Rich Palarea goes on the Power Supply podcast to give the roadmap for hospitals and health systems to reduce their implant spend. Rich dives into how their hospital partners can boast of a 20-30% cost reduction from previous implant spends, as Kermit takes full ownership of the implant RFP process, working together with internal supply chain resources to obtain fair market costs for implants used. Hospital supply chain needs a dedicated resource who not only knows the products being procured but has intimate knowledge of the contracting strategies of these manufacturers. And they need purpose-built technology that can automate the paper-based process and accurately manage costs.
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Justin Poulin: On this vendor spotlight, we speak with Rich Palarea, CEO at Kermit, and we're going to get into a great discussion today about implant spend management and Kermit. They are the experts. Rich helped launch this company along with two others a decade ago, has had documented savings and success, and we're going to talk a lot about their process.
Their vision and we're going to tease a little bit of Rich's new project, which is the Healing the Hospital podcast, which I had the honor of being their very first guest. And I have to tell you, this podcast is an excellent listen, and he's going to be putting out a lot more great content there as well.
Somebody who really cares about the supply chain industry. We're going to be right back after a short break with Rich Palarea.
Justin: Joining me now is Rich Palarea CEO at Kermit. And Rich, you and I are getting pretty familiar with each other, especially in the podcast studio because you recently launched Healing the Hospital podcast, and I got the opportunity to be your inaugural guest and you deemed me a Hospital Healer sent me a really nice mug.
I think the podcast has been off to a great start. So you are underway to becoming a personality in the podcast world and love having you back on the Power Supply podcast.
Rich Palarea: Yeah. Thanks Justin. It's great to be here. I'm reluctant, I would say. I mean, I'm enjoying it, but I never thought I'd be on this side of things.
It's been, you and I talk about this, there's just this lack of thought leadership around healthcare voices that we can follow and are interesting to talk about things like this, especially around the topics that you and I love sterile processing, infection control, especially supply chain with what we do at Kermit.
And we took a little bit of a broader view when we did Healing the Hospital we want t o talk to people who are not afraid of making change. When they see a difficult problem, they don't run the other way and say, I'll pretend I never saw that, and maybe somebody else will clean up the mess. But they get in, they roll up their sleeves and they're not satisfied with just going home and leaving it for somebody else. So that's the theme of the show. We're very fortunate to have you. Nobody can ever take away the distinction of you were number one.
Justin: Well, actually, I got to say Bob Yokel was number one. He'd been podcasting for quite a while, but Bob graciously let us know that we had hit that number one in healthcare supply chain.
The content you've put out though, you gave me a sneak peek into the second episode, which will definitely have released by the time this podcast releases and I happen to know your third guest that's lined up as well. But I cannot wait to hear the second episode. And for you to have gotten off to this kind of a start is very commendable.
You're doing a great job being on, the other side as a host, but you're also great as a guest. And we're going to be talking today about implant spend management. And as you said, the Healing the Hospital podcast is really, a very high level and broad coverage supply chain podcast for healthcare professionals.
But I am very glad that we can have you on to talk about Kermit and really talk to the Power Supply audience about the good work that you're doing. Cause I realize that's not really what you're doing podcasting for. You have a genuine passion and love for this industry and it's under duress right now.
And you see an opportunity to really help, which is all part of this theme around, Hospital Healers. And so can you tell everybody if they didn't catch your first podcast on Power Supply or they haven't found the Healing the Hospital podcast, can you tell everybody about your background?
So, I'm an entrepreneur. Kermit is the fifth business I've started. I've exited one of those. I failed with the other ones. Some ran their natural course, like I was a real estate appraiser for many years in California during the first real estate debacle when the mortgage industry got into all kinds of problems for over leveraging their positions.
And that was interesting to be called into court as a 20-something year old to defend appraisals that I had done. I wasn't the only founder of Kermit. I had two former medical device reps that helped me start this company. They worked for Zimmer Biomet in joint recon. And they were there tendering supplies to the surgeons during surgery with no price tag on the box, and they just basically got fed up with their employer telling them how to take from the hospital in this less than transparent transaction. And so when they came in and told me about this, that how they stand in the operating room, there's no price tag on the box. Everything's tallied on a piece of paper.
