2015 umcsc annual report

Upper Midwest Consolidated Services Center, LLC

2015 UMCSC Annual Report

2 | UMCSC 2015 Annual Report

Mission:The Upper Midwest Consolidated Services Center is a local, member-driven supply network of Vizient member organizations. Together we commit to centralized sourcing and contracting, explore supply chain management initiatives and shared business solutions.

The UMCSC supports healthcare providers and suppliers by working closely together to deliver increased clinical effectiveness and economic efficiency.

Founding Principles: The UMCSC is founded on the members’ vision to increase efficiencies and reduce expenses by aggregating spend and redesigning supply chain processes through collective decision making. To achieve this vision, members agree to the following principles:

Make decisions collectively based on what is best for the alliance as a whole, rather than individually for their organization

Hold each other accountable for delivering upon commitments to the UMCSC

Follow behaviorial guidelines that protect the integrity of the UMCSC brand

Utilize Mayo’s “go to market” and Vizient strategy

Create a single voice throughout supplier negotiations

Participate in innovation that drives value

“Our member’s commitment to collaboration, scale, innovation and change capability has fueled our strong track record and

helped us achieve $325 million in savings since 2008.” — Brenda Peterson, Vice President | UMCSC | Vizient

UMCSC 2015 Annual Report | 3

Our Community of Members:

*Incoming member in 2016

Class A (9 members)AspirusCentraCare Health Froedtert Health, Inc.Gundersen Health System .Mayo ClinicNCH Healthcare SystemNorth Memorial Health CareProHealth Care, Inc.ThedaCare, Inc.

Class A1 (6 members)Baptist HealthThe Guthrie Clinic*INTEGRIS Health, Inc.St. Bernards Medical CenterSparrow Health SystemUniversity of Arkansas for Medical Sciences

Class CCP (1 member)Sanford

Class V (1 member)Vizient

Class B (42 members )Altru Health SystemArkansas Methodist Medical CenterBeaver Dam Community Hospitals, Inc.Bellin Memorial Hospital, Inc. Beloit Health SystemBoulder Community HospitalButler Health System*Cayuga Health System, Inc.*Comanche County Memorial HospitalDuncan Regional Hospital, Inc.

Great Plains Regional Medical Center

Excela HealthFayette Regional Health SystemGrand Itasca Clinic and Hospital

Holy Redeemer Health System*Hunterdon Healthcare System*Jackson County Memorial Hospital

Lake Region HealthcareLittle Company of Mary Hospital and Health Care CenterMcAlester Regional Health CenterMeriter Health ServicesNorman Regional Health SystemNortheastern Health System

Elmhurst Memorial Healthcare

Je�erson Regional Medical Center

Penn Highlands Healthcare*Prairie Lakes Healthcare SystemRice Memorial HospitalRidgeview Medical CenterSilver Cross Hospital CorporationSt. Clair Health CorporationSt. Luke’s Hospital of DuluthSt. Peter’s HospitalStillwater Medical CenterSummit Health*Swedish Covenant HospitalSwedishAmerican Health System CorporationTri-City Medical CenterTrinity Health

Washington Regional Medical SystemYampa Valley Medical Center

Class C (4 members)Bay Area Medical Center Grady Memorial HospitalKingman Regional Medical Center LifeCare Medical Center

Watertown Regional Medical Center


Unprecedented Savings, Scale and Innovation

What a year! Since our inception in 2008, the UMCSC has delivered over $325 million in savings and has grown to 56 members with a spend potential of over $6.5 billion annually. In 2015 alone, our contracts have yielded $75.5 million in savings for our members, which is a new milestone in our collaboration and the value we together achieve. Our success could not be attained without the commitment of our members, their rigorous participation in process and governance nor the Mayo

and Vizient staff that support all that we do. We applaud your efforts!

ScaleScale has always been a founding cornerstone of the UMCSC and has anchored itself as one of our fondest buzzwords of 2015. We welcomed 16 new members this year; 15 members from the AROK Purchasing Coalition, and Tri-City Medical Center in Oceanside, CA. The Board of Managers also approved seven members from the Mid-Atlantic Purchasing Coalition (MAPC) that will join the UMCSC in early 2016. These additions will greatly expand the reach and contributions of our 40 legacy members. Adding an additional supply spend of $1.3 billion to our network improves our buying power and solidifies our position as a national leading aggregation group. Scale is just one important strategic element that leads to our success; when coupled with members collaborating together in our committed model (and acting as one in the market) we will continue to advance the value of membership.

Worth recognizingWe’d like to celebrate not only the savings we achieved but also some noteworthy items that enhanced membership this year.

