Publication by Spend Matters
Our sister-site, Healthcare Matters, often spends significant time exploring, on a very granular level, procurement and supply chain solutions and approaches to tackling inefficiencies and other opportunities in the healthcare industry. Occasionally, a procurement technique or solution approach we see in healthcare potentially brings broad applicability to other sectors as well.
We’ve learned over many years that most solutions in this market are highly bespoke given all the challenges associated with managing complex (and specialized) product information, physician preference items, billing and reimbursement and attributes unique to hospital and clinician environments.
But a recent set of briefings, demonstrations and customer reference discussions with Prodigo Solutions, a procure-to-pay (P2P) technology specialist in the healthcare market segment, suggest a range of lessons from healthcare environments that we can apply to more generalized purchasing environments. This 2-part Spend Matters PRO research brief explores Prodigo’s capabilities, the customer experience and what procurement can learn from healthcare.
History and Solution Summary
Prodigo Solutions was originally spun out of UPMC, one of the largest “chains” of healthcare providers primarily focused in western Pennsylvania but which also had operations elsewhere around the globe. UPMC is known within the industry as an integrated delivery network (IDN).
The provider has a long history of forward-looking investments in procurement technology, including applying advanced sourcing approaches to complex activities including physician preference items. The Prodigo Solutions venture was incubated until just a few years ago and received outside investment and garnered its initial external customers starting in 2012 – and has since signed up a range of national healthcare providers and is in use at over 100 large hospitals and 2,000 other healthcare facilities, such as surgery centers, in the US.
From the start, Prodigo defined its product strategy to address broader challenges in the healthcare marketplace outside of just procurement (but with procurement as the customer). These include the need to drive greater transparency across the many levels of pricing and seller/distribution tiers in the industry, together with addressing the pervasive nature and unique business models of group purchasing organizations (GPOs). In addition, Prodigo set out to tackle SKU-level visibility, data standards, integration and compliance, based on contracts and other systems data, within healthcare, which are far more complicated than just about any other vertical sector.
Starting with the premise that no other sector has done a better job disguising to the frontline user who is buying an item or service what the organization is paying for it, Prodigo had its hands full from the start in building visibility through integration into all the contracts, pricing tiers, rebates and other structures unique to healthcare.
Outside of integration into both back-end hospital systems – not just ERP but electronic medical records and clinical sub systems – and supplier systems, which are core to all of its module, Prodigo delivers 3 offerings today.
- The first, ProdigoBuyer, mirrors the capability of e-procurement or shopping tools and focuses on search, shopping, workflow, approvals, matching and other areas inherent to transactional buying for users.
- The second, ProdigoMarketplace, is more complicated to explain in relative terms to other existing technologies. It essentially is a hub that combines catalog content management (e.g., jCatalog), transaction/information standards and exchange (e.g., GXS), supplier network (e.g., Ariba), federated search (e.g., Vinimaya), SKU and contract-level analytics (e.g., Seal) and item search/matching/discovery (e.g., Endeca) and classic punch-out capabilities into a single offering. On the supplier side, the marketplace module integrates with a range of vendor types (e.g., specialist healthcare suppliers, MRO, research/lab suppliers, distributors, etc.) on both a batch and real-time basis and uses clever caching and other related capabilities to bridge item number and item details from manufacturer to end-user (no easy feat!).
- The third, ProdigoXchange, which includes both natively developed capabilities and OEM components, is essentially an EDI transactional hub built for healthcare.
A Needed Mishmash, But Why?
To understand healthcare procurement, we must first dispense with the notion of direct and indirect materials. There is no such thing in healthcare. In part, because of this, it might seem to a healthcare outsider that the various components that Prodigo unites are more easily kept independent of one other than together, as they have in other markets.
True, solving each of these problems individually works in other industries. But given the complexities of healthcare, all of these solutions must be combined together to create the level of transparency necessary to change buying behavior.
On a broader scale, the obfuscation of pricing and related information in healthcare is what has in large part led to the significant costs of patient care in the US. Simply put, in a clinical environment – and even more broadly in back-end hospital operations – GPOs, distributors and manufacturers have enjoyed the advantages of information asymmetry compared with those they are selling to. Said another way, sellers have all the information and like to keep it that way, clouding the flow as it reaches the requisitioner.