I could forget we ever had this conversation or we could do something about it. And this was kind of my first introduction to maybe we were the first three Hospital Healers before we dubbed anybody a Hospital Healer. That wasn't okay. My mom had her hip done a couple weeks before, and all I was thinking about as they were telling me this story is one of them was standing in the operating room with her.
And so that was kind of my introduction to all of this. So my background came up through starting businesses, growing businesses, and solving problems. Not being afraid to take risks, but mostly, those are risks I was taking on myself. So if I failed, I only had myself to blame. This is an entirely different thing.
There are almost 30 people now that work here at Kermit. We will probably grow to somewhere around 40, maybe max, and there are lots of other people here that make this team up and make what we do possible. It's not just me and I have to be cognizant of that, really leading this organization every single day.
Justin: One of the things we talked about when you had me on your podcast was the need for transparency in this industry. And you talked about no price on the box. Right? And I just think about how that whole process works. I mean, a lot of times the clinicians are the ones that are in there sort of approving that and they're not necessarily the experts in supply chain or negotiations or pricing.
And the next thing you know, the bill comes over. I also think it's really interesting that you had two former device reps, because if you were going to create a solution that was going to be practical, you would need to have that day to day insight.
Rich: Yeah, for sure. So I think the genesis where the idea started with them being in the operating room, adding an extra drill bit to the case or a screw here, who's going to know?
And when they realized that they could actually do that kind of stuff, and there was no oversight, they weren't obviously the only ones in the nation doing that, it was happening across the nation. I think what they did realize, Justin, was that it's not right to be doing that, and it didn't feel right to them, and so they wanted to do something to change that.
So the transparency is a big theme of what we're doing. It's not just the fact that it's being tallied on a piece of paper and then somebody's expected to cut a purchase order from that. It's the fact that the surgeon chooses with no understanding of what it costs, the hospital pays, they don't choose, the surgeon chooses.
So you have this interesting asymmetrical purchasing thing going on where you just aren't informed. If you can collaborate on that, if you could have the clinician or the surgeon, supply chain, and finance at the table at the same time, you'd have a very different process. If you or I were to sit down and build a process to charge for these implants today, we would never do it the way it's being done today.
It wouldn't be done on a piece of paper in the advent of everything being electronic, we'd be able to track this stuff. We'd be able to automatically assign a price so salesperson isn't writing down what they want to charge, and we'd be able to track what got implanted and is that what's being billed to us?
There should be a better way of doing it. It is one of the last frontiers. Of being able to build an electronic paper trail, if you will. The medical chart is gone. It's now electronic and there's some things that are good and bad about that, but this paper-based bill only process circumvents all other controls you have in a hospital where you have inventoried items, it just doesn't work that way because these items are brought in just in time for a surgery by a person in a vehicle.
Some of them are used in surgery and the rest are returned. It's a very laborious logistics process. And you add to that, the fact you're tracking it on paper, it's really problematic.
Justin: It's hard to get transparency when there's paper. That's really how you're tracking it. You've got to input that information in some way that then requires a manual effort.
And I guess I just, as we kind of go in, I think there's more to this conversation about the challenges in the industry. That aspect that you're talking about right there of providing that analytics and getting a handle on that, is that what Kermit does specifically as a company?
Rich: So a couple things we do, and this isn't for every hospital.
The hospital really has to want to embrace a third party to do this. When you think about everything that executives are asking of their supply chain today in the average hospital or health system, we've asked them to purchase capital equipment, for example, MRI machines, CT machines, x-ray machines, all these big things.
We asked them to take care of lawn care and landscape and food service. Oh, and also we need you all to be experts in 23 different categories of highly technical implants like pacemakers and defibrillators and knee implants and spine and shunts and everything else. So you've really done a disservice to supply chain asking them to do this.
But if leaders go to supply chain and say, You're free to use whomever you want. If you find a subject matter expert who knows what the best price ought to be, fine, bring them in and leverage them. We're not going to hold you accountable just because they found $10 million in savings. We all want the savings, so please bring them in and so that can be a little bit touchy.
