VMware vCloud Hybrid Service Powers Journey to Zero-Cost Applications Support for City of Melrose

Transcript of a BriefingsDirect podcast on how one municipality has broadened its own IT infrastructure to become a managed-service provider for other cities and towns.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: VMware.

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect.

Gardner

Today, we present a sponsored podcast discussion on how a small city outside of Boston has embraced hybrid cloud computing to host not only its own applications, but also those of nearby communities. In doing so, the City of Melrose, Massachusetts, plans to reduce the cost of supporting its applications to perhaps zero -- and maybe even generate revenue -- as a specialized managed-services provider.

To learn more about this early adopter municipality approach to cloud computing, and how they transitioned from nearly 100 percent server virtualization to a novel cloud capability built on VMware vCloud Hybrid Service (vCHS), please join me now in welcoming our guests. We're here with Jorge Pazos, the Chief Information Officer in the City of Melrose. Welcome, Jorge. [Disclosure: WMware is a sponsor of BriefingsDirect podcasts.]

Jorge Pazos: Thank you.

Gardner: We're also here with Colby Cousens, IT System Administrator in the City of Melrose. Welcome, Colby.

Colby Cousens: Thank you.

Gardner: Jorge, let me start with you. As you looked to extend the benefits of server virtualization, what were some of the top requirements as a CIO for moving to cloud and hybrid-cloud infrastructure?

Pazos: A lot of this is driven by both challenges that we face and opportunities that we see. Like you said, we're an IT department for a mid-size town in Massachusetts. We offer services to all of our internal departments and we're beginning to grow out into a managed-service provider. Part of what we're looking to do internally is grow that managed-service provider part of the business, but then also take care of a lot of the day-to-day stuff.

Pazos

If you think about building a data center, which is what we did about three or four years ago, it was a top-to-bottom upgrade of our data center. One of the things that you immediately start to think about is your disaster recovery (DR). When you're a small municipality with five square miles, where do you put a DR site that gives you diverse power providers, and geographical diversity?

It doesn't make sense to invest heavily in a DR site that’s somewhere within the same town. So we were really looking to cloud-service providers to provide that for us. That was one of the big drivers for us, and we really didn't feel comfortable growing the business too much without having at least that capability somewhere, as part of our service offering.

Gardner: When you were looking for a DR capability that opened up your eyes to what hybrid cloud was capable of. Was that the beginning of seeing more than the virtualization benefits of being able to replicate workloads and have elasticity and look to optimization benefits beyond your on-premises server?

DR site

Pazos: We really wanted to have a fully functional DR site, and we looked at a lot of the cloud service providers. This isn’t a point-in-time perspective. This is something that we've been doing over the last three or four years.

Three or four years ago, there weren’t a whole lot of cloud-service providers that we felt could do what we were looking to do. So when we had this opportunity to participate in the beta for the vCHS, we were really excited. There was quite a bit of promise in it for us in terms of things that we felt were important, like interoperability, security,  performance, and things like that.

And after the launch actually one of the things that we are pretty excited about that we didn't see in the past was cost predictability, which we don't really see a whole lot from a lot of the other service providers.

Gardner: I'm sure if you are going to embrace a hybrid-cloud model, and test and evaluate a product like be vCHS, you might recognize that if you do this first, you've learned the lessons and acquired skills. How did that idea come about to take this into this extension of what other municipalities would be seeking?

Pazos: It’s not that big of a stretch, when you think about it. What we're doing is providing services to other cities and towns. That is what we do on a day-to-day basis in one municipality. The way that municipalities are run, especially from an IT perspective, there isn’t a great deal of diversity. We could pretty much run IT for almost any city or town, because the apps are very similar and the business processes are all very similar.

It’s not that big of a stretch to get to that point where you say, "I can do this for another city or town." That was actually the thought process several years ago, as we started to do our own internal consolidation. The idea was that if we do it for ourselves, why can’t we do it for others. It’s not that much of a leap to get there.

Cousens

Cousens: We can get some practice consolidating city and school networks and data centers and realize it's the same thing. We could do it with other the municipalities as well.

Gardner: Colby, that was going to be my question. What requirements did you have in terms of what was needed in order to make this possible if you were going to integrate and consolidate with the cloud infrastructure approach for different divisions within your town? Sure, you can extend that to other municipalities, but what was important for you to be able to do that in terms of the solutions available?

