Welcome back to RevDive! Join as Richard Palarea, CEO at Kermit joins RevDive to discuss challenges & solutions in supply chain management.
What you'll get out of this episode:
His background & the background of Kermit
The trending supply chain challenges including high margins, staffing shortages, and more
What work flow optimization is looking like in the supply change industry
What to do to prioritize supply chain management
Taya Gordon: Okay, welcome back Rev Divers. We are really excited today about our guest because he is one of the good actors in the industry. We were talking a little bit before the show and I also had a bit of a, kind of a Hermione moment here. Trying to make sure I pronounce your name Rich.
Is it Palarea or Palarea?
Rich Palarea: Yeah, Palarea, but if you're, if you want to be authentic, I'll take Palarea.
Taya: Ooh I like it with the rolled R. Okay. I'm feeling I'm winning this Hermione battle today. That's awesome. So Rich we're super excited to talk to you because you're going to chat with us about supply chain challenges and some solutions for that.
And that is a huge issue in this industry today. So tell us like, quick elevator, who are you and where are you from?
Rich: Okay. So yeah, thanks for having me on the show guys. It's great to be here. My name is Rich Palarea, as you said. I'm the CEO of a company called Kermit. We're out of Baltimore, Maryland, 12 year old organization that specializes in reducing cost and achieving spend management in implantable medical devices.
So, things like knee, hip, spine, cardiovascular, 23 different categories of implants. We do it through one part consulting and one part software. It's a holistic approach to really get a handle on this very difficult category that supply chain wrestles with in almost every single hospital in the US.
Taya: So it's interesting that I brought up Hermione right in the beginning because we're basically talking about magic.
Which is really cool. I know that Kem, you and I have worked with so many different organizations that have supply chain challenges. Rich, you're working on this all the time. What are you seeing as those trending supply chain challenges? What's happening most often?
Rich: Taya, this category has been around for 50 years as long as knee implants have been a thing. And that's probably the most mature category we deal with would be total joint orthopedic reconstruction, but there's been so much innovation. You even have now biologic agents that are being implanted in patients. Lots of trauma uses. Anybody who is in a terrible motor vehicle accident is going to have multiple implants anywhere from, the face and the cranial maxilla facial all the way through any bone in the body.
So, there are lots of different areas. And this area has plagued hospitals for a long time, mainly because there typically is an intermediary who sells the implants to a hospital. It's a salesperson who's incented to keep their margins as high as they can and to also service the surgeon. Who really relies on that rep to be there at the right time with the right implants? And in any eventuality, the surgeon runs into an issue with the patient to have a bailout set of implants and go in any direction. So that person is very critical of the patient care, although they're not providing direct patient care, but the surgeon relies on them.
But you've got the big themes right now that you guys are hearing about. We ran all day long. The staffing situation is a big deal when you've got 50% or greater of all hospitals in 2022 posted an operating loss. This is just really not a sustainable way to keep managing healthcare in the US.
We're seeing some hospitals that maybe weren't willing to jump in with us as a third party and let us do this area for them. Really coming around now. We think we've sold more business in the past two months than we did in the last two years during Covid, where hospitals are saying, look, we're underwater. We need price relief. We need visibility and control in this category. And I think we're warming up to the idea that we'd like you guys to help us.
Kem Tolliver: And I think when Taya and I are working with organizations, we're really trying to optimize technology and with supply chain management technology is definitely going to be a huge driver for workflow optimization. Can you talk a little bit about what that's looking like in the industry in terms of improvements?
Rich: Certainly. So we have as the bane of the existence of all supply chains in every hospital. This paper-based billing process is driven by a salesperson when there's an implantable device used. Why is there paper? I don't know. Nobody's ever bothered to revolutionize. We've got electronic medical records, we've got ERP, so we have this piece of software. As devices are being tendered into the sterile field for use for implant into the patient, a barcode sticker gets peeled off the box typically gets pasted on this piece of paper and using handy dandy pen, the sales rep will write down the price they want to charge.
Where's it coming from? Their memory, are they guessing? Are they calling somebody at the office? We don't know, but a price shows up on this piece of paper. For what we do inside of our organization, we've managed to build an app that digitizes that process. It also takes a lot of cycles out of the FTE core because nobody has to actually carry this paper, transmit it sit down and try to analyze it, scan it, put it in a file.
