The decision to separate its group purchasing program from WNC Health Network, and start anew under the name Capstone, has led to continued success and cost savings for the purchasing coalition.
It’s one thing to talk about minimizing contracting expenses. It’s quite another to make it happen. And, sometimes that means a fresh start. When Capstone Health Alliance was founded in October 2013, it had the advantage of being the product of a rich, successful history, and its executive leaders were well acquainted with the benefits of aggregation and collaboration. An offshoot of WNC Health Network, an Ashville, N.C.-based purchasing group that has been around since 2000, Capstone was started in 2013, when plans were formalized to separate the organization’s group purchasing program from other WNCHN operating divisions.
The Journal of Healthcare Contracting recently spoke with Capstone CEO and President Tim Bugg (formerly senior vice president of WNC Health Network) about the decision to form Capstone, and its mission and direction since breaking away from WNC Health Network.
The Journal of Healthcare Contracting: Please describe the decision to form Capstone.
Tim Bugg: Based on a variety of factors, including (but not limited to) the growth of the membership in the group purchasing program, in October of 2013, the WNC Health Network finalized plans to separate its group purchasing program from the other WNC Health Network operating divisions and launched Capstone Health Alliance. Capstone Health Alliance was structured to have both the flexibility and a dedicated board of directors’ support to take the group purchasing initiatives to the next level. I, along with Mark Landau, Capstone senior vice president, recognized the benefits of aggregation and collaboration for a group of Western North Carolina hospitals and were responsible for the founding of the program. Throughout my career at Capstone, I have worked closely with hospital executives, supply chain leaders, national group purchasing organizations and various trade associations to remain closely tuned to the changing needs of not-for-profit hospitals. Based on these needs, I have led the efforts to modify and expand Capstone’s membership reach and breadth of services to provide all Capstone members with top level service, contract opportunities, and cost savings.
JHC: Since its start a year and a half ago, how has Capstone grown?
Bugg: The Capstone Health Alliance acute care membership is currently comprised of 52 systems and 125 facilities spanning 12 states, with purchasing volume exceeding $4 billion. Capstone also has membership in the continuum of care market representing all classes of trade outside of traditional acute hospitals, and spans from health departments to home health, and everything in between. From [WNC Health Network’s] modest beginnings of 16 Western North Carolina hospitals, [the purchasing coalition] grew steadily over the next nine years as the group expanded across North Carolina and South Carolina, and into Virginia. Capstone has been fortunate with several significant membership boosts and an expanded geographic footprint. Not only individual systems, but other regional groups, such as Synergy Health Group (Tennessee), Vantage Health Group (Pennsylvania), CHAMPS Group Purchasing (Ohio) and, most recently, Colonial Health Alliance (Maryland), have joined Capstone to bring immediate cost-savings and on-going benefits to their members. What may seem surprising in light of our continued growth is the fact that Capstone does not have any team member dedicated to membership and business development, and has grown primarily through word of mouth and member referrals.
Capstone works closely with Premier, its primary GPO partner, to present membership benefits covering not only cost savings, but also best practices and utilization initiatives. While there are no geographic or size limitations for membership, Capstone welcomes members who are supportive of its mission and vision for the alliance, and who are willing to contribute feedback and ideas, [with the] understanding that collaboration goes hand in hand with aggregation for the continued success of the group. In that vein, members have continued to benefit not only from the cost savings of the Capstone agreements, but from the peer networking and collaboration that occurs during frequent membership meetings. Members have expressed that the networking and the additional support provided by Capstone team members are as beneficial as the cost savings.
JHC: What are the top initiatives Capstone has pursued in the last 12 months?
Bugg: During the past year, Capstone has continued to focus on our core strengths of aggregation and collaboration to produce cost savings. By refining internal contracting processes, Capstone has been able to expand the number of aggregation agreements available to members by greater than 20 percent, effectively covering more contract categories as well as off-contract spend. In a separate effort, Capstone has developed relationships with several service and benefits providers and launched a new line of cost-savings options branded as the Powered By service lines. The Powered By relationships offer cost-savings options through non-traditional areas of aggregation, such as employee benefits, cyber liability insurance and medical malpractice. In its most notable effort, Capstone has continued to expand its resource management program that was developed two years ago, with a focus on PPI categories. As the resource management program has evolved, over $20 million in savings have been identified across a small number of categories. Capstone’s resource management program is currently focused on two shared initiatives with Premier to implement cost savings, one which uses highly refined benchmarking information and the other which uses benchmarking data combined with a process to drive clinical support.
Capstone was founded on contracting through aggregation and scale, and this process will continue to be our core competency; however, to achieve meaningful collective impact, Capstone must use its power of aggregation and collaboration to work with hospital leadership to reduce cost in other non-traditional areas of the hospitals. Purchased services contracting has been a buzz word for many years in the industry, and many facilities have done a great job in minimizing these expenses, but Capstone believes there are deeper savings that can be realized and will be implementing member-led strategies in this area in 2015.
JHC: What strategies do you expect to implement this year to help members become stronger?
Bugg: Capstone has one primary goal: to reduce the overall expenses of the membership we serve. To meet this goal, we utilize collaboration and aggregation. The question then becomes, how will Capstone use this very simple strategy to impact expenses for our members in all areas – from bedpans to benefits? In 2015, Capstone will continue to expand its 500+ contract portfolio in the areas of physician preference, purchased services and Powered By’s. We anticipate that Capstone members will continue to benefit from the relationships that have been established with suppliers over the years, supplemented by the membership’s growing volumes. Many of these suppliers have worked with Capstone since day one and have enjoyed the benefits of expanded exposure through [the organization].