So the first thing we do is we identify what the price points are at the street level for everything that they're using. Everything that's on utilization. And we can negotiate the price because we do that every single day for lots of hospitals across the nation. We know what the street price ought to be for any given implant.
The other thing that we do through our utilization and categorization is I can tell the hospital, if you have six total joint vendors all doing knee and hip, this femoral component is the same, whether it's Zimmer Biomet, Smith & Nephew, Stryker, DePuy, whomever. It all serves the same purpose. It all has the same outcome, and therefore it's logical that they all get the same price, they should be contracted at the same rate.
That's very difficult for a hospital to do. There are lots of influential systems and things at work where the rep is influencing the surgeon. The surgeon wants to use it in surgery. They're influencing value analysis. That analysis gets confused, tosses it to supply chain, and before you know it, nobody's collaborating with anybody else, and all you have is an upset surgeon who said, you told me if I follow the process, I could use this new thing. So, this gets to be very complex and convoluted.
The second thing that we're doing is we're tallying everything that's being used in surgery at the point of use in the operating room. Other approaches to this problem have failed in the past, unfortunately, because they're waiting for that dirty data that's locked on that piece of paper to be committed to some other enterprise system, like a purchasing system, for example.
And by the time that dirty data gets into the purchasing system, it's available to a consultant to then pull down and make some analytic interpretation from. Unfortunately, the data's not correct. So when we collect it at the point of use in the operating room, we're tallying how many screws were used.
Oh, it was a two hole plate and a trauma case to fix a wrist. Why did you have three screws in there? We'd like to know that kind of stuff. So, we're making sure that everything that was sold is being charged at the right price without relying upon either the supplier to price it or the hospital to figure it out.
And also, what about the situation where you have a patient with say, osteoarthritis and the surgeon needs maybe a different style implant and it's not on contract. The rep has it because that's the rep's job is to make sure they can bail the surgeon out in any instance. The surgeon doesn't know if it's on contract or not.
So what gets onto the patient bill is this non catalog item or an item that was never negotiated. It doesn't have a contract price. So, Kermit, the software is able to adjudicate all of that in real time. Tell the hospital what's okay to pay and what isn't, and then take all that data that was collected at the point of use, turn that back around to the surgeons and they can trust that data.
They can see that it was Mr. Poulin who had his hip done on that date. And they remember, Oh, I wasted an implant. I told the rep not to charge me for that dog on it. They charged me for it. So, there's a different level of visibility a surgeons going to get, or even supply chain to be able to manage all the kind of things that are going on in the rep's world.
Justin: Yeah, I can see where even those non-contract items, you can then evaluate frequency and whether or not you can add an addendum or an amendment to the existing contract to get a handle on that. Especially as you see emerging, implants. So early on, earlier adoption, higher usage, and frequency of use.
One of the things that I can see here, obviously this is addressing something that's been going on in the industry for a while, which is the financial crisis that we're in. We just sent out a newsletter, I want to say it's a week ago leading up to this recording. It was reported in that article that hospitals are still operating on an average of a negative 0.3% margin, so this is obviously not sustainable.
When we talk about supply chain resiliency and sustainability. Obviously you have to sustain a profit margin, and that's why there's so much pressure. I've also seen a trend where supply chain is getting credit for revenue where they never used to. It used to always be cost savings, and that's a shift in thinking for a lot of people in supply chain as well.
But part of that's because they're now at the C level and they now have a CFO contact that's paying attention to that conversation. And it's being said to them, Revenue counts the same on the bottom line as savings. And The thing is that there's still all of these savings opportunities due to inefficiency or lack of control, and again, a process that's been very much managed on paper.
What do you figure, since you're targeting that implant spend, what do you figure is the, on average, the amount of spend that's going to implants? Like how much of the supply chain pie are you addressing?
Rich: Well, you touch on something a minute ago that I want to go back to and not just leave there.
The negative margins, the AHA reports that this year alone in 2022, over 50% of our nation's hospitals will post an operating loss. 50%. So over half of them, over 850 hospital CEOs have walked off the job this year. Those are just the ones we know about. We're not even looking at all the nursing jobs that have left, and they've hired back those nurses at two and three times at the travel rate basically.