Changing the Information Equation
This is where Prodigo comes in – as an advocate for procurement and essentially an antidote to the obfuscation created by GPOs, distributors and manufacturers. By combining access to all the information sets associated with transactional buying and internal rules/requirements, Prodigo can show information in context to users without providing extraneous details to their activities or seeming like a Big Brother insisting that users purchase a given SKU.
In a simple shopping use case, Prodigo can guide a nurse or administrator to “buy from stock” or inventory by showing related items to a search higher in a list than non-stocked items. For more complex users, Prodigo can weigh different criteria so as to make items appear in a search based on such underlying elements of contract rebates and rebate accrual based on contracts and past activity, diversity status of suppliers, recalls, ratings and related information.
In a clinical setting, the ultimate use case for Prodigo is tying patient outcomes to product cost – to show if low-cost SKUs have equal or better outcomes than higher cost items. This is, of course, in opposition to the existing ecosystem that attempts to do the exact opposite – to sell hospital data back to manufacturers to improve their margins.
Within healthcare, Prodigo Solutions is an ideal fit for procurement organizations:
- In mid-size or larger (e.g., IDN) hospital and clinical care environments
- That are looking for more than just an e-procurement solution and are willing to work with a partner (and realize the time investment required) to build broader information transparency in the buying equation
- That want to take back spending control without directly threatening existing GPO, distributor and manufacturer relationships by changing end-user behavior
- That are willing to work with a smaller provider – albeit one that is building up an impressive set of customers – as an alternative to larger providers such as GHX and P2P best-of-breed generalists like Coupa
- That want to work directly with a single provider that will sell technology and implement the solution itself versus a third-party integrator
Prodigo and Healthcare – Customer Case Studies and Applying Lessons Learned to Cross-Industry Procurement
Today, we share stories from Prodigo customers who we have had a chance to speak to and who are supporting highly complex transactional procurement environments. These customers have confirmed the complexity of the environments that our briefings and demonstrations here at Spend Matters have suggested.
One reference customer, a vice president of supply chain for a regional integrated delivery network (IDN) with experience overseeing sourcing, contracting and related functions, provided significant details into the specific clinical, procurement and IT environment. This organization has 7 hospitals, 25 urgent care and imaging centers and both a domestic and international presence, as well as the largest market share in a large southern state.
This customer also maintains its own distribution facility for supplies. Formally, there are 45 team members in the procurement organization and 10 sourcing/contract administrators, but more than 2,000 individuals in the organization are approved as requisitioners. The organization works with 5,000 suppliers, of which 1,000 are onboarded in the Prodigo environment.
Prodigo and Healthcare – Customer Case Studies and Applying Lessons Learned to Cross-Industry Procurement
The Prodigo deployment includes all inventoried items, including those “used more than 5 times per year and in clinical settings (e.g., operating rooms, heart/cardiovascular, etc.).” With Prodigo, all internal item master information has become part of the buying catalog. But the system is also used to index and manage external information for direct purchases from manufacturers, enriched with third-party data as well, because the internal item master doesn´t carry all the items or the information necessary to make frontline decisions. This may sound simple, but the use case and complexity is surprising indeed to provide complete buying transparency and control – and bring a range of lessons learned for non-healthcare procurement organizations as well.
Tight PeopleSoft Linkages
The organization’s item master, which encompasses 26,000 items, is housed in the IDN’s PeopleSoft system, which includes financials, inventory, purchasing, e-procurement, supplier contracts, supplier (portal), mobile inventory, strategic sourcing (RFPs) and OBI (Oracle Business Intelligence).
From an integration perspective, requesters log into PeopleSoft and then punch-out to Prodigo. The frontline user does all the searching and buying within Prodigo, and then brings back a shopping cart and the order is reviewed by procurement, if necessary. It is then pulled back into the PeopleSoft e-procurement module for final transacting and then enters the PeopleSoft financials and supply chain modules for fulfillment, payment, accounting, etc.
Again, as we mentioned above, the item master doesn´t carry all the items or the information necessary to make frontline decisions. For example, an orthopedic supplier, say one that provides the nuts and bolts and screws that are used in various parts of the body, has a catalog with more than 10,000 SKUs – Prodigo indexes these 10,000 items and maintains the information. The organization delegates this function to Prodigo, given these items are very much “tail spend” for the organization.
