Sorting out sourcing
FEATURE – The Sourcing team at insurance company SulAmérica tells us about how they were able to transform the process in their department in order to become more efficient in dealing with their workload.
Words: Carolina Moraes, Priscilla Ribeiro, Alaine Soares, and Tatiane Zutin, Healthcare Sourcing, SulAmérica – Brazil.
It’s incredible what people can achieve when they set their minds on a goal and work together to achieve it no matter what. We have seen this repeatedly during our lean transformation at SulAmérica. We have certainly witnessed this in our department – Healthcare Sourcing. In 2018, our company processed 16 million procedure pre-authorizations across our network of 1,400+ hospitals, and 7 million reimbursements. In this article, we’d like to tell you about our own lean journey.
It all started a few years ago, when we saw an opportunity to turn the sourcing process on its head and, by doing that, make our people’s lives easier, reduce our costs and improve our margins. As you would expect, hospitals in our customer portfolio need certain materials to perform surgeries on their patients.
Traditionally, hospitals would purchase the necessary materials independently and then charge us for that purchase. When SulAmérica handles the price pre-negotiations and purchase, however, we can typically get a big discount from the suppliers (in the order of 33%), which offsets the total cost we incur to process the purchase. With this in mind, we decided to take the sourcing of materials in house, starting with the most expensive operations (orthopedic and oral and maxillofacial surgeries, where a single prosthetics can cost up to $100,000).
Our idea was to look for the materials we needed, homologate them and find the ones that best responded to our needs (with the help of the medical department), which we’d then purchase. When we began to do it, we were relying on a third-party company to carry out the negotiations and the actual purchasing. This, however, was not a good decision, because the company was not specialized in this type of work, which resulted in a lot of headaches: suppliers and hospitals were not being paid when they were supposed to, lengthy negotiations on the sourcing of materials often prevented hospitals from scheduling procedures, and sometimes there was no time to negotiate the price of the material. The third party would deal only with surgeries using exclusively approved materials. As most of the surgeries used a combination of approved and unapproved material, around 70% of the cases were transferred to our department, which was not equipped to handle that many.
The main problem for the hospitals was that material suppliers were not sending us their invoices on time. Without the invoice, we couldn’t notify the hospital of the total cost of the surgery; they, in turn, couldn’t invoice us for it. Whenever a hospital complained about this, we’d take on the account directly and internalize all the related processes. In doing so, we were hoping to fix the problems. Before too long, we had a huge number of accounts we were managing ourselves and around 30 people (nurses, purchasing specialists and administrative people) working on sourcing materials for them.
Unfortunately, the process wasn’t structured, and we were not equipped to deal with such volumes. Even though dealing directly with the hospitals was very profitable for us, we just couldn’t keep up with the work. We just kept hiring people, hoping that would solve our problem; instead, things soon became unmanageable. At that point, we asked the lean team for help. We had heard about the many experiments taking place, to great success, across SulAmérica and we wanted in.
As other projects before ours, our area manager became the leader of a cross-functional team with the mission of transforming our healthcare sourcing operation. The lean team taught us about A3 thinking, giving us the tools to identify and solve problems and encouraging us to discuss how we could improve the situation.
We quickly realized that we had eight nurses in the area (we need nurses because they have a deep understanding of medical materials and procedures and can easily talk to doctors and hospital staff) and that they were all doing everything – including purchasing and administrative work. There was no segmentation of the work and, therefore, no way of monitoring the overall performance of the department. They were working entirely using personal email, which meant we had no way of knowing how many outstanding files and payments we had at any given time.
The first improvement was pretty small in scope: we had one nurse and one administrative worker in a pair and tried to segment the hospital portfolio. Every team of two nurses would be dealing with the same hospital over time, so that they’d have a go-to person within SulAmérica. We also tried to divide tasks between them: the administrative worker was asked to take care of the pre-surgery work and the nurse with the post-surgery work. The target of our first A3 was reducing the time required to pay the hospitals: the average was 30 days, which we wanted to take down to 15. The new system – though still rudimentary – helped us in getting the information necessary to also issue the payment to the material supplier in a timely manner.
