Evaluating Purchased Services Consulting Services, Nexera Inc. As of February 2012

1. Evaluating Purchased ServicesConsulting Services, Nexera Inc.As of February 2012

2. Varying Perspectives - 1888, Anonymous, German postcard

3. Defining Purchased Services “I’ve been in organizations that use the term ‘purchased services’ as a catch-all to supplement staffing during times when management couldn’t figure out what they wanted to do with regard to organizational structures. I’ve also seen its use rationalized to draw down bottom line expenses related to labor costs. In turn, outsourcing is construed to be an abdication of responsibility [and] accountability of a service – and can easily lead to increased costs with reduction in customer satisfaction.” - Ric Goodhue, Founder & Principal, Goodhue Planning Services “We define purchased services as those services performed or obtained from persons or companies other than employees of our members… Generally, these types of services are not available from hospital-based departments or they are only needed on an interim basis. This is one of the factors that distinguishes purchased services from outsourcing.” (Cited as purchased services such examples as utilities, consulting, waste disposal, construction, insurance that doesn’t involve employee benefits, temporary employment or contracted labor, software, desktop print solutions and clinical services, such as lithotripsy) - John Kautzer, Executive Director of Support Services and Distribution, ROi Supply Chain Solutions “VHA defines purchased services as ‘non-supply’ spend that impacts a healthcare organization’s operating margin… While historically this area has been summarized as ‘outsourced services,’ today’s definition includes products, such as reprocessed surgical instruments, software, such as revenue cycle software, or management expertise in areas like laundry or food service.” - Niklaus Fincher, Vice President of Purchased Services, VHA Inc. Source: New Name for Familiar Contracting Category? Healthcare Purchasing News. January 2011

4. Sample Purchased Services Categories Clinical Services & Outsourcing Non-Clinical Services Support Services Biomedical Engineering Linen and laundry Security Financial Services Charge Description Master Maintenance Billing & Collections Lockbox Services Health Information Management Coding Record Retention Transcription Information Technology Print Management Telecommunications Supply Chain Item Master Maintenance • Operating Room • Instrument Repair • Neuromonitoring • Perfusion • Other Clinical • Nurse Staffing • Scope Repair & Maintenance • Departmental Outsourcing • Dietary • Environmental Services & Housekeeping • Emergency Department • Hemodialysis • Print Shop • Radiology Services • Reference Laboratory • Supply Chain

5. “If you know how to spend less than you get, you have the philosopher's stone.” Benjamin Franklin Overview of purchased services spend

6. Sample Purchased Services Spend (Top 10)

7. Sample Total Vendor Spend Comparison *‘Other’ spend includes pension benefits, union dues, membership fees, etc.

8. Common Reasons to Outsource

9. “If I had an hour to save the world, I would spend 59 minutes defining the problem and 1 minute finding a solution.” Albert Einstein A method of evaluation & implementation

10. The Nexera Methodology • Phase I • Assemble team • Primary data request • Conduct Kick-off workshop, and interviews • Analyze received data and savings validation of findings • Present findings to team • Phase II • Prioritize identified initiatives • Define implementation team members by initiative • Develop strategic plan for implementation roll-out • Develop data project plan and implementation timeline • Phase III • Obtain approval for the strategic plan and agree upon an approach by initiative • Implement initiative savings opportunities • Monitor key metrics and assess results • Track achieved savings by specific time period • Phase IV • Develop and implement ongoing measurement approach • Provide tools and guidance for sustaining savings ASSESS PLAN IMPLEMENT EVALUATE PROJECT MANAGEMENT AND COMMUNICATION

11. Sample Committee Structure • Purchased Services initiatives should be included within each respective value analysis committee within the overall value analysis structure

12. Case Study outsourced foodservices

13. A Case Study: Background Client • A northeast health system consisting of multiple hospitals and long term care facilities History of Dietary Program • Decentralized dietary program between hospitals and nursing homes • Lacked system-wide controls • Contained a combination of cook-chill and on-site preparation operations Issues • Increasing labor and food costs • Rundown and under-utilized cook-chill facilities • Unionized labor force

14. A Case Study: Assess & Plan Assess • Developed a team consisting of internal and external members, which: • Assessed the current state of operations, issues and potential barriers to implementation • Vetted potential options • Selected an outsourcing solution Plan • Designed an outsourcing plan, including the: • Management of the proposal process • Evaluation of vendor responses • Selection of a proven third-party outsourcing partner

15. A Case Study: Implement & Evaluate Implement • Decision made to centralize to a system-wide cook-chill operation • Independent facility kitchen operations were shut down • Labor remained employed, union workers moved to central plant • Management staff and dieticians employed by third-party outsourcing partner Evaluate • Success metrics identified and tracked • Patient Satisfaction • Expense Savings • Improved financial and dashboard reporting

16. A Case Study: Outcomes

17. Break-out Exercise Question & Discussion

18. Question & Discussion • What was the most impactful purchased service agreement your organization has worked on? • Develop a workgroup and discuss the question above • Within your workgroup select one experience to discuss • Select the spokesperson to discuss • Be prepared to answer the following questions: • What was the initiative? • What were the cost savings and total spend? • What were the major roadblocks? • What did the organization do to overcome those roadblocks? • What were some of the major issues? • What were the key lessons learned?

19. Additional Points • Not everything should be outsourced • Research which vendors are the best fit • Conduct meaningful in-person interviews • Make sure the vendor is aligned with your hospital’s core values • Establish clear goals and accountability • Offer incentives and rewards for achieving great quality measures • Breakdown the silos between employees and contracted workers • Be prepared for negative results • Consider all pertinent legal issues Source: 9 Thoughts on Outsourcing: When To Outsource and How to Do it Successfully. Becker’s Hospital Review October 2010

20. Questions or Comments

21. Contact Us • Nancy Vetter, RN, MBA Senior Vice President, Nexera Inc. (212) 258-5328 • Perry Sham Senior Manager, Nexera Inc. (347) 276-9623 • Gordon Roth Consultant, Nexera Inc. (646) 912-1841 • Lucy Dietch Consultant, Nexera Inc. (646) 596-5063