Cousens: Compatibility was the biggest issue for me. I didn’t want to run into any roadblocks with software or hardware that wouldn't work with each other, so we would have had to drop the project just because two things wouldn't connect.

Gardner: Let’s get a sense of what we're dealing with here in terms of your scale and your size. Tell me about Melrose, the applications, the number of users, and your infrastructure. What are we talking about in terms of IT organization?

Modest deployment

Pazos: It is a fairly modest deployment by service provider standards, but I think by municipal standards, we're decent size. Currently, we're at about 70 virtual machines (VMs) with 30 terabytes of storage. We connect our regional partners the way that we connect these communities, Essex is about 30 miles away, and Saugus is a direct neighbor. To connect these guys back to our data centers, we use an ENS circuit, which is basically a Layer 2 connection between the two sites that can be ramped up.

They come up in base of 10 Mbps and then they can go straight up to a 10 Gbps . We run several SQL databases, which includes our financial system. We run Microsoft Exchange, Public Safety Dispatch. There is a CAD, Computer Aided Dispatch/Records Management application, and database. We also have virtual desktops. Our entire emergency dispatch operations are all running on virtual desktops, as well as point of sale for virtual desktops.

So we run quite a few different apps, many of which are obviously pretty mission critical, and the demand is growing. We are going to be on-boarding Saugus through the summer and into the fall. So we'll be experiencing some growth through that process as well.

Gardner: Just for our audience, Essex and Saugus are also municipalities in Massachusetts, and you have been experimenting and bringing them on, so that they become paying customers to you. Do you think it is possible at some point that you're going to cover your IT cost by doing this managed-service provider business.

I also think that the services we offer to the city are better because of our equipment.

Pazos: Early on, it got to a point where we couldn't do it, but it looks to me like now we're potentially going to be in a position where maybe five or six additional clients get us to the point where we are revenue neutral to the city. That's looking a little bit more realistic for us in terms of both getting people to warm to the idea and also being able to support it.

Revenue neutral would be absolutely fantastic. If you're taxpayer in the City of Melrose and you can have a department that offers all of its services internally and be completely revenue neutral, I would be ecstatic about that.

Cousens: I also think that the services we offer to the city are better because of our equipment. Our refresh schedule is better. The stuff that we're using is more enterprise grade, because we're using it in the hosting environment and providing to a number of partners.

Gardner: Let's look at the equation of how the economics of this work from the perspective of your client municipalities, for lack of a better word. When Essex and Saugus evaluate this, are they going to be able to get their IT services from you cheaper and with a higher performance than they would have been able to do it themselves?

Pazos: There are two ways to look at that. Town of Essex has reduced their IT expenditures by 33 percent year over year. So they're immediately seeing savings every year. The story in the Town of Saugus was a little bit different. They had an IT department that had inherited infrastructure that was getting old and needed to be refreshed. They were able to buy into the service and not have to incur a large upfront cost of doing a forklift upgrade of their entire IT infrastructure.

Year-to-year savings

They're saving, year one, somewhere in the vicinity of about $80,000 or just north of $75,000. Then, there's the year-over-year savings that they're seeing. So for this three-year agreement, they feel like they're saving quite a bit of money.

Gardner: Colby, given that you had a very strong set of requirements around compatibility of being able to move from your on-premises infrastructure into a hybrid cloud model, what about Essex and Saugus? Were they also highly virtualized in their servers and workloads, and how did the compatibility from them work, moving toward your vCloud Hybrid Service set up?

Cousens: That wasn’t as much of an issue for us, because they weren't really virtualized yet at all. So part of the on-boarding process for them is virtualizing all of their servers and doing some virtual-desktop offerings, too. We got to start fresh with virtualization onsite for their services.

Gardner: I suppose you could look at that as another added value. You're actually modernizing them or guiding them into a more optimized IT infrastructure with a higher utilization. You're also helping them decide which of their services to get from the source, in this case the one that you are managing, versus perhaps a cloud provider that would not have the expertise in the customization that they're looking for.

Not only are we saving them money, but we're able to provide them services that they weren’t providing for themselves.

Pazos: Absolutely. Not only are we saving them money, but we're able to provide them services that they weren’t providing for themselves. A lot of these guys didn’t have offsite data replication.

They didn't have DR site capability. It was a pretty traditional small data center, a server room type set up in a building. Everything was a single point of failure. We're not only saving them money, but we're providing a higher level of service than they would have ordinarily been able to achieve.

