and income generation. It makes much more sense, much more powerful. Well, what?
Speaker 2:you know, I, you, you've answered my question, but I'm going to ask it again after I say this um, the the old way of uh, I'd love to partner with you as long as I win is called distributive negotiations, where there's a winner and loser. The new way, the way that they're trying to establish, is called integrative negotiations. But I looked at that room the first day and I ran into you. I think I ran into you two minutes after I walked in. Really, I mean, we saw you very early.
Speaker 2:We're sitting in an amphitheater, folks, as like, there's a famous painting of Johns Hopkins University doing surgery back in 1900, with the students in the amphitheater, and down at the bottom are the physicians doing the surgery, and it was the same setup there at the Cleveland Clinic. There were about 200 people, easily 200 people that had paid a good amount of money to be there, and of the 200 people, when you take away Mark and me, there were 198. That uh sales reps from other companies who wanted to nail the cleveland clinics business. That's what they were there for. Uh, my question to you is you talked with some people, do you think? Do you think they got it, or do you think that they? Uh were still trying to nail the cleveland clinics business when left.
Speaker 3:Well, I'm sure there was a sampling of both, and in the unscientific sampling that I had, the people that I either spoke with myself or in conversations that I've had with John Dawkins and Steve Downey since that meeting, and some of the feedback they've gotten is that there were people whose minds were changed in the sense that I understand it. I get the message. We have to find ways of working together more effectively than we have in the past, as opposed to. I need to see how I can get my quota this month, yeah, yeah.
Speaker 2:OK, which is?
Speaker 3:a fundamental difference, and I'll tell you, not only the clinic I've seen this with other health systems very effectively is that but the clinic did it really well. The clinic said I'm not opposed to you winning Again I'm paraphrasing Right as long as by you winning, I'm also winning, winning, I'm also winning Okay. So if you can help me to generate the kind of cash that I need to have to fund this machine that I've got going and, as a result, you get increased market share and more revenue, I'm okay with that. That's the win-win. Yeah, it's not a there's only there. It's not a fixed pie that you're going to get. What I don't get, it was um, if you work with me toward this, you're going to get more than your competitor and so I'm a.
Speaker 2:I'm a ceo or a supply chain leader at a small to medium-sized IDN. My number one fear whether I'm willing to verbalize it openly or not is whether or not my organization is going to be taken over and I'm going to have a job a year from now. What kind of advice would you give me or my organization as to the things we need to do to try to give ourselves the best chance of surviving and thriving?
Speaker 3:Okay, so let me preface it by saying what we are seeing now in healthcare, as we look across health systems across the country, is a bifurcation of financial performance. You've got a significant share of the organizations that are doing reasonably well and I put I underscore reasonably well. You know they're making um, low, single digit, uh operating margins, but they're making money. You've got a comparable number that are losing money nobody, not many people right at the break, even you're. You're either winning or you're losing, on a relative sense. Okay. So if you're on the winning side of the ledger, what are you doing right that you can tend to accelerate and not sit on your laurels? If you're on the losing side of the ledger, you've got to stop to think about what are we going to do to? We're going to have to break the rules if you will. We can't keep doing what we're doing, and what I observe in a lot of those organizations is their teams, their people, are working harder than they ever have because they've got 50 different initiatives all driving toward trying to improve quality, lower cost, improve service. But we're doing the same things that we've been doing year after year after year and expect to get different results. Okay, break the rules. We got to do something different because continuing on that path is no longer going to be successful, and it strikes me that there are organizations that seem to be such that you can't help them to save money because they can't help themselves. They can't focus on things that will really make a difference, because they're too busy doing these other things that haven't worked before, or maybe worked okay but are inadequate to get them there. You know, we kind of left it.
Speaker 3:The decision making process in health care is incredibly glacially slow and I'll give you an anecdote of how bad it is. In some of the organizations that we work out with. Outside of health care nondisclosure agreement, we can put it on our paper with red lines and have it signed off in 24 to 48 hours. In healthcare, we can take the health systems paper minimal red lines and it can take 60 days. This is for a nondisclosure agreement. We can't even get to the real heart of doing the work. Why are we so darn slow in making decisions in health care?
