CHAPTER # 1
1. The Active Buyer - "You just never know. My consulting services were contracted by the CFO to figure out what was going on in Materials Management. Interviewing key staff, I was able to determine that the Buyer was "doing" the local Prime Distributor's Rep to obtain better prices and, therefore, striving to receive a bonus for lowering supply expenses for the Hospital. The Director was knowlegeable of this, and even condoned her behavior. Upon his admission, he was fired on the spot. By taking a random sampling of the top-100 purchases, I was able to determine that they were paying some of the highest prices I'd seen for routine commodity products. I continued with my interviewing and went down to the Storeroom to talk with the Manager there. Word had gotten around that I was the "Terminator" and, upon seeing me, he burst into tears. It seems that the Buyer was "doing" him, too, in an effort to keep inventory low. He was married, with three children. He was put on a 90-day probation; the "Bottom Line" Buyer was fired on my second day there. I spent the remaining third day at the Hospital researching a replacement Prime Distributor."
2. The Kingdom - "As the new Director of Materials Management, one of the areas I wanted to get into was the Cath Lab. I had heard that the Director over that area's nickname was "Lord _____", and I wanted to see his kingdom. We met in his plush office; he proceeded to inform me that he flat-out did not need my (M/M) help. He has all of his stents, catheters & pacemakers on consignment, keeps a bare minimum of the remaining products, has the best pricing in the country and is so well liked that his vendors will do anything for him. In fact, they trip over their feet trying to please him & the Cardiologists. You see, he was a former sales rep for a catheter manufacturer & knew how the "game" worked.
His kingdom consisted of 9 competing manufacturer's products on consignment on 9 moveable racks that each manufacturer was coerced into purchasing, at $1,500 each. The stents and pacemakers were priced out at list plus pricing, with the + equaling a 15 %, or more, premium for all the perks that he, and the Docs, received. This Cath Lab Director didn't need any GPO; he could negotiate any contract better than any GPO in the country. He, his Department and the Cardiologists had their lunches catered and the bill was picked up, on a daily rotating basis, by one of the 9 Prime Vendors. Of course, there were sales demonstration meetings outside the Hospital between he & his Sales Reps at the finest restaurants in town, in addition to trips to the Caribbean & other lush spots to see the latest products demonstrated.
A discussion with the CFO identified that the Hospital had a high percentage of Medicare & Medicaid patients, so I knew that the Hospital was, in fact, subsidizing those perks. No one dared ever penetrate the Kingdom before I came on board.
I brought all the dirt I'd found to the CFO's attention and instantly became persona non grata to the Cath Lab (outside of the Cath Lab, nobody really cared who was, or was not, liked by the Cath Lab). The "free" lunches stopped, the Director was put on notice, I was instructed to consolidate the 9 vendors down to 2 and start saving money by using the Hospital's GPO contracts for all Cath Lab supplies. The Kingdom crumbled & the Director became deposed 6 months later. Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall ....."
3. Brand New Winnebago - "The senior staff member who managed the Print Shop was always a bit put-off by me. She didn't like any change I instituted and rebelled at each mention of deviations from her routines. These rebellions consisted of using four-letter words behind my back and taking double-long cigarette breaks. Something just didn't sit right about her, and I felt that she was up to something. One Monday, I received a visit from security - they noticed that the Print Shop was in full swing on Saturday. Not knowing any jobs to be outstanding nor approving any overtime, I confronted the employee about the extra day. She mentioned she was finishing a left-over job and forgot to punch in.
A quick review of the trash identified extras left over from the eariler printing job - wedding invitations for a friend done on the Hospital's equipment with paper the Hospital purchased. New rules were put in place that day - no overtime without prior approval, no "side jobs" for the Print Shop & I was to review each purchase request before it was called in. Assistant staff in the Print Shop didn't mind the change in routine, but this really incensed the my staff member. A short time later, I found out why she had such an attitude.
Prior to my stopgap measures at controlling Print Shop's output, she had a huge scam in the works. This was uncovered 8 months after I left the Hospital (thank God). This senior staff member would type a fictitious invoice at home, payable to a P.O. box she established, for work done by an outside firm for which the Print Shop lacked the ability to do. She would draft the purchase request by hand for the fake job and walk it over to the Buyers, who put the details into the M/M information system. Then, she would walk over to Receiving, inform them the job was complete and have them receive it into the system. After all, the job was for the CEO; who were they to say no? She would then put all necessary P.O. numbers on her home-grown invoice & hand it to A/P as if the invoice was forwarded along with the completed job. Her P.O. box was paid within 30 days.
All went according to her twisted plan until an anonymous tipster wanted in on the scam. Seems she got greedy because the invoices that started out so small, grew to larger & larger amounts once she found out how easy it was to scam her employer. She lost her job immediately. Just how did they finger Lefty? They didn't "get" her on fraud, nor embezzlement. The unauthorized overtime wasn't a factor, either.