To maintain this data, different internal and supplier sources send Prodigo a file of the items, prices and contracts to load it into a catalog like a virtual data master. As an aside, the procurement organization also uses the data from Prodigo’s system for sourcing activities from a data and supplier perspective given this information and transactional purchasing activity data is all housed in one place.
Comparing Other Options
The organization ended up selecting Prodigo because it was “created by ex-healthcare executives” and it specifically “pinpointed and addressed all healthcare pain points.” As an example, if an item is not in the organization’s item master, it is bought as a special order (i.e., free text entry) and this information is then preserved and can be leveraged for sourcing and other activities.
In the Prodigo selection process, when the organization deemed that it was important to have access to data to understand its overall buying activities, including supplier-managed item details, it became clear that it was difficult for Ariba, PeopleSoft and others to aggregate all the special orders data.
Yet some of these free-text entries are tied to $15-$20 million contracts, making it essential to gather and maintain specific line-level details even if the spend is not managed by the internal item master. Prodigo enables the organization to close the loop on this information and provides visibility into this special order spend as an external item master extension, which can be viewed alongside internally managed item information and can also be enriched by Prodigo and supplier data.
Overall support from Prodigo has exceeded expectations and the provider has been “great” to work with, in the project sponsor’s words. The implementation also went as planned and also included “hands-on” change management support including training classes and online support.
This case example is not dissimilar from another large healthcare provider and Prodigo customer that Spend Matters spoke to who was also highly satisfied with their experience. This organization also had PeopleSoft financials as well as PeopleSoft business applications, including e-procurement. Using Prodigo, this health system onboarded more than 2,000 suppliers out of a total of 20,000 suppliers and scaled the system to 7,000+ requesters, all of which use Prodigo as the search, shopping and buying front-end – with all of the associated capabilities around item master management, supplier integration and related capabilities on the back-end as the other organization described above.
Applying Healthcare Lessons to Other Industries
In delving into Prodigo’s capabilities and in speaking to Prodigo customers in large healthcare environments, we came away with a list of recommendations that we can apply to procurement organizations in other sectors. While it may be challenging to adopt non-healthcare centric technology in a clinical setting, it would seem easier the other way around – with a surprisingly long list of capabilities and lessons that could help many procurement organizations gain greater influence over how their organization makes purchases and spends.
These extensible recommendations outside of healthcare include:
- Taking a big data approach to transactional buying by incorporating as many datasets as possible into presentation of information to the buyer and item-level data, which can also include enriched information from third parties such as information tied to product recalls, corporate social responsibility, etc., alongside internal/inventory, distributor and manufacturer information. Such an approach requires technology built from the ground up to work in such an environment (e.g., employing clever data caching techniques to speed response time). Traditional e-procurement comes up short here.
- Not discriminating between direct materials and indirect materials in transactional buying from a front-end perspective. The user experience, ideally, should be the same, and e-procurement systems should extend to encompass the buying of direct spend with tight linkages into back-end ERP modules including accounting, inventory management and purchasing tools.
- Taking time to understand the importance of not just deploying an e-procurement solution or a front-end buying toolset on top of an ERP e-procurement environment, but building a true “virtual item master” that does not discriminate between inventory, internal catalogs, supplier managed catalogs, punch-out, web/storefronts – or distributor or manufacturer data. Such a system should provide a true omni-buying channel transparent experience for frontline users while providing rich reporting data and control on the back-end for procurement regardless of where item or supplier information is originating.
- Realizing that buying complexity will increasingly need to be masked in the future by guiding users to make decisions on what to buy and whom to buy from without them knowing, which requires the ability to support highly complicated rules guiding data prioritization and the presentation of information. In short: Show the buyer only what they need to know but practice postponement up until the time of search/shopping presentation results based on precisely what you show them based on dynamic requirements (e.g., changes in inventory/stock, rebate accruals, recalls, etc.)
Further information on this topic and others can be found at the website: www.spendmatters.com. Reproduction of this publication in any form without prior written approval is forbidden. The information in this report has been obtained from sources believed to be reliable. Spend Matters disclaims all warranties as to the accuracy, completeness, or adequacy of such information and shall have no liability for errors, omissions, or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended result. The opinions express herein are subject to change without notice.
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