The Galen Healthcare System (GHS), a lead- ing and innovative healthcare organization founded years earlier, provided...
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The Galen Healthcare System (GHS), a lead- ing and innovative healthcare organization founded years earlier, provided a full spectrum of healthcare services in upstate New York. As the largest health system in the area, Galen con- sisted of a diverse network of healthcare facili- ties, including a large academic medical center, six community hospitals, a physician organiza- tion that included a network of physician prac- tices throughout the area, a rehabilitation center, nursing homes, and hospice and palliative care services. Prior to joining Galen, member orga- nizations operated as independent entities. Although now under the same organizational umbrella, member organizations continued to operate quite independently, and functions such as procurement were not coordinated. Each site had its own Purchasing Department that issued contracts and purchase orders with local suppliers. The individual purchasing managers determined needs, identified suppli- ers, and managed inventory logistics without oversight from corporate headquarters. This decentralized approach was indicative of the unified groups to leverage aggregated pur- chasing power. GPOS worked with members- which could include academic medical centers, community hospitals, and large physician practices to help them save money on medi- cal supplies. The purchasing power of a GPO enabled it to command higher discounts when negotiating contracts with manufacturers, dis- tributors, and other vendors, and allowed it to pass on these cost savings to its individual members. Recognizing the problems associated with a fragmented supplier base, Galen's senior leadership team made the coordination of sys- tem purchasing a priority for the coming year. Dr. Jeffrey Dahmer, the President and CEO of the Galen Healthcare System, created the first corporate Purchasing Department at Galen, and hired an experienced procurement man- ager, Richard Gunerson, as Vice President of General Services/Supply Chain Management to oversee the procurement of all equipment, supplies, and services. Preparing Galen to join a GPO was one of Gunerson's primary tasks. system's practice over the last decade of loose management of its affiliated sites. Leaders within the Galen System, however, began to recognize a trend of rising health care costs and intensified competitive pressures in the region. New specialty practices and outpa- tient surgical centers sprouted in communities where Galen previously commanded the mar- ket. In addition, the system continued to see lower reimbursement rates from Medicare and Medicaid, making it increasingly challenging for the system to meet its annual budget. Health systems around the country were also experiencing similar challenges, but un- like Galen, many health systems had already joined group purchasing organizations (GPOS). In the 1970s and 1980s, GPOS arose as a means to combine health organizations into larger Dahmer gave Gunerson great autonomy and flexibility, and placed Stacie Friberg as Gunerson's executive assistant. Friberg had worked for 12 years within the Galen system in several different positions, and thus was fa- miliar with many of the local hospital and prac- tice leaders as well as their historic purchasing practices. Gunerson's appointment was an- nounced in the employee newsletter, published by senior leadership at Galen's headquarters, and on the GHS intranet. The end of the hospital budget cycle was nearing its end, and Gunerson was eager to notify each of the local Purchasing Department heads that the entire system would begin to purchase its required supplies in bulk through a GPO contract. To estimate the large purchase orders its member hospitals were making, Gunerson intended to request that local pur- chasing heads report contracts with suppliers over $100,000. Gunerson discussed this idea with Jeffrey Dahmer, who discussed it with the Board of Directors. Gunerson then drafted the following memo to the local Purchasing Departments: Dear Purchasing Department lead, The Board of Directors has approved a new procurement process. Henceforth, all heads of Purchasing at local sites of care will alert the Vice President of General Services/Supply Chain Management about contracts above $100,000, which they plan to negotiate with suppliers at least a week before the day they will be signed. I know you must understand that this change is critical to coordinate procurement re- quirements and to eliminate inefficiencies within the system. Today, our member organizations' purchasing habits result in unnecessary redun- Dear Dick, Welcome to Galen! We are pleased to hear that you are settling into your position as the new procurement coordinator. We received your recent communication about notifying headquarters a week in advance of our intention to sign contracts with