In addition to our focus on negotiating meaningful agreements, Capstone will continue to expand on its current process of providing financial analysis to members to allow them to make data-driven decisions. Hospitals have stated clearly that they need accurate and timely data in order to make purchasing decisions, and not all hospitals have the systems or the staff to produce the analysis. Capstone also works with supplier partners to provide members with the clinical documentation that must support these decisions. Last but not least, our member communication and networking are keys to the success of any strategy we implement. Collective impact really comes from the collective party working together to achieve success. The belief and participation of our membership is what allows Capstone to be successful in moving the needle in the reduction of healthcare expense.
JHC: Please explain the process whereby your supply chain executives meet to make their decisions.
Bugg: While many companies claim to be customer- or member-driven, all of Capstone’s contracting processes are built around member involvement. Capstone’s base contracting strategy relies on a rotating 14-member council with members who are representative of all system sizes and locations. The council meets monthly to evaluate new contract opportunities and provide feedback to the Capstone contracting team. In most cases, the entire membership is supportive of the recommendations from the council; however, there are provisions to modify the recommendations based on feedback from the entire membership. Capstone also conducts monthly membership meetings to review new agreements and to allow suppliers to present. Most members have one primary point of contact, who works with Capstone, but it is not uncommon for a member to have multiple staff members participating in Capstone initiatives.
Outside of the traditional supply chain departments, Capstone prides itself on having workgroups of professionals from pharmacy, laboratory, surgical services, value analysis, as well as in the development of a purchased services steering committee that will have the ability to flex into other departments, such as facilities, human resources, medical records, etc. Capstone by definition is a GPO within a GPO, and it strives to provide as many opportunities for its members as possible. As I always say, Capstone cooks a lot of meals, and it’s up to the members what they choose to eat.
JHC: Please describe Capstone’s relationship with its GPO, Premier.
Bugg: Capstone’s strategic plan calls for alignment with one GPO, and Premier has been our GPO partner of choice since the beginning in 2000. Today, Capstone is an owner of Premier and believes Premier’s vision and direction is the best to achieve results in this changing healthcare environment. There are times when we need to pick a winner, and for Capstone, Premier is that winner. We work very closely with Premier to offer members a full range of options covering not only contracting and aggregation, but benchmarking and utilization initiatives as well. We share a common goal with Premier to work together to provide accurate and consistent information and cost reduction opportunities to our members, and to avoid duplication or conflicting information. This may sound like an overly simple goal. However, when considering the volume of information shared between Premier [and Capstone], or Capstone and its members, it is significant. Capstone always looks to the Premier contracted suppliers first when sourcing categories. But if the membership’s needs cannot be met by the contracted suppliers, then Capstone will write local agreements. We are transparent with Premier and all suppliers in stating that we go where the needs of the membership take us.
JHC: How do you ensure the needs of each of your facilities are considered, and that each facility’s needs are met?
Bugg: Four years ago, Capstone put its first region manager in the field. The [region manager’s] primary purpose was to work inside our member locations – not just to promote Capstone agreements, but also to understand the unique needs of that member and help the member achieve results. The initial response from members was so positive that each Capstone member today has an assigned region manager who works with its facility. Region managers are also available to conduct financial analysis and to deliver savings summaries. The region manager serves as the primary point of contact for any needs the member may have on any Capstone initiative.
JHC: Is it difficult to get buy-in to the organization’s contracts from each of your facility’s physicians and staff?
Bugg: Let’s understand the environment we are currently in. The paradigm has changed dramatically in healthcare. It’s a new day. Capstone and its members understand this new era of reimbursement, and we must change our strategies to meet this challenge. Capstone is seeing changes in the clinical operations of the members we serve. Clinicians and physicians seem to be more open to evaluations, but every member continues to have its own process for gaining physician buy-in and evaluating clinical preference items. Our success comes from gathering as much input as possible from supply chain members prior to entering contract negotiations, and from being completely open and honest with suppliers about the opportunities before them. We will vet a supplier’s products and service prior to promoting an agreement, but we make it clear to the supplier that it is up to them to sell it clinically. Capstone’s end goal is to have our power of collaboration and aggregation work as well in the preference market as it does in the commodity market.
JHC: Other than cost-savings your organization has achieved through greater volume purchasing, what has been the greatest benefit of the organization to its members?
Bugg: Members have told us that Capstone serves as an excellent resource to their supply chain team, whether it be for completing financial analyses, implementing price activations, resolving price discrepancies, or escalating service issues. It is our goal to provide service to our members related to every aspect of a Capstone agreement, and really be an extension of their supply chain team. We rely on the knowledge and experience of our contracting staff to anticipate needs related to the agreements and work with suppliers to ensure our members are getting exceptional service. Our members also value the networking opportunities and time to share successes and challenges in a non-competitive environment.
JHC: How do you envision Capstone in the next five years or so?
Bugg: I would start with the understanding that [no one] can crystal ball the future and determine what healthcare as a whole will be like in five years. I have had many conversations with healthcare executives over the past year, and have found that forecasting and strategizing for more than three years is extremely difficult. In fact, I have found many executives have evolved from a three-year strategic plan to a single-year operational plan. With the understanding of the uncertainty of healthcare, I will commit that Capstone will continue to evolve with its membership to not only be relevant, but also a necessary partner in reduction of not just supply chain but all operational expenses. Capstone believes data-driven decision-making, outcomes-based purchasing, operational efficiency and utilization, best practice, and results-based accountability are a few key factors in healthcare’s future. Capstone commits to be a leader in these areas to provide the necessary support and value to membership, which we serve. I believe healthcare is in for quite a ride over the next five years, and Capstone is ready and prepared to take the trip alongside our members.