Our investment in the Program Management Office has brought forth a new level of engagement and proven methodologies that have led to greater adoption of the 13 programs within our 2.0 Innovation Strategy offering. This year 2.0 savings and revenue exceeded $18 million. We also recognize the contributions of our members participating on the Business Development Committee and their efforts drive the success of these innovative models.The 2.0 Data Sharing program, now known as “UMCSC reveal” was developed. This unprecedented and innovative transparency will provide the basis for a higher level of alignment with suppliers that goes beyond simple market share performance.New membership models were launched to enhance member retention and recruitment efforts.VHA, Novation and UHC became Vizient in 2015. These three strong legacy brands will also come together with MedAssets in early 2016.

There’s more work to be done! This year we have achieved new scale and programs that drive experimentation and innovation (2.0). In 2016, we will continue to enhance the member experience and design new and groundbreaking approaches that enable change capability and enhance our ability to aggregate Physician Preference Item volume to the market.

With our commitment to scale, innovation, change capability, cultures of excellence and tapping the knowledge of members and other industry experts, we will strive toward a new level of speed and execution. I look forward to another year of reducing the total cost of care and improving the patient experience together.

Brenda Peterson, RN, MBAVice President | Supply NetworksUpper Midwest Consolidated Services Center | VizientVizient, Inc.


Member Voice Opportunities: In addition to ongoing input from the various member-comprised committees, the Mayo Clinic Category Management process provides a framework to engage member stakeholders throughout the contracting and sourcing cycle.

In the coming years, we will continue to challenge the way products and services are delivered and rethink typical supplier/provider roles to enable new value for our members and their patients. In 2015, this effort was showcased through our partnership with Covidien/Medtronic. Launched in June, it encompasses 16 UMCSC agreements and benefits members by transforming the role of the Sales Representative into that of a Utilization Manager. With this transformation, members will have additional assistance in optimizing savings through the use of on-contract, clinically acceptable products. The Utilization Manager will also provide product education, conversion assistance and best practice guidance. Member spend across the 16 categories is $40M and the contracts offer a 13% or $5M in savings.

As a leader in price competitiveness we will also look for new ways to further align supply chain with patient care and the organizational strategies of our members. With this alignment, our members will realize additional value available now and through future contracting and sourcing activity. This year $31.6 million was saved in our most challenging category, Physician Preference. In 2016 we will engage in important dialogue regarding the adoption of these contracts as we look for new ways to capture the opportunity left on the table and to enable the power of standardization and aggregate commitments.

The year to come will be an exciting one. 2015 was a record breaking year for medical device and pharmaceutical mergers and acquisitions, our organization will benefit as best practices emerge from supplier partners. In addition, we will use our expanded scale (now $6.5 billion dollars) to enhance the value we achieve.

Yours in service,

James FrancisChair, Supply Chain ManagementMayo Clinic

Stage 1:initiation

Stage 2:insight

Stage 3:innovation

Stage 4: implementation

Stage 5:improvement

Contracting and Sourcing Services

Again this year we have expanded the UMCSC contract portfolio and enabled extraordinary savings and value for our members. We will continue to explore new opportunities focused on improving patient outcomes and lowering costs.

Our robust portfolio now includes 286 unique agreements in the categories of Commodity, Clinical Preference, Physician Preference and Additional Products. This year 88 new contracts were approved by our members.

Mayo Clinic’s Category Management approach incorporates many familiar aspects of business improvement processes and change management. Most importantly, it requires the active participation and engagement of member stakeholders to achieve success. The process is structured to challenge previous practices and implement breakthrough approaches that generate significant value for the UMCSC. The iterative process is framed on five stages; initiation, insight, innovation, implementation and improvement.


56 membersencompassing 197 hospitals in 21 different states

$6.5Bmember annual supply spend

$75.5Msavings achieved in 2015(first year savings & rebates received in 2015)

13:1 return in savings

for every $1 our members spent on UMCSC services in 2015

$29M+ in rebatespaid by UMCSC suppliers in 2015

7 years of successcollaborating in a network environment since August 22, 2008

$595M total contract value since inception(cumulative savings and rebates achieved year over year for entire length of contract)

700,000 lines of data processed to provide our members with powerful data analytics and business decision tools

85% contract compliance by our membership in the Physician Preference (Medical Device) category in 2015

$326Min member savings since inception(first year savings & rebates received since inception)

UMCSC by the Numbers:


0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2008 2009 2010 2011 2012 2013 2014 2015