suppliers. This suggestion seems very practical. We would like to let you know that you can be sure of this hospital's cooperation in your new job. Best regards, Over the next several weeks, Gunerson heard nothing from the local Purchasing Departments about contracts being negotiated with suppli- ers. When he asked Friberg to follow up with several of the local managers, they frequently reported that they were quite busy. As a result, the usual purchasing procedures continued and Gunerson struggled to build momentum towards GPO membership. purchasing habits result in unnecessary redun- dancies and high prices. This step will provide the head office with the information it needs to ensure that each site of care procures the optimal volume of supplies at the best prices. As a result, the goals for each site of care and for Galen as a whole will more likely be achieved. Sincerely, Richard Unger Gunerson II, FACHE Vice President of General Services/Supply Chain Management CASE QUESTIONS 1. What problems does Galen Healthcare have that will affect its communications? 2. What specific problems does Mr. Gunerson have as a result of his communications to materials managers? 3. What advice would you give to Gunerson to help solve his and Galen's problems? Gunerson gave Stacie Friberg the memo and asked for her input. She told him she thought the memo was great. She also suggested, how- ever, since he had met only two of the local Purchasing Department managers that he might like to meet all of them and discuss this major change in procurement with each indi- vidually. Gunerson declined, stating that he was unable to travel to each local site because he had so many things to do at home and at the office and it would be too expensive. Over the next few days, responses came in from all but a few local Purchasing Departments. Some managers wrote longer responses, but the following e-mail message was typical: Source: This is a fictional case based on real events as well as ideas presented in both the "Dashman Company" case (9-462-001) published by HBS Case Services, Harvard Business School, Boston, 1947, and the "Marathon Plastics" case published in W. H. Newmann, E. K. Warren, and J. E. Schnee's "The Process of Management," 5th ed., Prentice Hall, Englewood Cliffs, NJ, 1982. This revision was developed by Catherine Augustyn T'13 and Abigail Isaacson T'13 under the direction of Professor Paul A. Argenti. © 2011 Trustees of Dartmouth College. All rights reserved. Reprinted by permission. The Galen Healthcare System (GHS), a lead- ing and innovative healthcare organization founded years earlier, provided a full spectrum of healthcare services in upstate New York. As the largest health system in the area, Galen con- sisted of a diverse network of healthcare facili- ties, including a large academic medical center, six community hospitals, a physician organiza- tion that included a network of physician prac- tices throughout the area, a rehabilitation center, nursing homes, and hospice and palliative care services. Prior to joining Galen, member orga- nizations operated as independent entities. Although now under the same organizational umbrella, member organizations continued to operate quite independently, and functions such as procurement were not coordinated. Each site had its own Purchasing Department that issued contracts and purchase orders with local suppliers. The individual purchasing managers determined needs, identified suppli- ers, and managed inventory logistics without oversight from corporate headquarters. This decentralized approach was indicative of the unified groups to leverage aggregated pur- chasing power. GPOS worked with members- which could include academic medical centers, community hospitals, and large physician practices to help them save money on medi- cal supplies. The purchasing power of a GPO enabled it to command higher discounts when negotiating contracts with manufacturers, dis- tributors, and other vendors, and allowed it to pass on these cost savings to its individual members. Recognizing the problems associated with a fragmented supplier base, Galen's senior leadership team made the coordination of sys- tem purchasing a priority for the coming year. Dr. Jeffrey Dahmer, the President and CEO of the Galen Healthcare System, created the first corporate Purchasing Department at Galen, and hired an experienced procurement man- ager, Richard Gunerson, as Vice President of General Services/Supply Chain Management to oversee the procurement of all equipment, supplies, and services. Preparing Galen to join a GPO was one of Gunerson's primary tasks. system's practice over the last decade of loose management of its affiliated sites. Leaders within the Galen System, however, began to recognize a trend of rising health care costs and intensified competitive pressures in the region. New specialty practices and outpa- tient surgical centers sprouted in communities where Galen previously commanded the mar- ket. In addition, the