Cousens: Again, in the case of Essex, the town manager is doing the IT work too. So besides the financial piece, he was having a hard time focusing on his IT stuff as well.

Pazos: I think it's important for anyone listening to the podcast that to understand that, a lot of these are small governments scattered around the state. The $75,000 that Saugus is saving this year is very big money in small town government.

In the case of Essex, quite often, people are doing double duty. They're the town accountant and the IT person, or the town administrator and the IT person. So they are also gaining from freeing themselves up to focus on their primary roles. In the town of Essex, he's able to focus on being the town administrator. That’s life in small town government in Massachusetts.

Gardner: As time goes on, it sounds like you want on-board other municipalities making them a good deal, where everybody feels like they're improving the situation at a good cost, compared to what they would have been paying otherwise. Over the next two or three years, what are you going to be looking for in terms of cloud capabilities?

There is, of course, the infrastructure, and you want the compatibility that we heard about. What about public-cloud services? Are there costs, compatibility issues, location or compliance issues? What do you think about when you look down the road towards the public-cloud components within a hybrid cloud deployment?

Competition important

Pazos: One of the important things is competition and, hopefully, as everything matures, that cost will come down. Again, for small town government, that’s extremely important. I think a lot these towns wouldn’t have this as an option, because the costs simply are just too much for them. So we would like to see to the cost come down.

Gardner: That would be a function of choice, of having a marketplace, right?

Pazos: Absolutely, yes, and with competition, hopefully that will come to be. One of the reasons that we invested the time into vCHS beta was that we really felt it was important to focus on that. We went through Beta 1 and 2, we would have done the Early Adopter Program (EAP) as well, except that we were in the midst of on-boarding Saugus.

We really committed some time to do Beta 1 and Beta 2, because I think the promise of the service offering was fantastic. We really felt like there was an opportunity there to play with a product that was extending our existing data center out into the cloud, and it blurred the lines between what was on-premises, and what was out in the cloud.

One of the primary reasons that we're looking at this is DR and business continuity.

Ideally, that's what we would like to see. When you're your managing a pool of resources, you're not really managing on-premises stuff and cloud stuff. We would like it be one large pool of resources that you are managing. I think that would be ideal.

Gardner: To circle back to some of your earlier reasons for going about this, you get that business continuity benefit. You know that your resources are going to be available, and if something goes wrong along the line within your organization, you have someone covering your back.

Pazos:  One of the primary reasons that we're looking at this is DR and business continuity. I need that diversity in being able to have different geographical zones, having somebody out in Nevada, California or wherever. That’s a diversity that is, otherwise, really impossible for me to get. So that's an important thing.

Gardner: How about some 20/20 hindsight, for those who are listening and reading about your story and experience. What might have you had done differently? Do you have any advice for those who might be also considering adopting a hybrid cloud or maybe even pursuing the notion of being either a consumer or provider of these managed services?

Pazos: When we look back at this, it’s surprising to me how we were very fortunate with timing. A lot of the things that we needed seem to have been rolling out at right around the time we needed it, which was fantastic for us.

What I would say is, whatever you've been waiting for, don’t wait. It's to the point where you just want to move ahead, and for some of this, you're going to have to adapt and sort of figure out as you go and as things evolve.

There were times early on, where we were frankly a little hesitant to do some things, because, to be honest with you, we spoke to a lot of folks in other cities and towns who just sort of cocked their heads a little bit and looked at us and said, "Really? Why are you doing this? Why would you want to do this? This seems sort of crazy." So there was a little bit of hesitation at times as we moved forward.

Solid idea

But the idea seemed solid, and we went ahead with it. That's the advice for folks -- don't really wait. Do your research, do your homework, understand what it is that you're getting yourself into, but certainly move ahead, because I really feel like this is the way we're going to be doing business. I know we are doing businesses right now, but I think a lot of folks are going to be doing business this way at some point in the near future.

Gardner: Colby what about you?

Cousens: Experimentation is key. A lot of the technologies are complicated to just look at or read about. Get in there and do an evaluation or download trial versions of different products, like we did with the Beta, with vCHS. You just have to try it out and play with it. Then you start to realize the true value as you apply it to actual use cases.

Experimentation is key. . . . Get in there and do an evaluation or download trial versions of different products.

Gardner: Well, great. I am afraid we will have to leave it there. We've been talking about how a small city outside of Boston has embraced the hybrid-cloud computing to host not only its own applications, but those of nearby communities as well.