All that is taken care of in the digital realm. But the big problem is trying to discern what's okay to pay and what isn’t, just by memory, by looking at this thing. So many hospitals are at their best, they're spot checking this data. They're looking for things that maybe are anomalies, maybe that don't make sense.
That means you don't have to, you can make a rounding error on one of these things and it'll get passed. And that if you do that enough times you guys know that can add up. So there probably is the biggest workflow piece that we're doing is the digitizing of that bill sheet and then the adjudication judging whether or not what is on that bill sheet is truth, is the right price there, but also is what was used. Were those items on contract? Were there other terms? What happens when something's wasted? How do we determine that? What's the price of a wasted item? All those terms and conditions inside of supply chain contracts are distilled into business rules that trigger automatically. So, I've never really quantified. I probably should. And you're getting me thinking here. What's the true FTE and partial FTE reduction we take out in our process because we are so focused on reducing the price. That's the big aha moment. We can come in and save a lot of money, but yeah, it's, and we're in a staffing shortage right now in healthcare. So it'd be great to be able to quantify some of this stuff. Thanks for the idea by the way.
Taya: I think it would be huge to quantify that stuff. Not only to your point, is there a staffing shortage like we were talking about before the call, when you have a lack of standardization and processes, you inherently have reduced productivity.
And so if you're reviewing your supply chain, and you're able to do that in a faster way, and you're able to access the data more quickly to make those evidence-based decisions. It's going to impact your operations overall. And I think that's been part of the challenge with healthcare transitioning overall into technology. Is this fear of what is going to do to our existing workflow? And I think I've told the story on the show before about the time I was running an allergy practice and the power went out and we, windows everywhere, had plenty of light and they were like, can we chart on paper and continue to see patients?
And I said yeah, absolutely you can. And they were so excited. It was the best day ever for them to return to paper. So, I think there's this tendency to hold onto the paper. So, do you see that kind of reluctance when you're talking to people about this transition away from paper?
Rich: It was like that, I would say maybe 5, 6, 10 years ago we started the company, 12 years ago definitely was back then. Now not so much. There's no reluctance. I think that they see, for example, what we're doing with our technology is we allow the sales rep to take a photo of the paper and it goes into the app. So the hospital knows they can always pull up that document and see it. And they're not having to say, where do we store this? Is it HIPAA compliant? Is it not? It just, we just take care of all that stuff. I think we're on a journey to people to let their hands go of the paper and know it's going to be okay.
But I had a similar experience. I had a guest on my podcast who was at the helm of a regional medical center in Baltimore when they were a victim of a cyber-attack, a ransomware attack, and shut down Epic. And they didn't have medical records and they had a full emergency department.
And she said, built a command center overnight. This is while Covid was still a thing too. So, they were dealing with that. And it was fascinating how she took them back and they recreated all the stuff. They didn't pay the ransom and they got back up and running it. It took them a good while to get back to a hundred percent, but it was the same kind of thing.
It's Hey, you guys remember paper charting? And they said, no. We have such a reliance now on the computer systems that we don't even remember how to do it. Okay, let's go back to square one and the fundamentals and we can still practice medicine. Let's get it done.
Taya: So Rich you have made so many salient points, I think that really explain why organizations should be focused on supply chain management. Why they shouldn't be afraid of paper, right? They do know how to practice medicine regardless. So I think that some of the only other challenges that I think of when it comes to supply chain management and really wanting to go dive after it is time and so, how would you suggest, like for our listeners that know, I think on average your customers, it was like a 30% cost reduction or something astronomical, right?
Because we're aiming typically for a 5% reduction. How do we say, okay, this is something I need to prioritize. This is something I'm going to make time for. What would you suggest our listeners do to prioritize supply chain management?
Rich: Yeah. This is going to sound so strange and I'm very transparent about this, but this is the battle that we fight with our business.
Everybody is a candidate for this service, but not everybody is really going to be a client. And what I mean by that is there has to be cultural alignment. In a hospital of wanting to use a third party, wanting to embrace somebody else to come in and tell you what's broken how they can help you fix it, and then bringing them into your culture to do that.