system continued to see lower reimbursement rates from Medicare and Medicaid, making it increasingly challenging for the system to meet its annual budget. Health systems around the country were also experiencing similar challenges, but un- like Galen, many health systems had already joined group purchasing organizations (GPOS). In the 1970s and 1980s, GPOS arose as a means to combine health organizations into larger Dahmer gave Gunerson great autonomy and flexibility, and placed Stacie Friberg as Gunerson's executive assistant. Friberg had worked for 12 years within the Galen system in several different positions, and thus was fa- miliar with many of the local hospital and prac- tice leaders as well as their historic purchasing practices. Gunerson's appointment was an- nounced in the employee newsletter, published by senior leadership at Galen's headquarters, and on the GHS intranet. The end of the hospital budget cycle was nearing its end, and Gunerson was eager to notify each of the local Purchasing Department heads that the entire system would begin to purchase its required supplies in bulk through a GPO contract. To estimate the large purchase orders its member hospitals were making, Gunerson intended to request that local pur- chasing heads report contracts with suppliers over $100,000. Gunerson discussed this idea with Jeffrey Dahmer, who discussed it with the Board of Directors. Gunerson then drafted the following memo to the local Purchasing Departments: Dear Purchasing Department lead, The Board of Directors has approved a new procurement process. Henceforth, all heads of Purchasing at local sites of care will alert the Vice President of General Services/Supply Chain Management about contracts above $100,000, which they plan to negotiate with suppliers at least a week before the day they will be signed. I know you must understand that this change is critical to coordinate procurement re- quirements and to eliminate inefficiencies within the system. Today, our member organizations' purchasing habits result in unnecessary redun- Dear Dick, Welcome to Galen! We are pleased to hear that you are settling into your position as the new procurement coordinator. We received your recent communication about notifying headquarters a week in advance of our intention to sign contracts with suppliers. This suggestion seems very practical. We would like to let you know that you can be sure of this hospital's cooperation in your new job. Best regards, Over the next several weeks, Gunerson heard nothing from the local Purchasing Departments about contracts being negotiated with suppli- ers. When he asked Friberg to follow up with several of the local managers, they frequently reported that they were quite busy. As a result, the usual purchasing procedures continued and Gunerson struggled to build momentum towards GPO membership. purchasing habits result in unnecessary redun- dancies and high prices. This step will provide the head office with the information it needs to ensure that each site of care procures the optimal volume of supplies at the best prices. As a result, the goals for each site of care and for Galen as a whole will more likely be achieved. Sincerely, Richard Unger Gunerson II, FACHE Vice President of General Services/Supply Chain Management CASE QUESTIONS 1. What problems does Galen Healthcare have that will affect its communications? 2. What specific problems does Mr. Gunerson have as a result of his communications to materials managers? 3. What advice would you give to Gunerson to help solve his and Galen's problems? Gunerson gave Stacie Friberg the memo and asked for her input. She told him she thought the memo was great. She also suggested, how- ever, since he had met only two of the local Purchasing Department managers that he might like to meet all of them and discuss this major change in procurement with each indi- vidually. Gunerson declined, stating that he was unable to travel to each local site because he had so many things to do at home and at the office and it would be too expensive. Over the next few days, responses came in from all but a few local Purchasing Departments. Some managers wrote longer responses, but the following e-mail message was typical: Source: This is a fictional case based on real events as well as ideas presented in both the "Dashman Company" case (9-462-001) published by HBS Case Services, Harvard Business School, Boston, 1947, and the "Marathon Plastics" case published in W. H. Newmann, E. K. Warren, and J. E. Schnee's "The Process of Management," 5th ed., Prentice Hall, Englewood Cliffs, NJ, 1982. This revision was developed by Catherine Augustyn T'13 and Abigail Isaacson T'13 under the direction of Professor Paul A. Argenti. © 2011 Trustees of Dartmouth College. All rights reserved. Reprinted by permission.
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Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III
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