So I was talking to the Chief Clinical Officer of a large academic health system here in Maryland this week, and he said, We are going to have to fundamentally rethink the way we deliver health care in our health system. When he met me four years ago, we went in and did a project for them. We saved them $55 million in four years.
Implants were 60% of their supply chain spend. And that's pretty much the average. I mean, it's a very big piece of the pie, and that was a great story to tell at the time. He had a $500 million bogie on his plate that he had to fix. And, we made a pretty good dent in it. But now he's telling me it's not just about the savings.
That's not even enough. We're going to have to rethink how we deliver this. So yes it's a big, the implant spend is a big area, like I said, about 60% of supply chain spend and in your average, regional medical center, it's not out of the question for somebody to be spending $50 million a year on just knee and hip.
And we have 23 categories that we concentrate on. Our average savings result, if somebody will let us get in and negotiate for them on behalf of them, is about 30% of their spend. So, it's a sizeable number. We can return right directly to the bottom line.
Justin: Without them having to put the manpower behind it.
I think that's one of the other big things is we're looking at this workforce crisis, and what you're talking about is not only specialization of your team, but also access to a broader data set and something that exists outside of a silo that really allows you to help in a way that maybe somebody, even if you threw more bodies at it in healthcare, just wouldn't have that ability to access the information that you're going to have access to.
Rich: Yeah, the average hospital is not going to have people on the bench that can come off and do this type of work. What is it? Maybe once a year to negotiate your knee and hip and maybe once a year for your spine once or twice a year for your cardiovascular. They just can't. You would have to have experts in every one of those categories, which we possess.
You would have to have them sitting on the bench waiting for their turn to negotiate, which right now we have a staffing shortage, so I don't think we've got people just sitting around with nothing to do in the hospital. If you are really looking for a way to get something done in a true outsource model, this is a very elegant way of handling this.
You're not outsourcing your whole supply chain, just this very intricate technical area that is best served by a bunch of experts anyway.
Justin: And you've been doing this for a while too, like I feel like this concept is fairly new, as far as industry recognition.
Rich: It's new I think because supply chain and healthcare finance in general have looked to other areas of the patient care to take out cost.
So you have certainly in the post-acute realm, sniffs and nursing and all of that stuff, hospital stay length of stay. A lot of hospitals have done a very good job of optimizing that, and they were forced to do that because of the way the reimbursements were going. Medicare told them they had to do it.
Now as they start to kind of come up the pipe, back in toward the perioperative episode. They're looking at other ways they can take care of this. About two or three years ago I got a phone call from a local hospital that we'd never called on. We just kind of left them alone. They're a small hospital, but they called and said, you are the guys who do the implant negotiation, right?
And I said, yes. And they said, You only take a portion of what you save, right? So I'm not going to have to budget for it. And I said, that’s correct. He said, Well, my CFO just came to me and he's got to pay the bill to Epic and he doesn't know how he is going to do it. So they know there's always a cash cow sitting here that can come squeeze more out of orthopedics.
Can you guys come in and get us some savings? And I thought, Wow, like this is such a pragmatic way of looking at it. They all know that no matter what, they do something with their GPO, they do something with a consultant. They try even on their own. They really don't know what the true bottom is.
You've got to bring in an expert who understands what is the true rock bottom. And we're not going to hedge anything. We're not going to leave anything on the table because our model is we don't get paid unless we save the hospital money. So we're going to go for broke right out of the gate and we will never ask the surgeon to change anything that they do. We value and honor their preference in choosing. We just want to take exactly what they're using and bring the price down to where it ought to be the street price.
Justin: That's amazing. That's a real true partnership and I can see where that whole piece about not having to budget for it.
Traditionally when you bring in consultants, there's going to be a cost there, right? Or in a lot of cases. And so sometimes that gets tabled, and I think what you just described was somebody basically reached out to you and you were able to come in and you have to wait for the fiscal year or the budget cycle to get started on it.
They were able to move right when they needed to. And right now, Everybody needs to move on all kinds of initiatives. But what I've seen just in working with supply chain is there's a lot of hesitancy because the question is, what's our lift? How much time and energy and manpower are we going to have to put into it?