We learned how the City of Melrose, Massachusetts, plans to reduce the cost of supporting its application down to zero by transitioning from high server virtualization to revenue making managed services built on a cloud capability, and they have been so far using VMware vCloud Hybrid Service as a beta user to experiment and perfect this approach.

Thank you very much to our guests, Jorge Pazos, the CIO, the Chief Information Officer at the City of Melrose. Thank you, Jorge.

Pazos: Thank you.

Gardner: And also, we have been here with Colby Cousens, the IT Systems Administrator there in Melrose. Thank you so much, Colby.

Cousens: Thank you also.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. Thanks, also to all audience for joining, and don’t forget to come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: VMware.

Transcript of a BriefingsDirect podcast on how one municipality has broadened its own IT infrastructure to become a managed-service provider for other cities and towns. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

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Here's Why Healthcare Businesses Must Efficiently Manage Their Suppliers, Purchases and Processes

Transcript of a BriefingsDirect podcast on how a major healthcare services company is leveraging tools from Ariba to cut costs and improve efficiency.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP Company.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you from the recent 2013 Ariba LIVE Conference.

Gardner

We're here to explore the latest in collaborative commerce and to learn how innovative companies are tapping into the networked economy. We'll see how they are improving their business productivity and sales, along with building far-reaching relationships with new partners and customers.

I'm Dana Gardner, Principal Analyst at Interarbor Solutions, and I'll be your host throughout the series of Ariba-sponsored BriefingsDirect discussions.

Our next innovator interview focuses on MedAssets, a healthcare industry procurement, spend, operations, and supply-chain services company, which currently manages some $50 billion of supply spend for its customers annually.

We'll learn how the healthcare sector has unique operational efficiency and regulatory challenges and how MedAssets, in partnership with Ariba, an SAP company, has found ways to improve health provider and supplier compliance, reduce costs, and develop better accuracy.

To hear how they did it, please join me in welcoming our guest, Rick Grodin, Senior Vice President of Product Management at MedAssets, based in Alpharetta, Georgia. Welcome.

Rick Grodin: It's great to be here. Thanks for having me.

Gardner: We’re here at a very busy Ariba LIVE Conference, and one of the things that people are dealing with is how to make their particular vertical industry and the particulars of their own company work within a broader infrastructure and networked economy. I'm particularly interested in the healthcare industry.

Rick, what's going on in healthcare and why is this such an important area for focusing on innovation, productivity, and cost reduction?

Grodin: We manage spend on behalf of 3,000-plus providers, both on the non-acute care side, as well as in the for-profit and not-for-profit acute care hospital community. The challenges that they're facing are quite remarkable, both from an incremental-cost perspective, whether that be supply cost or labor cost, as well as continued pressure on what are already razor-thin operating margins -- typically between 0 and 3 percent.

Significant consequences

With the Affordable Care Act coming down the pike, officially passed and certainly soon to be implemented, reimbursement per unit is going to come down materially for hospitals, and that’s going to have significant consequences on provider operations and financial health.

Grodin

As millions of new people come into the healthcare system, likely to be reimbursed through the state exchanges somewhere between Medicaid and Medicare rates, that’s going to have a significant impact on that operating margin, because hospitals are already losing money at Medicaid and Medicare rates.

You're going to have a significant influx of new patient volume at lower reimbursements. Therefore, the need for the healthcare community to take out substantial cost over the next couple of years is just going to continue to intensify significantly.

Anything that we can do, as a healthcare provider partner, to help them bring down those costs from a back-office operational efficiency perspective is going to be extremely important.

Gardner: How do we get those better efficiencies, not only from within an organization which has been under way for some time and will continue, but when you go outside your borders? When you look toward supply chains, the networked economy, and cloud providers, what's the control point? How do you exercise control and management, when these are outside the borders of your healthcare-provider organization?

It’s not only about how we can improve the financial health of our hospital customers, but also our supplier partners.

Grodin: For us, specifically at MedAssets, the supplier community is extremely important to us. It’s not only about how we can improve the financial health of our hospital customers, but also our supplier partners. If we can continue to work with our supplier partners to bring down their cost, they can then pass along those efficiencies and offer lower price points to our provider customers. So it’s a win-win for everybody.

Today, through MedAssets eCommerce Exchange and transaction management services, we help create a more efficient operating environment, with respect to getting purchase orders to suppliers. But because it’s through an EDI-based system, it’s basically just getting paper there more quickly, as opposed to correcting and rejecting invoices that are wrong on the front-end, so that they don’t need to be worked on the back end.