I wouldn't say it's a complete handing over of the reins. We are very much behind the scenes, but we're subject matter experts. I truly believe that hospital leadership, in some cases, not everywhere, has done a disservice to the supply chain leadership by asking them to be experts in everything that they're purchasing for a hospital.
Can you imagine Taya, you've got landscape and lawn care contracts and food service and linen and MRI and CT machines, and also these very technical implants. There's no possible way that they can be up to speed on all of this stuff. And in the best hospital you would have just one person who would be the implant supply chain person who would just negotiate all those deals. And you just don't, because we don't have people just sitting on the bench, doing nothing. And then coming out to do one project a year. It's really embracing the third party, understanding that a subject matter expert and outsourcing can really be a game changer. And if it takes a hospital on average, what I've found over the past 12 years, about a year to do one of these projects start to finish because they've got to bring surgeons out of the operating room. They've got to collaborate around a conference room table about the process and get the data. And there's data analysts involved and everybody.
Or you can outsource it to a group like ours. And we're not the only option out there, that can optimize and get you value in about 90 days. That means you're getting savings. You're not wasting all that time in the rest of that year while these negotiations wear you down and you've still got to do your job. You've got a full-time job you have to go do. So I think there's a real place for outsourcing to third parties and hospitals. But a lot of that comes from leadership and they have to give the supply chain and other departments permission to go out and explore what's available to them.
Taya: And I completely agree with that sentiment. And you're very transparent. Like I am, whenever I'm going out and I'm talking about the company I work for, I'm always like, it doesn't have to be us. Please just go out and do your due diligence and try to find something that fits your culture and your organization, because if it doesn't fit, it's not going to work.
And I think one of the things I run in to, that I understand because it takes all kinds in our industry and our rev divers come from all varied backgrounds. But a lot of times what I'm running into is this complete resistance to outsourcing anything. We're not going to outsource anything, and that's fine. Let's say that's their culture. What can you, what can they do? What would you suggest for folks that this isn't going to be something they dive into? They're not going to look at a third party. They're saying, this is going to take us 18 months and we're going to commit to that.
How would they even get started with supply chain management? Do you have any advice for those folks?
Rich: I think it's probably like anything that you're going to have to negotiate purchase costs for, you've got to understand and know more about your own spending patterns than the people who are selling items to you do.
And that takes technology. It's back to Kem's original question about tech and one of the big hurdles that I've seen, at least in healthcare, we can all admit. This industry is a little bit behind when it comes to adoption and things like that. And you've got the finance industry, even the education space has adopted and embraced technology.
Albeit they probably had to really speed up during the pandemic to get on board with that, but hospitals, by and large sit on the sidelines. They don't really have groups that are dedicated to going out and sourcing the real cutting edge stuff, and how do they discern between what's vaporware and what's real, and how do we get the value from our ownership of these apps.
So I think there's a big march toward trying to figure that out. Maybe third parties or consultants that can help with that. But getting a handle on your own data through technology, through analytics and understanding what you are really purchasing so there's no baiting and switching during this bid process.
You've really got to understand as a buyer for a hospital, who are your top surgeons? What do they really need of the entire catalog of parts that are being bid to you? It's probably 20% that's being used on a regular basis. But if you're doing a lot of revision surgery, you've got to have the rest of that stuff on hand. So, you've got to be able to negotiate it.
So yes, diving into the data and having somebody help you either from within your team in the hospital or maybe your GPO or a third party can really benefit you. It doesn't have to be fully outsourced. I think that's a play for the hospitals that just say, you know what? We hate this category. We don't like negotiating with our suppliers. Why don't you go get dirty and you do it for us? And here at Kermit we still have the very first customer we ever sold 12 years ago because of that. They just don't like to do this category. So it tends to be a really good fit for outsourcing for sure.
Taya: Yeah. Some, I feel like it's great for some folks and then for other folks who are like, this is just not my jam. And you kind of spoke to it, but I think that for folks that are going to get started, maybe hesitant to outsource, to your point, look at the data, but you said something earlier on that really resonated with me, which is you're going to have to pull some staff away because they need to have a seat at the table.
And obviously I'm not phrasing it exactly the same way, but I think that's such a critical point that a lot of organizations miss when they're talking about supply chain management. As leaders, we can't just say, this is what you're using and push that down through the ranks. We need to have those clinicians and have them have a seat at the table when we're having these discussions.