And what you're saying, I think this is what you just said, and you can just reiterate it for me to make sure I heard it correctly, is that you're really not getting paid until you deliver the savings and you're deploying the manpower. Is that right?
Rich: That's right, Justin. In fact, the way that we have it worded in our agreements, savings has a capital S, and it's a defined term, and we spell out exactly what has to happen for us to be able to bill for savings.
You have to have what we call a savings event, which means I have to be able to point to a date and a patient and a surgery and a skew that used to be at price A, that is now price B, based on the pricing that we were able to deliver and show the mathematical difference between those two as unspent, I guess implant budget, unspent supply chain budget that you should be able to recover and redeploy someplace. So until I can do that, I really don't invoice anybody. And the manpower piece of, It's a very good point. We're quite flexible in how we go to market, how we deploy this strategy. We'd leave it up to our hospital customer to tell us, I'd like for you to be behind the scenes.
I want to negotiate with the reps. My surgeons have relationships with these reps. Can you help them be smarter and give them the talking points? Absolutely. It doesn't matter to us. We want the hospital supply chain individual to get credit for this large savings number that we're going to drive. We don't care how we do it.
We can be out front, we can be behind the scenes. We can do a combination thereof. We can be credentialed employees on site at the hospital. You can give us an office. We've done that too. We're just being a small, nimble company allows us the flexibility to adapt and go in the way that the hospital wants to do it.
If a hospital doesn't want to do this, we're not going to be there forcing them to try to do this with us. There has to be a cultural fit between their organization and ours.
Justin: You've got this robust team. They have lots of different experiences and they can integrate how it makes sense for the hospital or the healthcare organization.
As you said, very nimble, right? So what's that process look like, regardless of how they deploy your team and how they fit into their organizational structure? What's that process like and what are you doing? Like how are you collecting the data? Just walk me through what that's like. If I were to bring you into my healthcare organization today, what would I expect from day one of implementation?
Rich: Okay, sure. So I think some hospitals look at what we're going to do as a big lift because they're used to negotiating on their own, so they know when they sit down to do that, I have to get the surgeons to the table. I have to get medical records and numbers and analytics and usage data and finance data, and it's going to take me pulling these different people into this cohort to sit around this table for some period of time.
Typically, it can take a hospital 6 to 12 months just to go through one negotiation. That's the way the suppliers like it. They want to grind you down. They're hoping to tire you out, and if they can give you just one more pricing round to confuse you, they win the game until you decide, you know what? We got 10%. We've gone far enough. Let's give up here and take what we can get.
So our process is a little bit different. The first thing we do is we look at a utilization study and typically we'll do that before we even contract with the hospital. So at no obligation to them and no risk to them will sign a non-disclosure and they can send us purchase history data.
From that, we will benchmark what they're buying over the past year and tell them what we think the probable outcome would be based on savings. Now, we don't have to be exact because there's no proposal attached to this. It's just going to be a portion of what we save them. But ironically, it turns out we, we are fairly exact, we have been plus or minus 1% on every one of our forecasts when it comes to what the outcome of the project has been.
So we're very good at forecasting, which tells you that our benchmarking numbers, our spend numbers are quite accurate. Once we go back and tell the hospital what we think we can save, then we go through our contracting process. It's pretty straightforward. Most healthcare organizations want to use us for the immediate cost savings they're going to get by deploying us on a savings project, but they also love the idea of the software.
They want to get visibility. They only want to pay what they owe, and they want to have data at their fingertips when they sit down and talk to a surgeon that is highly reliable. So what we will do is if they allow us to participate in the savings we'll make the contract so that we will let them use the software at no charge during the time we're sharing the savings.
There's typically a two year shared savings arrangement at 30% of savings, and during that time, they don't pay for the software when they get to the end of that two years, all the savings belong to them. They now have all of our methodologies, all of our templates, all of our best thinking and practices, and they can go after the next round of negotiations.
Hopefully, we haven't left a whole lot for them to scoop up. Maybe there's been a little bit of growth in the service line. Maybe there's another 5% they can get, but they're fully capable of doing that, and at that point, they want to subscribe to the software because they have a dependence or reliance upon it.
