ALL THINGS CSC
Most health system executives who are evaluating some form of self-distribution don’t have the information they need to fully understand distributor and wholesaler economics or true manufacturer costs. As a result, the new supply model is built on inaccurate operating and financial assumptions.
Knowing where the supply chain can be monetized and where supply costs can be reduced (or eliminated) and how to value supply chain risk mitigation is where the Six Peaks Consulting team can help you establish a solid, defendable business case. This applies to all the major supply streams: med-surg, devices & implants and pharmaceuticals.
In addition to developing a financial pro forma, our team will assess your health system’s current culture, system-wide governance, and organizational structure to identify potential barriers that may prevent your organization from achieving maximum results. We will show how changing outdated, reactive behaviors and monetizing new proactive behaviors can lead to a significant new cash-releasing savings stream.
CSC Design and Build
A Consolidated Service Center (CSC) is much more than just a large warehouse with lots of racking. CSC’s are currently described as a behavior consolidation center or even as a supply chain insurance policy designed to help ensure a sustainable flow of supplies across un-forecastable events horizons, such as we’re experiencing with the COVID-19 response.
Labor is the largest recurring expense component, and the facility must be designed in such a way as to reduce staff travel time within the facility as they execute their daily activities. This ensures the highest possible productivity levels are achieved. Facility design includes where and how items will be stored and picked to best serve the hospital system’s care providers every day.
The design process needs to include growth and expansion plans as well as the inclusion of the various services that will ultimately be located within the CSC. Frequently, health systems who self-design and implement begin with a facility far too small to accommodate their real growth and service needs.
Six Peaks Consulting has the engineering talent to design, build and outfit the right size facility to accommodate the right inventory and the right set of centralized services such as the distribution of med-surg and pharma supplies, custom pack assembly and sterilization, clinical engineering, IT depot, central fill, specialty, home infusion, and many more programs removed from the hospitals and consolidated with central management in the CSC.
As Project Management is such as critical success function. The Six Peaks Consulting team’s multi-industry, leading-edge logistics background, helps ensure a successful implementation that is on-time and within budget.
CSC Contract Assessment and Advisement
The CSC utilizes a special contract called a Logistics Service Agreement (LSA), which defines the transactional terms and conditions between the Health System’s CSC and each manufacturer that supplies the CSC. The LSA also covers the funding paid to the CSC by each manufacturer. This includes all supply, device and drug manufacturers. This contract is unique and exclusive to each supplier and the CSC, and in many cases supersedes select terms and conditions that might reside in the supply agreement, whether on a Group Purchasing Organization (GPO) contract, or a health system’s contract. The two contracts coexist. The LSA defines behaviors between the two parties to include financial and data flows, special funding and incentives payable as a result of these behaviors, as well as the capital and data flows.
The Six Peaks Consulting team can audit existing agreements to ensure maximum value is obtained given our experience and exposure to these special agreements. The team can help develop negotiating strategies when first implementing a CSC or when establishing a new manufacturer relationship to ensure all behavior variables, messaging sets and terms are defined to ensure maximum funding and incentives are secured.
The Six Peaks Consulting team can also support the eventual supplier on-boarding process once an agreement is executed. For many health systems who decided to build their own CSC model, these contracts and the supplier on-boarding process with its special EDI transaction sets and behavior requirements is much more challenging and time consuming process than they ever expected.
Whether a CSC is involved or not, health systems require more strategic partnerships with key manufacturers. Unfortunately, we’ve found many health systems are totally unprepared to manage these more sophisticated relationships. Truth be told, many of the manufacturers struggle with managing these relationships as well.
The Six Peaks Consulting team’s global manufacturing background and experience in implementing customer-facing programs, has the necessary skills and experience to facilitate the implementation of these more challenging and sophisticated relationships.
As an integrator, we help define the strategic intent behind the formation of these new relationships. We translate that intent or vision into practical, yet effective work and data flows. We develop the appropriate Key Performance Indicators, Scorecards and other reporting methods. We keep both sides accountable and on-time.
Optimize Existing CSC Operations
We know that a number of existing CSC’s are not getting the return they expected or were promised by inexperienced consultants or other third-parties. Given our extensive operating knowledge of this specific supply model and of manufacturing economics, we can identify operating, financial or contractual issues that prevent the model from reaching its full potential.
For example, as an initial engagement Six Peaks consultants will come in for two days of observations and interviews. We collect and study data, then make monetizable recommendations. If the proper resources are not in place within the health system’s organization to effect the fix, then we can bring our team of subject matter experts in to implement the solutions necessary to improve performance and financial return.
In additional to redesigning the on-the-floor workflows and reporting, two very specific areas to call out regarding Optimizing Existing CSC Operations are technology conversions, which almost always never go the way they should and the very specialized contracts between the Health System’s CSC and its manufacturer suppliers.
With respect to CSC technology implementations or conversions, we find that health systems rely too much on the technology vendor for expertise in how the system needs to get configured. You might think that is the correct approach, after all, why would anyone assume the health system knows exactly how to setup a distribution business. Right? Truth is, neither does the technology vendor’s implementation team. Inevitably, the resulting system is sub- optimized, or worse, it is landlocked with respect to supporting the health system’s growth strategies. Six Peaks Consulting’s team works with health system management to ensure the final design is properly blue printed to support an optimal operation, and growth strategies.
On the contracting side, we find even the most famous CSC’s in the industry do not fully utilize the special and unique contracts required to fully optimize the financial performance of the CSC. As previously mentioned the LSA’s are not part of the Supply Contract in any form. These are the agreements that monetize the reduction in a manufacturer’s cost-to-serve model. Ideally, these agreements are executed in the proper sequence to other activities, but we find that is rarely the case. Six Peaks Consulting will review and help rationalize the supplier base and develop individual contracting strategies for each of the top manufacturers serving the CSC to improve the financial performance of the CSC.
This may come as a surprise to many - every CSC requires a State Board of Pharmacy Wholesale Distribution license for the state in which it operates, even if just distributing med-surg patient care supplies. Additionally, a second license is required for each state into which the CSC ships, even if both are owned by the same parent health system. All licenses are required even if not one single drug is being distributed. Most state board of pharmacies have domain control over drugs, medical devices and supplies, and cosmetics.
For systems who have or plan to have multiple CSC’s and/or who have hospitals in multiple states, we highly recommend obtaining Verified Accredited Wholesale Distributors accreditation (VAWD) , which significantly eases the licensing process for all state board of pharmacies. In some states, such as Indiana, VAWD accreditation is required prior to obtaining a permanent state board of pharmacy wholesale distribution license.
The VAWD program was established in 2004 to help protect the public from the threat of counterfeit drugs. The VAWD program was developed and is administered by the National Association of Boards of Pharmacy. It is a quality management control program whose attributes are similar to an ISO9000 type of quality management program found in manufacturing and service organizations.
Six Peaks Consulting will assist in developing the required policy and procedures, as well as training staff on compliance to both VAWD and the state’s requirements. Since both VAWD and the underlying state requires an on-site audit prior to accreditation or licensure, Six Peaks Consulting will help prepare and facilitate the audits.