0

10000

20000

30000

40000

50000

60000

70000

80000

Member Savings in millions, since inception

286number of UMCSC contracts

Additional Products

Physician Preference

Clinical Preference

Commodity

10%

49%

9%

32%

Spend Performancethe following illustrates 2015 membership compliance to a minimum spend in each of the three categories

All Members 98% 101% 85%

Class A Members 100% 105% 85%

Class B Members 87% 91% 79%

Class C Members 99% 94% 68%Class CCP Members 114% 107% N/A

Clinical Preference Commodity Physician Preference

Cost Recovery the Cost Recovery Ratio illustrates member return for participation in UMCSC contracts

All Members 8.2:1 10.0:1 13.3:1

Class A Members 9.9:1 N/A* N/A*Class B Members 5.7:1 2.8:1 4.3:1

Class C Members 2.9:1 2.0:1 1.5:1

Inception 2014 2015

* Due to no deficit obligation for A Class members


2016 Committee Schedule

Business DevelopmentDevelops strategic initiatives

in support of the UMCSC mission and vision

ClinicalThe Clinical Committee ensures

physician involvement in product evaluation and focus on clinical leading practices and outcomes

FinanceMonitors UMCSC financial performance, budgets and

accounting of savings, fees and distributions

OperationsDevelops, implements and

assesses strategies to enhance the UMCSC contract portfolio, gain supply chain e�iciencies

and approve contracts

Board of ManagersSets the strategic direction and guides all business activities of

the UMCSC

UMCSC

March 30 - April 1 New Orleans, LA ~ Board of Managers (Closed Session) ~ General Session (open to all members)

June 13 - 14 Chicago, IL ~ Board of Managers (Closed Session) ~ General Session (open to all members)

October 26 - 28 Nashville, TN ~ Board of Managers (Closed Session) ~ General Session (open to all members)

December(Date TBD

Teleconference ~ Board of Managers (Closed Session)

Board of Managers Business Development CommitteeJanuary 21 10a - 3p | NCH Hospital, Naples, FL

March 8 10a - 3p | Edina, MN

May 16 10a - 3p | Edina, MN

September 30 10a - 3p | Edina, MN

Clinical Committee Meets quarterly, 2016 calendar under development

Finance CommitteeMarch 15 Audit Subcommittee | Edina, MN

March 30 3p - 5p | New Orleans, LA

June 2 10a - Noon | Edina, MN

October 4 10a - Noon | Edina, MN

November 15 10a - Noon | Edina, MN

Operations CommitteeFebruary 9 9a - 3p | Edina, MN

March 14 9a - 3p | Edina, MN

April 11 9a - 3p | Edina, MN

May 9 9a - 3p | Edina, MN

June 13 9a - 3p | Edina, MN

July 11 9a - 3p | Edina, MN

August 8 9a - 3p | Edina, MN

September 12 9a - 3p | Edina, MN

October 10 9a - 3p | Edina, MN (open to all members)

November 14 9a - 3p | Edina, MN

December 12 9a - 3p | Edina, MN

Committee Structure


One vision: Board of Managers “As the incoming Chair, I am most pleased with the collegiality of our organizations and the expansive opportunities for success offered by the UMCSC. This year marked tremendous growth as we made significant progress toward our goal of doubling the membership. Our increased scale affords the ability to advance the power of our collaboration and expand the reach of our innovation programs. With greater collaboration and continued participation in strategy and governance, UMCSC members will continue to differentiate our network as an industry leader.”

One strategy: Business Development Committee “The Business Development Committee continues to facilitate the UMCSC approach to developing innovative partnerships and business solutions through its 2.0 Strategy. With committed groups of member champions and the support of the Program Management Office we garnered $18 million in value this past year. 2.0 Programs will continue to benefit our members beyond traditional contracting and sourcing through innovation, reducing the total cost of care and improving the delivery of health care.”

One direction: Clinical Committee “The Clinical Committee continued to provide clinical guidance on physician engagement strategies and impacting the total cost of care. We are committed to maximizing the adoption of Physician Preference Item (PPI) contracts; we recognize that uncovering a single perfect process is unrealistic yet continue down the path of progress and address barriers as they are presented. Regardless, PPI contracts achieved $31.6 million in savings. In terms of 2.0 innovation projects, the committee supported several clinical utilization projects including; the Blood Management project which saved $4.6 million in blood cost. In addition, the CRM utilization and remote monitoring project was further defined and will benefit our patients and practice in the future.”

Ken Price, Vice ChairChief Administrative OfficerProHealth Care Inc.