They know that with just a couple of button clicks, they're going to be able to run an RFP without involving all those other people they did in the first go round. So that's what the contracting looks like. And then the actual project is quite streamlined. It's based on a best practice approach. We use a lot of Six Sigma methodologies in what we do.
We have practitioners who do this day in, day out, so they can do it very quickly and we fast track it. So if the hospital can line up their contracts and pricing for us and get us meetings with at least the cohort of surgeons who are doing most of the surgery, we can have this done in about 90 days.
It's very quick to get the savings and by the time the ink is dry on the paper, on our contracts, they're already saving money in the OR. From there we're really just in a maintenance mode where we're helping them every single month with a strategic advisor to inform the reports that are coming out of Kermit.
What does the data look like? Where are the new items being introduced? What kinds of bait and switch tactics have the reps tried to do? All that stuff gets shut down immediately. So it doesn't turn into more expense, waste, fraud, and abuse. But we bring those reports to desk side of the supply chain and help them understand how to then take this information and take action on it.
So maybe there's an additional savings of maybe, not using antibiotic loaded bone cement on every single case. If we see something like that, our experts will come show that to supply chain and then it's up to them. They can determine whether they want to go tackle that or not, but they have complete control over all of those other savings opportunities.
Justin: Yeah, I think that's great. I really like how you walk them into more independence over their relationship and the time with Kermit. I think that's really important when we talk about that sustainability and the resiliency, empowering supply chains to be successful with the right tools is definitely something that long term is absolutely sustainable.
I'm also hearing, as you were talking about the model of delivering these resources, not only manpower, but also software. The technology that you've developed, the information that you've gathered. If you are only going to make money if you deliver results, I'm assuming that you've got a little bit of a qualifying process for who you work with.
Is that right?
Rich: I mean, we certainly don't want to get into a job where there's no savings. So I think that first look is also interesting to us. We know that we're making a value based offering, that we will have a win-win. The hospital will save a lot of money. We get a small portion of that, and if we can do that for 10, 15 hospitals, we can make a market out of that and everybody should get what they need.
You mentioned the fact that you. You like the aspect that we're helping the hospital learn and do this on their own. I get cross looks from investors all the time who say, Aren't you working yourself out of your business? I'm like, I guess you just don't get it.
What we'd love to see is every hospital availing themselves of this process if they want to do it. And then we come in, we clean everything up and they just manage it. And a lot of, some of our customers, honestly, Justin, come back to us. After the first two year engagement, they say, Well, our contracts are up again and guess what? Three people left supply chain and we love you guys and we'd rather you just do it again. So can you just do it again for us? And the very first customer we ever sold at Kermit, we still have today. We've done, I don't know how many, six, seven times over negotiations for them. So that's okay.
We'll still do that. Those projects can be profitable for us because they're very turnkey. We already have all the data now and it's just a matter of just refreshing the pricing and away you go and if we can be a benefit to the hospital so they don't have to worry about it, then yeah. So much the better.
Justin: Our episode on Power Supply, we came on. With Hayes and Gary and myself, was all about entrepreneurship. And so you're in it for the right reasons. When you answer those kinds of questions to investors, right, is ultimately, I'll go on and I'll do the next thing and I'll heal the hospital in a new way.
And so I think that's really important, to be in alignment with ultimately the long term goals of the hospital and the way that you deliver value and that you're right, with the way that things happen in this industry, they're still going to have to come back to you at some point just because they're going to have staffing issues.
We've just seen it over and over, and especially right now while we wait for, I would say the emergence of healthcare supply chain to be a destination career. And I kind of got that coin phrase from Derek Gallagher and Rachel Anderson, which worked with the young professionals and I love that.
People just kind of fall into supply chain. So I think people are always going to be coming back and looking for help because we know in any organization, especially one that sustains over a long period of time, there's just going to be ebbs and flows. And sometimes you need a lot more help. And sometimes you're very self-sufficient.
So I think your prospects for your business is very strong. And again, I think the model itself just lends itself to that kind of transparency that's needed to drive down costs. And when we talk about that, you've got a number of success stories. You're based not too far from me in Maryland, and I wondered if maybe you could share, some examples of the savings that you've achieved, just immediately in your area.
For some of your customers.