What was the straw that broke this camel's back? It was the IRS who did her in; she didn't pay taxes on that progressively larger income. A big public trial followed & the Hospital testified. How is she currently spending the "spoils" of her ill-begotten games? She's currently "doing time" for a couple of years along with her husband, the co-conspirator. Oh yeah - that brand new $45,000 Winnebago - it's gone, too. Seems all she does these days is make license plates for rich folk with their own Winnebago."
4. "Free" Consulting (An Oxymoron) - "It just didn't sit right with me that the housekeeping chemicals distributor did his own inventorying, ordering and direct replenishments based on what, he thought, we needed. This flies in the face of min's & max's, let alone EOQ's. I felt it was time for a change, so I started a search for a new distributor. The first place to begin one's search is unit pricing. I pulled out his original proposal & found out that we were paying significantly more for the same products now versus what he had proposed a year ago. If anything, volumes of purchases for his product lines were up, now that he did the ordering for us.
Upon questioning him of the discrepancy, he mentioned that the increase was due to the "free" consulting he was providing to the Hospital. He was spending extra hours instructing all the Housekeeping staff how to effectively use his products. He felt that this service was saving thousands of dollars for the Hospital. He rationed that his products, when not used properly or in a wasteful manner, could result in increased costs for the Hospital. Although the "value" of this service was worth thousands of dollars, he was only accepting a minimal compensation via a meager increase in his unit supply costs.
I pointed out to him that any Sales Rep worth his/her salt performs this training for free. Of course, he didn't agree with me. Somebody had O.K.'d this joker to pull this sleight-of-hand on the Hospital. Within two months he was gone, his company was gone, prices dropped to where they should have been, the Department returned to doing its own ordering and the Director with responsibility for Housekeeping 'expanded his opportunities for employment'."
5. A Different Stage - "I know a Director of Materials Management who had had enough. One day, he handed in his customary 30-day notice to Administration. At the end of that period, he packed up his house and bundled the family into the station wagon to start a new adventure. He went to Hollywood, California to be in the movies. Never did find out if he ever got onto the silver screen, though."
6. Sales Rep From Hell - "The Sales Rep at the top of my list handled custom packs. We did a huge amount of business with her company, because she peddled the custom rather than the "off the shelf" type of product bundling to the Orthopods, Cardiologists, ENT's & Vascular Surgeons. She met them in the Surgeon's Lounge, immediately after they finished their cases. She had carte blanche to go just about anywhere in the Hospital she desired. She stroked just enough surgeon ego to make them want that extra doodad or thingamabob in their packs. The catered lunches helped sway their decision-making. She also stroked just enough O.R. management to outline how much easier, and more cost effective, it was to open one large pack versus three or four individual ones. And wasn't it easier, under this day & age of DRG's, to submit just one marked-up price for the pack used on Mr. Smith versus the many packs he would otherwise require? She was also an ex-O.R. nurse, supposedly. I presumed that her last case as a working O.R. scrub nurse was when she scrubbed in on the famous Lincoln head wound. This lady had all the moves down pat.
Materials Management was out of its league, because she stressed the clinical nature of the packs & its components. We had no clinical knowledge of the products, nor how they were used, to challenge her. Unfortunately for her, all pack pricing was being reviewed by our GPO. When they found out that we bundled gloves, cotton gauze and other commodity items into one custom pack, they rushed their pack analysis out to us as soon as they completed it. We were paying $1,300 for packs that they would be able to source out at 1/3 that price. We would save thousands by utilizing the GPO contract for packs and increasing our use of "off the shelf" items. The Sales Rep was to go, but not without a fight. She solicited select surgeons to rally to her side against Hospital Administration. This caused an uproar in the O.R., Cath Lab and CEO's office. It took the Vice-President of Nursing to personally escort her off the Hospital grounds for the gravity of her "reign of terror" to finally sink in with the executives.
Final score of the battle: Hospital = 1, Rep from Hell = 0."
7. Fluctuating Office Supply Costs - "When I started as Director of Materials Management at this mid-sized Hospital, one area that seemed thoroughly troublesome was office supplies. Even though my predessor had negotiated a Prime Vendor agreement for these items, prices were fluctuating all over the map. This even applied to "bread-and-butter" commodity items like pens, copy paper, white-out, etc.. Typically, pricing on these items can be locked in because demand stays relatively stable. Not the situation here. I pulled the original purchase contract from 2 years ago, grabbed a handful of open & closed invoices and set up a meeting with our office supply Sales Rep.