Creating a more efficient operating environment with respect to that paper purchase order (PO) or invoice, and basically enabling a provider and a supplier to conduct that commerce through the cloud, our exchange, or a combination thereof, will create significant operating efficiencies on both sides of the house.

Now, all of a sudden, the accounts payable clerk that’s sitting in a hospital doesn’t have to manage an exception. Today, they're constantly struggling with whether the PO price is the same as the contract price and the same as the invoice price. In many instances, it’s not.

So they need to circle back with the supplier to say, "The invoice is wrong, and you need to fix it." Or they need to circle back internally and ask why they're cutting a PO that doesn’t match the contract price, whether it’s a locally negotiated contract or a contract through a group purchasing organization.

Added value

So, it's the ability to catch those invoice exceptions upfront. All of that exception management activity can be repurposed to value-add activities internally, whether that’s reinvesting completely in patient care delivery or just repurposing those FTEs on the back end to again do more value-added activities that are not related to just managing an exception.

Gardner: I'd like to hear more about how Ariba and MedAssets work together, but let's learn more about MedAssets first. Tell us a bit about the history of your company, what you do, and the size, so we have a better sense of how you fit in this picture.

Grodin: We touch approximately 4,200 acute-care hospitals across the country, as well as over 120,000 non-acute care providers. We have two operating segments within the organization.

The one that I primarily focus on for product management is our Spend and Clinical Resource Management group. Within this segment, we deliver value to providers through our  group purchasing organization, technology-enabled services, an analytics platform and procure-to-pay solutions that are all aimed at reducing cost on behalf of our providers.

The other element that we bring to the table is through our Advisory Solutions group, which is a number of consulting practices that can address operational improvement opportunities or other areas of cost that are not impacted just through procurement or through a group purchasing organization.

As most people are aware, labor cost is approximately 50 to 60 percent of total cost for a hospital. It’s a significant area of opportunity.

As an example, we have a phenomenal group that focuses on clinical utilization and bringing down physician preference-item costs. We have a group that focuses on permanent labor and agency labor. As most people are aware, labor cost is approximately 50 to 60 percent of total cost for a hospital. It’s a significant area of opportunity.

Finally, we bring lean transformation and process-improvement capabilities to healthcare through another practice in our Advisory Solutions group. There have been tremendous benefits brought through Lean to other industries, and we're trying to bring that to the healthcare environment as well.

Gardner: Looking back into MedAssets, what other tools do you have in your toolbox, to use your phrase, that you can help health providers improve their financial standing?

Grodin: As I mentioned before we have our Spend and Clinical Resource Management segment that manages over $50 billion in spend, but we also have another large operating segment where we provide revenue cycle management services.

So we have a whole suite of technologies that can impact everything -- the front, middle and back portion of the revenue cycle -- as well as the Revenue Cycle Services group that provides both consulting services, as well as a shared-service environment for taking on revenue-cycle activities within a hospital environment.

Gardner: How about the relationship between MedAssets and Ariba? Do you utilize their services in their cloud activities, technologies, and processes, and then apply that through your's? Is this an ecosystem type of relation? How does it work?

Two fronts

Grodin: Our relationship with Ariba is on two fronts. We're currently in the process of implementing their Procure-to-Pay solution for our own internal use within MedAssets, and our team is extremely excited about how things are going so far.

I was mainly focused on working with the Ariba team on putting together the strategic partnership that we announced in early April and that we're extremely excited about. We wanted to partner with the leader in global e-commerce and there was no doubt that that was the Ariba team.

We’d like to bring the capabilities that are proven in other industries, where Ariba has basically gone to market and been extremely successful, and bring those similar cloud-based and network activities into healthcare.

As I alluded to before, we have our own eCommerce Exchange and Transaction Management services, as well as a partnership on the front-end for requisitioning through Prodigo.

Historically, we've done a very good job of working with the buyers in hospitals to requisition an item and get that purchase order out through our eCommerce Exchange and Transaction Management services to the vendor. Where we’ve fallen short is in helping our suppliers and providers get that invoice back most efficiently.

The other thing that’s extremely exciting about what Ariba brings to the table is the fact that they have over one million vendors on their network.