Mark Matthias, MD, ChairVice President of Medical AffairsCentraCare Health System

Mike Boeselager ChairDirector of Materials ManagementSt. Luke’s Hospital of Duluth

One deliverable: Finance Committee “UMCSC, our member owned network, delivered savings of over $75.5 million to members in 2015. The Finance Committee fulfilled its role by monitoring overall savings and 2.0 financial performance and by affirming the validity and reliability of 2.0 revenue measurement proposals. In 2014 the Finance Committee recommended and the board approved a $2 million investment for 2.0 initiatives that aimed for 4 to 1 return. In 2015, collectively, the 2.0 programs realized $18 million return in savings and revenue, far greater than the 4 to 1 estimate. For the second consecutive year this excellent performance eliminated A member deficits and allowed a reduction of B and C member Pharmacy Distribution Agreement fees. This was an outstanding year for UMCSC.”

One voice: Operations Committee “Active member participation in the operations process continues to influence impactful market change and savings. This alignment of members creates partnership opportunities and efficiencies that ultimately benefit the patients we serve. Word continues to spread about the success of the UMCSC; it is evident this year as we experienced the largest membership growth in our eight year history.”

Greg Klugherz, ChairChief Financial OfficerCentraCare Health System

Rich Mencel, ChairDirector, Facilities & Support ServicesNorth Memorial Health Care


2.0 Innovation StrategyThe UMCSC 2.0 strategy calls for development of innovative products and services that deliver value outside the UMCSC’s traditional areas of sourcing and contracting. All sources of value are pursued: cost savings, utilization savings, clinical enhancements, growth enablement, capital allocation and funding, revenue enhancement, etc. Programs are developed through the Business Development Committee to capture and deliver this value for the UMCSC membership and ultimately achieve improvements together that are improbable when systems act alone.

Development for the initial set of projects (listed in the table below) began in late 2014 and continued throughout 2015. Program implementation began as soon as development was completed, generating member benefit of $16.4 million in savings and over $2 million in revenue. This group of 2.0 programs achieved a ROI of 10.37:1 which exceeded the target of a 4:1 return.

2.0 Program 2015 Final Savings 2015 Revenue TOTALBlood Management $ 4,677,040 $ --- $ 4,677,040Custom Procedure Trays $ 337,636 $ 2,072,855 $ 2,410,491Data Sharing $ --- $ --- $ ---Employee Benefit Management $ 4,627,911 $ 8,050 $ 4,635,961Pharmacy Price Management1 $ 2,019,062 $ --- $ 2,322,635Reprocessing $ 3,705,330 $ --- $ 3,705,330Third Party Instrument Repair $ 1,061,811 $ 182,453 $ 1,244,264Total $ 16,428,790 $ 2,263,358 $ 18,995,721

1Revenue and expenses are a pass thru on audit/year-end financials for this initiative, so revenue is shown as “0” for this initiative

Blood ManagementThe blood management program seeks to align clinical behavior with nationally recommended AMA guidelines for red blood cell (RBC) blood use. The collaborative has several components: online resources, champion conference calls with education and shared learnings and topics of interest. Members track utilization and share data. 2015 Member Savings = $4,677,040

Custom Procedure Trays (CPT)This unique partnership with Medline Industries drives efficiency, leverages the scale of the UMCSC and is built on a model of mutually beneficial outcomes and agreed upon operating principles. The CPT program delivers immediate pack savings, transparency of cost drivers, reduces waste, and examines opportunities for standardization and improving care. 2015 Member Savings = $337,636, 2015 UMCSC Revenue = $2,072,855

Data Sharing |UMCSC revealThis data sharing service provides UMCSC contracted suppliers with insights into the UMCSC supply chain portfolio. Subscribing suppliers receive account management tools, specifically related to purchase intelligence, contract compliance and competing products. The information supports UMCSC members in their conversion efforts, contract compliance efforts, and in preparing “trial product packages” in anticipation of contract launch. The product also contains predictive analysis that allows suppliers to anticipate spending trends. 2015 UMCSC Revenue = $0

Medical Device ReprocessingSingle-use medical device reprocessing is the disinfection, cleaning, remanufacturing, testing, packaging and labeling, and sterilization of a used medical device to be put in service again. Reprocessed devices are less expensive than original equipment manufacturer (OEM) devices and meet 510K approvals like OEM devices. This UMCSC program increases member’s reprocessing utilization, reduces waste, and increases savings. Our partnership with Medline ReNewal is focused on reducing costs and improving operational efficiencies through improved service and product utilization, streamlined procurement, inventory management, OEM coordination, dedication inventory, and custom tray synchronization. Members participating in this program can achieve upwards of 50% savings on select devices. 2015 Member Savings = $3,705,330