Speaker 2:That has got to change or we're going to just drive ourselves into oblivion, oh yeah, and in my opinion, the people that suffer are the people that are in the rural communities, the people that are, the people that are going to be bereft of health care.
Speaker 3:I mean.
Speaker 2:I know that Roe v Wade pointed out the turn of Roe v Wade pointed out that in some of those western states that have outlawed any kind of you know birth control measures, folks have to go hundreds of miles to be able to get kind of treatment, and you know that's something that can be happening for health care in general in many of these smaller communities now, if we don't get our acts together. So one final word of advice what would you say? Should we stay optimistic and keep pounding, pounding away, or shall we be looking for new careers to enter?
Speaker 3:Fred and I. You and I are too old to look for new careers, so we'll have to forego that. But perhaps for the audience. You know I think I shared this on the last podcast I tend to be an optimist by nature. I shared this on the last podcast. I tend to be an optimist by nature. Now I'm not looking at this through rose colored glasses, but I do believe in to use a tired phrase the American ingenuity. I think that I think all of us are capable of applying that ingenuity and looking for different ways of applying that ingenuity and looking for different ways.
Speaker 3:What we have to come to grips with is doing, you know, repeating the things that we've done in the past.
Speaker 3:And whether you're a supply chain officer, whether you're an outside advisor, whether you're c-suite executive, continuing to do the same things is is not going to solve the equation.
Speaker 3:We've got to look for different ways of doing things. We've got to look outside of health care, all right. Well, you know we're not alone in the issue of fighting with tough margins, tough competitive marketplaces. We always haven't had, we don't necessarily have the discipline of the financial markets to the same degree that people outside of health care do and that have forced and honed their skills to be able to make decisions faster, more impactful, and not rely on what's always worked in the past to get us through in the future. That's what we have to learn and we've got a long way, in my view, to embrace that learn and we've got a long way, in my view, that they embrace that. Um, and I've I've seen just far too many people that, um, it's, it's almost uh, I hate to say it as a deer in the headlights is that we're, we're so concerned that we close ranks and then we, we get stalled into inaction, inaction, inaction today will kill us.
Speaker 2:Yeah, I agree, but I think true adversity can increase the speed of change, and that may be a positive side. First off, thanks for joining us again, Mark, and I just want to tell you this you know that I'm a U fan, but it's the University of Miami, not Michigan, and I'll tell you this that even if Michigan were to lose all its electricity from Canada, I still don't think Ohio State could beat them.
Speaker 3:Well, we better be careful. We might lose a portion of your audience. If you talk about, I don't care you know what they say about?
Speaker 2:uh, a home game at ohio state. It's got 20 000 alumni and 65 000 truck drivers. So that's what.
Speaker 3:That's what you have well, I'm going to be very careful here because you know I tend to get myself into trouble too much, but uh, well, you know, you got your.
Speaker 2:You got your background wiped out with the the uh michigan uh shrine that you have in your office usually yes, yes, that's true, that's true, but anyway, we'll.
Speaker 3:We'll be shooting for number five in a row this fall so, okay, well, hey, mark, thanks again for joining us.
Speaker 2:I appreciate it and I hope to see you at an upcoming event sometime soon. Likewise, fred, it's always great to catch up with you at these upcoming event sometime soon.
Speaker 3:Likewise, fred, it's always great to catch up with you at these, and again, I appreciate the time spent this morning and the invitation to come back and I'm sure we'll see you. It has to be in the next 30 or 60 days, because we're in that time of year for these meetings. Yep, okay, dude, take care, see you.
Speaker 2:Thanks, sir. Okay, dude, take care, see you. Thanks, sir.
Speaker 1:Well, that's all for today. Thanks again for joining and, as always, don't forget to subscribe and connect with us online, where you can find all of our episodes. If you have a topic you would like to discuss or want to be a guest on the show, you can reach out to Fred directly at fcransatongecom. See you next time. C-r-a-n-s at S-T-O-N-G-E dot com. See you next time.