The meeting went well, except for the part where the rep "confessed" to upping the prices on some of our commonly-used products. He mentioned he did this, with his Regional Manager's full authorization, because we were not paying the invoice in full. He needed to make up the shortfall somewhere, so he estimated our usage & increased the prices to compensate for the "short pays" accordingly. I examined the invoices, compared them against this vendor's payment history and determined that we were short paying for nearly a year-and-a-half. The short pays now totaled, to date, over $10,000. It took a Sherlock Holmes to figure this one out. A quick review of the purchase contract identified that we were paying this vendor on a per patient day basis for our office supply use. This determination was based on a formula that some outside, non-Healthcare consultant dreamt up. The calculation was based on what we spent for office supplies two years ago and was divided by the total patient days for the matching period. Nursing was diligently collecting patient day figures every month and reporting them to A/P staff, who multiplied them by this formula & paid that amount to the vendor. I had never seen a formula of this type applied to office supplies before; this is why:
- The formula was based on us spending, roughly, 1/12th of each month of what we spent two years ago;
- It was based on a patient day total from two years ago; ours have clearly decreased (as has the industry) since then;
- It did not take into account the increasing impact of areas like the E.R., Ambulatory Services, Rehab and Outpatient Care; none of them are inpatient-based; and,
- It was based on the same mix of office supplies being used now, as two years ago.
A review of our office supply purchases identified that we are using five times as much copy paper as two years ago and over three times as many laser cartridges. In effect, this static formula was being applied to a fluctuating target. I killed the use of the formula and started paying invoices in full until we got caught up to current status. I also got the vendor to lower his prices back where they should be and split the difference with him on the outstanding $10,000. Life got back to normal. Amen for common sense!"
8. Burn Down The Hospital - "I have to admit that I was a bit nervous about performing an operational review of Materials Management at this particular hospital. It wasn't in the best part of town & the other consultants in my office warned me, in advance, that it was a nasty place. They mentioned they'd refuse to go, if they were me. Better me than them, they'd say. I went anyway. The Hospital was in a rundown part of town, but so were a lot of Hospitals (I'd reasoned).
The first round of tours of Materials Management areas & staff interviews went pretty well. Then, I set up a meeting with the Director of Surgery. In the elevator to her office, I'd overheard staff discussing an upcoming layoff. Over 300 staff were going to get the axe. Some may even start getting cut today. I met with the Director of Surgery; she proceeded to tell me that the Hospital has no money. Reimbursements were cut so much that staff were not being paid & vendor invoices are sitting open for 180 - 240 days. She can't get supplies because the Hospital is on credit hold with all of its major vendors. Surgeons have to improvise during their cases when the products they want aren't available. No such thing as physician preferences at this Hospital - they're happy to take what they can get! Performing surgery under these conditions was worse than the O.R. Director's M.A.S.H. days in Vietnam. Just then, she was interrupted by a bell. It clanged a few times, stopped, then clanged in series. She counted out on her fingers, "2,1, 2, 4 - that's in Recovery!" With that, she got up from her chair, ran to the Recovery Room, pulled a fire extinguisher from the wall & aimed it at the flaming trash can. Later, she mentioned that over 300 staff were being fired today. Over 200 had already been given their walking papers since this morning. The terminated staff were so disgruntled, they were returning to start fires in an effort to burn down the Hospital. On my way back to Materials Management, I saw two more fires being put out - one in a Housekeeping closet & another in Maintenance. In all, more than 16 fires were started that day; none did any appreciable damage. It even made the evening news.
My second day went like the first, except that a lot of the staff were staring at me. I was the "guy in the blue suit" in their midst. It wasn't until I returned to my office that I found out why. My Company's Corporate office in New York (my home base is in a different city) had sent in a team of consultants, not a week earlier, to this same Hospital. In an effort to financially save the Hospital, drastic measures had to be enacted - a major staff reduction was recommended. Instead of phasing out the staff one Department at a time, some goof felt they could get it all done in one day. Better to get it over with all at one time. That was the day I showed up, from the same Firm, to conduct my Materials Management study. Talk about a deer in the crosshairs! I couldn't wait to get on the plane for the ride home.
I mailed the results of my study back to the Hospital, rather than risk a return visit."
9. Clothes as Collateral - "There was once a Director of Materials Management at my Hospital on the South Side of Chicago. Our nickname for him was "Liberace" because he was so handsome & liked being the center of attention. He left a couple of years ago to find his fortune in California. One day last week, I was watching a travel show on my cable TV channel & saw a special about a beautiful resort in Palm Springs. The show made the resort look inviting by highlighting the pool, the restaurants, the manicured grounds & its natural beauty, nestled in the foothills of nearby mountains. The resort beckoned the rich & famous from all over the globe. The only difference was that all the guests, being "naturalists", were nude all the time. They swam nude in the olympic-sized pool, hiked nude and had dinner in the four-star restaurant while nude. They were just plain nude all around the resort. There, at the center of my TV screen and in his birthday suit, was the ex-Director of Materials Management from my hospital. He's an owner of the resort. Seems that he liked being naked and bet that others would share in his ideals, too. Sure beats pushin' boxes.
Looks like "Liberace" did alright for himself in California."
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