What's great about the Ariba Network is that we can link our eCommerce Exchange with the Ariba Network to enable a more efficient transaction process. We enable providers to get a PO out through our eCommerce Exchange or through the Ariba Network electronically, and then enable suppliers to send that invoice back electronically through their exchange or through invoice conversion services, which is basically taking the paper invoice and converting it into an electronic invoice.

Multiple benefits come out of that. It’s a perfect complement to what MedAssets has already been doing in the healthcare community with our provider clients, but taking it to the next level. The other thing that’s extremely exciting about what Ariba brings to the table is the fact that they have over one million vendors on their network.

Today, we do commerce through our exchange with about 350 traditional medical/surgical vendors, whereas Ariba has perfected the world that they call "indirect spend" and we call "purchased services." That's a huge unlock both for us and for the provider community.

We believe that purchased services spend is just as big as the spend that goes through the GPO, if not even bigger. Typically, that has been a very hard area for providers to get their arms around, because they haven’t had access to the data.

The main reason for that is that most of the purchased services spend is a non-PO transaction. So it’s very hard to get to that granular line-item level detail to break down that spend, whether it’s by contract category or specific vendor. You can’t manage anything if you can’t see it.

Significant value

So we're extremely excited about leveraging the Ariba Network and working with them to capture 100 percent of provider spend, not just med/surg and PO-backed spend, but all of the spend that’s coming out of the hospital. The value this can bring to the provider community is significant.

Gardner: It sounds like a really good marriage between the general approach that Ariba can have and the more verticalized, specialized approach that you have. It's sort of the best of both worlds. What did you do before Ariba, and how long have you been working with them?

Grodin: We've been in dialogue with Ariba for several months about a strategic partnership. We hadn't worked with Ariba in the past so this is a new relationship. But after speaking to customers of theirs, doing our due diligence in other industries, and talking to some of their healthcare clients today, we knew that this would be a great strategic fit both for us and for them.

Gardner: Rick, tell me a bit more about how the services at MedAssets and some of the capabilities at Ariba coming together to offer you the capabilities to deliver into the market things that perhaps you've never been done before.

Ariba has created a smart invoicing capability, because it’s a network, as opposed to just an EDI pipe.

Grodin: This is where I get very excited about the potential of what Ariba and MedAssets can do together in the marketplace. As I mentioned before, we have our eCommerce Exchange, which is EDI-based, and we can get a certain portion of invoices back electronically through our exchange.

There are other offerings in the marketplace that are very similar, but really what they do is just get a paper invoice back into the provider’s hands more quickly. But you don’t know if that invoice is correct. If it’s not correct, there is a whole lot of inefficiency in managing that exception on the backend.

Ariba has created a smart invoicing capability, because it’s a network, as opposed to just an EDI pipe. Those invoices that are inaccurate can be rejected on the front-end, so they never even get to the provider until they are accurate.

The best part about it is that rules engine -- and that I believe that you can customize up to 70 different rules -- is dictated by the provider themselves. It’s not a built-in, one-size-fits-all type of solution. Depending on the unique needs of that provider, they can customize that rules engine to reject inaccurate invoices back to the supplier in real-time.

It’s the whole notion of garbage in, garbage out. We're preventing the garbage from coming through, which is then creating those efficiencies in accounts payable. That is absolutely something that’s going to be unique to healthcare and doesn’t exist today, and which again will create tremendous operational efficiencies on the back end.

Because of smart invoicing and the overall transaction efficiency that’s created through the exchange and the network, we're going to be able to enable providers to get invoices in a ready-to-pay status much more quickly. Industry best practice is five days. We've seen metrics, where it could take anywhere between 20 and 40 days to get that invoice approved for most healthcare providers today.

Dynamic discounting

Our relationship with Ariba will enable us to leverage Ariba’s working capital management solutions as well. They’ve got something that they refer to as Dynamic Discounting, which creates the ability to have an ad-hoc negotiation for further cost-of-goods-sold reductions between a provider and a supplier.

Because of the increased visibility into where an invoice is sitting and what the status of that invoice is between suppliers and providers -- something that doesn’t exist in healthcare today -- a supplier can go in and see that an invoice is sitting in a ready-to-pay status.

They can then offer an incremental discount to the provider, so that if the provider  has additional cash on hand and it’s better used to drive additional discounts as opposed to sitting and getting short-term interest, that can make a tremendous amount of sense.