Would you agree?
Rich: Absolutely. It's cost reduction and spending management, and I say them in the same breath, but they're two very different things. A lot of people can get their costs down, but they don't have a way to hang onto those savings. Especially when you have lots of supply type issues and challenges. You have one person making the decision to use it, typically a clinician someplace in the organization and somebody else having to have that item there at the right time, at the right price and negotiate all that stuff, and then manage the vendor. The surgeon's not managing the vendor at all. It's all falling to the supply chain who's never there for the actual transaction.
The supply chain doesn't stand in the operating room with the surgeon. So you have this kind of divided group, and the only way to get true spend management. Is to bring all these stakeholders together and have them collaborate and they've all got full-time jobs. We don't want to take surgeons away from patient care. That's the revenue driver in the hospital, and that's the community help they're providing. Both of those are very important. And so how do you do that in an efficient way? How do you bring all these parties to the table? Don't waste their time. Educate them, get them involved. Get the value they can contribute, honor them for their value.
A lot of people don't do that. We only call in, for example, surgeons at the 11th hour when we need them to beat up their reps because they have the relationship. That's not the appropriate way of doing it. So you have got to be very organized about your project. Build a plan, educate people early. Update them often and honor their presence and their assistance. And I think for the most part, everybody, almost everybody who works in a hospital providing care like this, whether they're in the allied forces in support or clinicians, they're doing it for a reason. Their hearts are bent toward helping.
And so nobody is ever going to be put off by you asking them to help with a project. That's their nature. That's one of the things I really love about this particular industry.
Taya: I would completely agree with you. I think that one of the things that is exciting about this industry is how willing we typically are to collaborate even when it's, frustrating or it's painful or, you have one doctor saying this is the best type of implant you have another one saying, no, this is the best type of implant.
We're still always willing to come and sit down at the table and have a conversation and it reminds me of something that Kem always says, which is, oftentimes we forget that doctors like, they went to medical school. spent a lot of time looking at evidence and numbers and charts and graphs and reading data. They like having that information. So I think part of those conversations and trying to get that shift in communication is going to surround giving them the information, why is it that you want to make these changes and what does that mean in terms of, the clinical outcomes for patients and things like that.
I just love that you guys are out there doing what you're doing. I recognize, like you said, and we always tell our rev divers, you guys aren't the only guys out there. So as always please make sure you guys are digging in doing your due diligence. Before we just wrap up, Rich, if there was anything you could say, if there was any message you could send out that went out to everyone in the healthcare industry, just a piece of advice, what would you say?
Rich: We are in a very. Interesting time right now in healthcare. I think you guys would probably agree based on all the work you've done, the really good work you've done and the category that you're in, this may not be sustainable for much longer. I don't know if we can really continue to practice medicine, the way we've done it, meaning kind of the business of medicine, we've got pressures on reimbursement coming down. We've got providers walking off the job. We've got executives who have left in droves. We've got a staffing issue and it all sounds so dire, it isn't. We have very good organizations, some of the top facilities in the world. Here I'm standing in Baltimore. We've got just three really good top facilities here. So healthcare is alive and thriving, but people who see a problem can't be in a protective mode right now. They can't be worried about either upsetting the status quo or keeping their job.
If you are in healthcare and you got in it to make a difference, make the difference, and you think you really have to just be honored that piece of who you are to go in there and upset things in a good way. And I think that's what you guys are doing. We're doing that too. Maybe if there are enough of us that do that, we can stem the tide and maybe turn this thing around a bit.
But the United States is a preeminent leader in healthcare and I'd like to see us maintain that position.
Taya: Absolutely. I'm a big fan of positive disruption. I love it, especially when it comes to healthcare. Thank you Rich so much for your time. Please Rev Divers check out Rich's podcast.
It's also, I believe under, is it Under Slice of Healthcare Rich?
Rich: It may be now. Yes. We're pretty much everywhere. You can find your podcast and if you want more information on that if you just look up Kermit on LinkedIn. Anything that's not a frog that pops up is probably going to be us. We do a lot of posting on there, so we keep everybody updated on what's going on with the show there.
Taya: Awesome. Thank you so much for joining Rev Divers. Until next time, keep diving into those rev cycles.