Rich: Yeah, of course. Well, I mentioned University of Maryland to you in a roundabout way. I didn't give you the name, but that's the 12 hospital academic health system. We're very fortunate in Baltimore, and maybe it makes you all jealous up in PA that we have two world renowned academics here in Hopkins and in University of Maryland.
They coexist in a very tight geography because they do different things and they're both world renowned for their, in their own right. I mean, Shock Trauma Center, University of Maryland is known worldwide, has been on TV for the good work that they do, and Hopkins, of course, is a global organization, but yes, at University of Maryland, like in a scant four-year period, $55 million in savings.
And that doesn't really, that doesn't even count what they got from using the software. Other FTE Redeployments and optimizations, other reporting and the really tight relationship that they built with their surgeons. We're very fortunate to have a great sponsor in Dr. Andy Pollock at University of Maryland, who brought us to the table every month when there was a total Joint network meeting and a spine network meeting where Kermit sat at the table with the surgeons.
We were the only solution provider that was in that. At Inova in Northern Virginia, we saved them $6 million in the initial phase of just a hip and spine project. And what came out of that was very interesting. Vizient their GPO was in there trying to help them with supply chain. And unbeknownst to them, we were quietly optimizing these categories underneath them and saving a ton of money where Vizient wasn't able to save them much in previous years.
And that led to a question that Inova said to us. What other categories do you have? They didn't really even know that we did anything more, and shame on us for not telling them. But we had 23 categories they said, Would you do complex things like biologics and sports medicine is real hard for us, by the way.
We do a ton of oncology cases here. We would like help with breast implants. So, it turns out that. All 23 categories they could avail themselves of and handed us on a tray, all of them, over a multi-year deal that will probably be in somewhere between $12-$15 million in savings in the short run.
But the real story at Inova was that they just launched a new ERP, they went to Oracle Cloud for the ERP. And they realized that what they were doing inside of Oracle was duplicating a lot of, and retyping a lot of the information that we already had in Kermit. So they said, If Kermit has told us what's okay to pay on a knee case, can't you just push that data into Oracle?
We said, Sure. So we built a way to do that and they said, Well, now that you have an Oracle, can't you just trigger the next purchase order so we don't have to do it? We said, absolutely. And they said, Well, now that you have the PO can you transmit it back to the supplier? And we said, That's no problem.
And so we built with their Oracle var, we built an integration to Oracle that does all of that, and they've redeployed FTE's that have saved them over 10,000 FTE hours per year just in this one area. A huge number to think about. And that has actually caught the eye of Oracle who has said, We heard a really cool story, can we come talk to you guys about how you could do this for our customers? So that was cool.
Another one that comes to mind is our second customer ever, which was Anne Arundel Medical Center. Now they're in Annapolis, Maryland, and now they're part of a health system called Luminous through an acquisition they did of another hospital down toward DC called Doctors Community Hospital.
Anne Arundel was special to us because Kermit didn't exist when we did their first negotiation. We saved them about $5 million on knee and hip and we came to them with this idea and we said to the supply chain leader at the time, would you let us build this idea we have. We want to take this paper based process and automate it and get the whole workflow automated so you guys don't have to manage the paper. And she said to us, We love this idea so much. We'll be the alpha site, which you can use we don't even want to be the beta. Bring it here while it's broken and let us pound on it and you can use real patient data and we'll give you everything you need.
And they didn't ask for anything in return for that. And so I was very fortunate to have a partner like that in the early going. If I can just make a shout out since we're on a supply chain show. That was Ms. Dina Jackson, who has then gone on to be the Vice President of supply chain at Kaiser Permanente.
So she's really climbed the ranks and hopefully we have an opportunity to work with her shortly. So that was another really wonderful book end to these really big health systems and these small community and regional medical centers, they all have the same problem. They're all dealing with implant spend that's transacted by a human being who brings these trays in and it's all being done in a piece of paper.
The thing that's common about those three environments that I mentioned is they were all open to a third party coming in to help them, and they weren't too proud to let us show them what's possible and then let us stand behind on them and they go out and take the credit for it.
And I think once they caught the vision for that, it's a very specific kind of cultural fit that you get with that. They've all been long term customers, who are very high value customers.