So, there's also the ability to optimize prompt-pay discounts, where appropriate, because we're getting those invoices in a ready-to-pay status much more quickly. So if it’s a two percent discount if you pay within 10 days, and the average invoice isn’t being approved for 20 days, all of a sudden I've missed that window. Even if I have cash on hand, I can’t leverage it.

Even better, if I've missed that prompt-pay window, but am willing to pay on day 20, instead of day 30 or day 40, all of a sudden there is value coming back to the provider as opposed to no incremental value for paying early. It’s just another lever or another tool in the toolkit that we can use to drive further cost reductions in our partnership with Ariba.

As the reimbursement models are changing in healthcare, they're getting more-and-more focused on clinical quality, safety, etc.

Gardner: Of course, healthcare being such a large part of the economy, we're talking about some very large sums of money. But when it comes out to eking out these efficiencies, when you can reduce those paper invoices, when you can streamline the processes, and you can provide the right data at the right time to the right people to make choices to automate over time, what sort of savings are we talking about? Do you have a sense of what the payoffs are when this is done properly?

Grodin: The benefits are significant in a couple of areas, making that back-office function, specifically in AP, more efficient, more scalable, and being able to repurpose the work that was being done in that department and in other back-office administrative areas. Also, the ability to reinvest those resources in front-line patient care delivery.

As the reimbursement models are changing in healthcare, they're getting more-and-more focused on clinical quality, safety, etc. That’s where a hospital’s core focus needs to be, not in the back-office. It needs to be with the patient. Certainly there are significant FTE and operating efficiency benefits created by this partnership, but what we are particularly excited about is more from a contract-compliance perspective.

Through our eCommerce Exchange, our transaction management service, as well as what Ariba is going to bring to the table through PO and invoice automation, invoice conversion services, invoice professional which is their workflow tool, we'll have the ability to ensure that folks are buying on contract where they should be and also ensuring that they are paying the right price. We do a good job today of ensuring that that PO price matches the contract price, but where we have been challenged in the past is the ability to bring that invoice price in.

Significant benefits

It’s going to bring significant benefits, because in some of the research that we're doing with very sophisticated health systems, they're finding that they may only be buying on contract 30-40 percent of the time. So a contract is only as good as its use. If it’s just sitting in a drawer and nobody is accessing it, all the great work that’s been done by their sourcing team or our sourcing team is for naught.

The ability to do all of that in real time, to take that PO price match it up against our contract price and against the invoice price, is going to ensure not only are they buying on contract, but they are paying the right price.

Gardner: As we move further down the road, we see that the technologies in cloud computing and data analysis are being brought to bear on some of these issues of more opportunity, gain insight, see the trends and bargain, and understand what the market will bear, rather than just dealing on a point basis. Do you expect that you'll be looking for more analysis services from providers like Ariba and how important is that in the long-term for further eking out productivity gains?

Grodin: As our relationship continues to blossom with Ariba, I'm sure we’ll be having conversations around their spend visibility and other analytic tools that they can bring to the table. Within MedAssets, we have  our own analytics tools, including service line analytics, spend analytics and pharmacy analytics.

For us, the true unlock is the ability to get access to purchasing and spend data, which is where we are very excited.

For us, the true unlock is the ability to get access to purchasing and spend data, which is where we are very excited. We capture a lot of financial and spend data today, but this purchasing and  indirect spend area is really an untapped horizon where the data and the technology that Ariba is going to bring, in combination with our analytics, people and process, will provide significant benefit.

We currently manage about $5 billion of spend through our National Procurement Center, which is the largest shared services operation of its kind in healthcare today. That combination of people, process, and technology is absolutely going to unlock new opportunities in healthcare from a spend-management and cost-reduction perspective.

Gardner: We’ll have to leave it there. We have been talking about the healthcare sector’s unique operational efficiency and regulatory challenges and how MedAssets, in partnership with Ariba, has found ways to improve health provider and supplier compliance, cost and accuracy of results.

I’d like to thank our guest. We're here with Rick Grodin, Senior Vice President of Product Management at MedAssets. Thank you so much, Rick.

Grodin: Thanks for having me. I’ve enjoyed the discussion.

Gardner: And I’d like to thank our audience for joining us here for this special podcast coming to you from the 2013 Ariba Live Conference held recently in Washington, DC.

I'm Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of Ariba-sponsored BriefingsDirect discussions. Thanks again for listening, and come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: Ariba, an SAP Company.

Transcript of a BriefingsDirect podcast on how a major healthcare services company is leveraging tools from Ariba to cut costs and improve efficiency. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

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