After some time, we saw the need to provide more people in our department with A3 skills. So, we sent them (some of them nurses) to the classes organized by the lean team. This fostered further discussion on the process and eventually led to the decision to segment the whole process and organize it in six working cells, each of them focusing on one step (Post-surgery capture, Pricing, Conciliation, Negotiation, Post Billing and Complaints; later on a seventh cell was added, Pre-surgery). This represented a complete overhaul of the process. It was a great idea and our people were feeling very confident about it, firstly because it would mean being able to rely on the unique skills of nurses rather than having them perform administrative tasks.
A little hesitant at first, the team was encouraged to present the idea to their manager, and then the superintendent and the director. Everybody loved the proposal, but the large amount of inventory (outstanding payments) was a concern. As a way to challenge the team, management told them that they’d be able to go ahead with the change they proposed only after cutting inventory by around a third – from 2,799 files in the pipeline to below 2,000. They were able to go down to 1,700! A great achievement, considering the increased in demand we experienced in the meantime.
To achieve this, the team heavily relied on the daily meeting they had been using for a while. At first, these didn’t help much because they had been designed by the management and lean teams. Once staff from the department started to understand the value of the meeting and embraced it, it turned into a powerful enabler of change. The team created a different daily meeting to monitor the amount of inventory in the pipeline and to better understand what was needed in order to achieve the level management had challenged them to reach. Critically, the meeting allowed them to keep an eye on the inventory levels, but also to keep the average payment time within the acceptable range.
A NEW BEGINNING… EVENTUALLY
It was moving to see how happy people were to try and do things in a different way. They were incredibly busy, because in parallel they were also working to develop standards for each of the six cells. This entailed writing down what every cell did, discuss the actions with people, decide how many people to assign to the cells, and talking about the necessary skills that had to be developed. It was a difficult exercise, and their motivation was commendable.
On the day the new system was finally being implemented, the team decorated their working area and everyone showed up wearing the color that had been assigned to the cell they’d be working in. They managed to change the whole process – new layout and all – that same day.
For a while, however, things weren’t that easy. As mentioned, we aimed to reduce the average payment time from 30 to 15 days. After the change was implemented, the average time actually went up, because the team had focused entirely on the new organization of the work and forgotten about some “legacy systems”. (For example, in some cases, documents were missing and had to be retrieved from the original mailboxes – which was very difficult after the implementation of the change.) For a month or so, we were all really on edge: we were sure the new process would work, but somehow started to doubt ourselves. We kept trying, however, and determination paid off (it typically does in a lean transformation): within a few weeks, we could stabilize the new process thanks a lot of kaizen improvements and we achieve the future state we had set for ourselves. Because each cell was now monitoring different things, a new meeting was introduced for each of them, whereas the department-wide planning and analysis of the work now took place weekly during another meeting. Thanks to this adjustment to the daily management system, each cell now knows exactly what it has to do each day to contribute to the department’s goal.
A few months later, our project team was the winner of SulAmérica’s internal contest for the best improvement and won a coveted trip to Walt Disney World in Orlando. Even more gratifying was to see, among the finalists of this contest, three more A3s from the Sourcing Department. It was a result of the incredible amount of improvement taking place in the cells (focusing on things like streamlining the pricing process by giving people references they could use for each material they ordered). That first change, in time, had generated a “wave” of kaizen. People were constantly suggesting new improvement ideas, and it was so inspiring to see that.
Internalizing the sourcing process has led to big savings for the organization, and it was only possible because Lean Thinking made us more efficient in dealing with our workload. We see a lot of potential in our department, and we are currently evaluating the possibility to extend this system to other types of surgeries. But, first, we want to further stabilize our new system. Basic stability is a pre-condition for improvement, after all.