Third Party Instrument & Scope RepairThis program provides repair services for instruments (surgical instrumentation, cameras, lighting, power tools, sterilization containers) and scopes (both flexible and rigid) and reduces member’s overall instrument and scope repair spend. Services include on-site repair, mobile van repair, an equipment loaner pool and preventative maintenance education. 2015 Member Savings = $1,061,811 2015 UMCSC Revenue = $182,453

Cardiac Rhythm Management (CRM) Utilization &


Remote MonitoringThis initiative is designed to improve clinical outcomes and reduce the cost of care for CRM patients. Engaged members will provide utilization data to improve operational, clinical and/or cost of care outcomes. In addition a collaborative pilot at 4-6 member sites will increase CRM patient home monitoring, create a demand matching strategy for implantable devices, and create a method for assessing total cost of care for this patient population.

Food SourcingThis program targets a 6-9% in savings on food purchases through a) the delivery of scale to the market and awarding a contract to an aggregated supplier, b) leveraging acquisition costs of groceries and other consumables, c) establishing a higher rebate return program for membership based on aggregator’s relationships with food producers/manufacturers and distributors.

Laboratory Services Model TransformationThe goal of this program is to transition lab practices from a transactional (fee for service) to a total cost of care (fee for value) model through laboratory protocol development

and creation of a lab network. This program includes an assessment from Mayo Medical Laboratories (MML) to determine readiness for implementing laboratory testing protocols and becoming part of a lab network. MML will investigate the utilization of standard laboratory protocols and clinical services to design a Fee for Value model that is scalable to include multiple health care organization types – from critical access hospitals to academic centers.

Supply Chain InnovationThis program will identify opportunities to use the scale of the UMCSC and selectively implement new transactional approaches. Benefits of savings and revenue arise from leveraging operations, simplification and elimination of variation, and application of tested and proven tools. Potential options for this project include a) central item/vendor master (data), b) supplier/distributor collaboration, c) standard practices, metrics and tools that can be applied by member supply chain teams to establish ‘internal inventory positions’ informed by supply chain dynamics d) practices, metrics and tools to support conversion and end of life cycle inventory management and analysis.

2.0 Pharmacy ProgramsPharmacy Price ManagementThis program achieves savings through multiple approaches including member-specific data review and validation and review of the UMCSC’s aggregated network pharmacy spend data. Members participate on the Pharmacy Council to review all aggregate opportunities. Member- specific savings are reviewed by each member’s Pharmacy Director. Members are invoiced on only 15% of savings. 2015 Member Savings = $2,019,062

Pharmacy - CompoundingThe UMCSC’s compounding program will optimize the cost, risk and compliance for patient specific and anticipatory compounded products. This program involves working with a supplier(s) to optimize the cost/risk/compliance situation of all members in both Anticipatory (503B) and Patient Specific (503A). The UMCSC will provide supplier relationship management, governance and additional services thus reducing or eliminating the need for members to audit and govern outsourced compounders independently.

Employee Pharmacy Benefit Management (EPBM)The UMCSC Employee Pharmacy Benefit Management (EPBM) program allows members to aggregate the purchase of their employee prescription drugs. In turn, lower prices are achieved from price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. 2015 Member Savings: $4,627,911, 2015 UMCSC Revenue: $8,050

Pharmacy - SpecialtyOptimize the cost, risk and compliance of your patient’s specialty medications. In partnership with Vizient, we will develop the industry’s first collaborative specialty pharmacy network, targeting improvement in the management of care and delivery of services to patients treated with specialty medications. The creation of this specialty pharmacy network will present itself to payers and manufacturers as a ‘narrow network’ in order to be considered for coverage and access.

Pharmacy CouncilThe UMCSC Pharmacy Council explores mutually beneficial offerings of potential value for the membership. Together our council members seek to improve UMCSC Pharmacy Distribution agreement(s) and collaborate on other initiatives that will advance the fiscal, clinical, intellectual, and operational value received. There are currently nine agreements in addition to the Cardinal Pharmacy Distribution Agreement which includes over $1.5 Billion in member eligible spend. The Pharmacy Council reviews all contracting opportunities identified through the 2.0 Pharmacy Price Management initiatives and provides input into the UMCSC contracting calendar.

© 2016 UMCSC. All rights reserved.The reproduction or use of this document in any form or in any information storage and retrieval system is forbidden without the express, written permission of UMCSC.

7601 France South, Suite 500Edina, MN 55435

952.837.4700

For more information visit: www.vha.com/networks/csc/uppermidwest

Upper Midwest Consolidated Services Center, LLC

2015 umcsc annual report

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