Vice President, Strategic Sourcing,
HCA Healthcare
August 2023- The Journal of Healthcare Contracting
Bill Kellar has been with HCA Healthcare for 14 years and has been Vice President of Strategic Sourcing since July 2022. His role encompasses all spend within HCA, including $14 billion in purchased services and another $7 billion in supply spend. His team represents HCA within HealthTrust for all contracts voted on and ensures contracts are in place for all categories that its GPO does not cover.
Kellar worked for Ardent Health Services in between his two stints with HCA, returning to HCA in 2011 as the Supply Chain CEO for its TriStar division, where he was responsible for all supply chain operations for that division.
There’s been so much complexity and chaos in the supply chain the last few years. How do you tackle strategic sourcing in an era of so much disruption?
It certainly has presented some challenges for us that we took for granted. The question is, when is it going to stop? Everybody would like to know the answer to that, but there’s just so much uncertainty. As a result of these supply disruptions, we’ve looked to source from different suppliers if there’s been a failure to supply or prices have increased beyond a level of tolerance for us. With the size of HCA, that’s not an easy task. Suppliers, oftentimes, want to have contracts with us, but I don’t think they really appreciate the scale of our organization.
It’s the dog that finally caught the car concept. Be careful what you ask for.
Being the largest healthcare system in the world, we have different expectations of our suppliers based on our supply chain model and the scope and scale of what we utilize on a daily, weekly, monthly and annual basis. You have to be able to take on that volume. And sometimes that compromises their relationships with their other customers.
Sometimes we can’t move the business and to offset price increases we have to look at different ways to manage utilization if there is a limited supply of the product. That requires us to continue partnering with our clinicians or we take on price increases that we normally would not consider, especially if it is a category where they have a significant market share and there’s not a lot of alternatives in the marketplace.
These are things we haven’t had to deal with a lot before COVID-19. But what it has done is forced us to understand where products are sourced and manufactured. There was a lot of conversation during COVID-19 about near shoring. In my opinion that’s something that is going to take a long time to accomplish and a strategy that continues to be important to the entire U.S. health system. It’s just going to take a while for that to be a reality.
Now that COVID-19 is over, I think the emphasis on that strategy is getting weaker. We tend to have short memories until it happens again. I think some health systems are going back to old strategies because of the cost pressures, and they are sourcing some products from overseas at a better price point once again.
What projects have you been able to implement successfully at your size and scale?
With all the pressure on commodities right now, the price increases are more than anybody’s seen who’s been doing this for more than 10 years. We’ve had to look at other categories for savings to offset these increases we’re seeing. The two different areas we focused on were purchased services and medical devices. The GPO has some contract coverage in the medical device spend categories, but not necessarily all of them. We have had success in reducing cost in the medical device categories of primary total joints, trauma implants, and drug eluting stents for a few examples.
Right out of COVID-19, we did what we call a refresh of our total joint category – hips and knees – and we were able to successfully achieve a price decrease that resulted in savings for us in the range of $8 million to $12 million per year.
Trauma is another category where we worked with our contracted suppliers and generated another $14 million to $20 million in savings opportunities.
With drug eluting stents we also renegotiated pricing that resulted in another $7.5 million in savings.
We have also renewed our efforts in the purchased services category to identify and realize cost savings. Even though many of our purchased services categories are not necessarily supply cost savings, it still represents cost savings that impacts the bottom line.
For example, we expect to see some big savings in managed print services. This represents traditional copiers (multifunctional units) and desktop printing. We’ve recently partnered with a supplier that has been able to demonstrate some significant savings between 20% and 50%. Based on our scale, that represents quite a bit of opportunity.
Also, production print. I’d say most health systems today have outsourced high production print and we have as well. We use a third party but still keep it within our operation. We recently negotiated an agreement on behalf of the entire company that is going to generate savings in the $13 million range by restructuring the agreement and how we manage it.
We probably have another 10 to 12 categories we’re still looking at. Take document destruction, for example. Even in this digital age, we still have a lot of paper documents and medical records. You’d be surprised how much it costs to categorize, or what we call index, and then store those documents based on state or federal document retention laws around maintaining those documents for a period of time. Document destruction costs money, but so does document storage each month. So, that’s another category that we’re taking a really hard look at.
What upcoming projects are you looking forward to working on?
We’re looking at a hip fracture program within the total joint space and we’re still working on a few other categories within the implant space. Total shoulders is a category that’s growing. The technology has dramatically improved and we’re seeing more of these procedures being done.
The current cost of a total shoulder is typically two to three times the cost of a total hip or a total knee and they are reimbursed at the same rate. It’s important we take a look at this category if we have the desire to promote service line growth.
Then, thoracic fixation is another one. Historically, open heart surgeons would use cabling to bring the sternum back together after they saw through the middle of it. Clinical data suggest that patient outcomes are better and so we’re seeing a trend where surgeons are using more plates and screws versus cabling.