IDN Blog: Fall 2017 IDN Summit

The Value of Joint Ventures in Supply Chain Collaboration

By Mike Langlois, Langlois & Associates, LLC

With reimbursement increasingly tied to performance indicators such as high readmissions, Medicare spending per beneficiary and low patient satisfaction scores, everyone in a health system must look at how they can improve quality and outcomes of patient care. For supply chain, that means gaining a deeper understanding of the efficacy and cost effectiveness of the products and services that are purchased and incorporating those into decision making.

Before I retired from the position of senior vice president of Supply Chain at Beaumont Health in March of 2016, I met each month with the system’s chief quality and safety officer. We always discussed any adverse events the system had had, and whether those events were related to products. Efforts like that must be hardwired into supply chain, but they are only the beginning.

Providers need to move away from transactional relationships with suppliers and distributors and move toward true partnerships in which both sides have a stake in improving the quality and efficiency of care delivery. These should be ongoing relationships that help to advance the design of products and services so they better serve the needs of providers and patients.

These partnerships must be structured so they don’t stifle innovation and competition. That’s a fine line to tiptoe around, as new companies are emerging all the time with offerings that improve upon old solutions.

Partnership might come in the form of a joint venture like the deal Beaumont Health System did in 2011 with Jones Lang LaSalle, an international real estate development company. Through an integrated services partnership agreement, JLL managed all of Beaumont Health System’s facility services, including facility management, construction program management, utility operations, energy and sustainability services, property management, biomedical equipment maintenance and service management, lease administration, portfolio strategy and real estate transaction services. The venture involved an 8.5-million-square-foot portfolio including three hospital campuses, 5.1 million square feet of acute care hospital space, 1,744 licensed acute care patient beds and 101 owned or leased off-campus patient care or business sites located in metro Detroit. Previously, these services were provided by an entity wholly owned by Beaumont called Beaumont Services Company.

The venture provided Beaumont with three sources of savings. Beaumont monetized half of its ownership stake in their facilities company. Also, JLL agreed on a budget that was 85% of Beaumont’s former spend on maintenance and utility costs. In addition, any savings after that 15% spending cut were shared 50-50.

JLL had to meet 15 key performance indicators to receive any of the savings, including customer satisfaction, employee satisfaction and successful Joint Commission accreditation.

The venture worked in large part because of JLL’s vast experience in projects around the world. It has large international contracts for materials and services, so it can leverage volume pricing for Beaumont’s projects. JLL has all the construction expertise, but knew nothing about biomedical engineering, knowledge Beaumont brought to the table.

Another kind of collaboration is to be found in Ascension Ventures, a subsidiary of Ascension Health. Limited partners also include Adventist Health System, Carle Foundation, Catholic Health Initiatives, CentraCare Health, Children’s Medical Center of Dallas, Dignity Health, Inova Health System, Intermountain Healthcare, Mercy Health, Novant Health, OhioHealth and OSF HealthCare.

Ascension Ventures has more than $800 million in capital under management. It invests in healthcare companies that provide services and solutions that help health systems in the areas of healthcare IT, healthcare services and medical devices, meeting the most pressing needs of its partners and their patients. The partners, who together have 474 acute care hospitals and $88 billion in annual operating revenue, are not required to use the incubator companies’ products and services but are encouraged to do so, becoming testing grounds for the offerings. Venture companies generate returns to the limited partners that help support their missions to provide care to the poor and vulnerable.

These ventures are the epitome of what partnerships in healthcare should be.

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