Justin: Rich, this has just been a phenomenal conversation. I do want to point people in the direction of your website, which is kermitppi.com, that's Kermitppi.com.
Also, want to give a plug to Healing the Hospital podcast, and if you do subscribe, you'll find my name right there as the first episode. So that's great. I'll always have that very distinguishable honor Rich, I know that's going places. And also I want to echo the fact that you, very much like Power Supply, are active on social media.
When we talk about, you talked about cultural fit, sort of in alignment with your company and the healthcare organization, but I also talk a lot, and we did this on our first podcast about creating a healthcare supply chain culture. And I feel like now more than ever, that culture can and should exist on social media where we collaborate and network.
And so as part of that, I want to point everybody to follow Kermit on LinkedIn to connect with you. And you kind of get a promotion to help really move this forward, which is a complimentary PO analysis for the first five supply chain leaders who message you on LinkedIn. I want to say that really specifically on LinkedIn, just continuing to promote that networking through social media and then you all will do the PO analysis and show that savings opportunity in leading service lines by product and manufacturers. And so Rich, I just, I got to think that the work that you're doing has had a significant impact on the many customers that you have today, but there's still a lot of opportunity out there.
Rich: There is, and that's why we value our partnership with you, Justin, not just with Power Supply, but also in all the things that you do to support everybody on LinkedIn to continue to be a voice, to talk about things that are important to further thought leadership.
And it's not just about lining your own pockets. You do it in a very generous way. You've set a really good example for me and how we're taking our show forward, and also the things that we're doing on LinkedIn. We have to be able to promote this idea of working together. No longer are we going to be able to do this as Lone Rangers anymore.
The days of that are over. I think we saw that with Covid. I think we knew about it before Covid, we just weren't maybe ready to admit it. But now we need everybody. Everybody needs everybody else. And I think as a community we can do so much to take this message forward and really raise the supply chain job in hospitals from a basement fluorescent light job to a white collar sitting at the executive table with a say job.
And I really like the movement that's already taken place, and I think there's more we can do.
Justin: I couldn't agree more. Right now there's a handful of supply chain podcasts. I promise you, you're going to blink and look up and you're going to see well over 20, within a couple of years. It's going to happen very quickly.
And so a lot of that will be representative of the effort and the success of continuing to push social media networking and the sharing of information and success stories, which is really how we all continued to show pride for the work that we're doing and the impact that is being made by healthcare supply chain at a really critical time in healthcare for our country.
So thanks again, Rich, so much for coming on.
Rich: Yeah, thanks for having me. It's been a pleasure.
Justin: That was Rich Palarea CEO at Kermit, and this company's been around for 10 years, tackling an area that I would say is still very much on the rise and an area of opportunity that is getting tackled more and more by healthcare organizations as we continue to the financial strain and I've had a chance to sit down and have lunch with Rich.
I've had a lot of engaging conversations. Obviously, I was a guest on his podcast and we have had so many high level discussions about the state of healthcare areas to improve it well beyond the solution that is Kermit. But I can say that I love the approach of, we're not going to invoice until we have delivered on the results that we have committed to the healthcare organization.
I just think what a great way to approach doing business because the last thing that healthcare organizations want to do today is commit money and then not see results. We just cannot operate in that kind of an environment. So, the business model is excellent. You can visit. Kermitppi.com. I do want to encourage you to not only follow Kermit and connect with Rich on LinkedIn, but also listen, subscribe, and follow the new podcast, Healing the Hospital.
We had some great conversations about some IT contracting considerations when I spoke with Rich and he does offer complimentary PO analysis, so message Rich on LinkedIn to get that set up here before the end of the year.
That's going to do it for this vendor Spotlight on Power Supply. But as a reminder, we'd love it if you downloaded our smartphone app for iPhone or Android. That's the best way to listen to the podcast. Some of the episodes have bonus content. You just click on the episode in the gift box in there. If you'd rather listen to us on Google, Amazon, or Apple Podcasts, you'll find us there as well as Stitcher, iHeartRadio, Spotify, and really any favorite podcast application that you like.
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Thank you for listening to this vendor Spotlight on Power Supply.
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