Healthcare Supply Chain Efficiency

Transcript

Bryce

Welcome to Digital Health Transformers, a podcast series. This podcast will explore the dynamic world of healthcare innovation, one conversation at a time. I’m your host, Bryce Barger, and today, we have an awe-inspiring guest at the forefront of transforming the healthcare landscape.

We are pleased to welcome Richard Palarea to the show today. Richard is an accomplished entrepreneur and leader in the healthcare technology space. Currently serves as CEO and co-founder of Kermit, a Baltimore-based company revolutionizing spend management for high-cost implantable medical devices.

Under Richard’s leadership over the last decade, Kermit has served, I’m sorry, has saved hospitals more than $200 million. Business owners through, I’m sorry, let me redo that one. I lost my space, about 200 million; I’m sorry.

We are pleased to welcome Richard Palarea to the show today. Richard is an accomplished entrepreneur and leader in the healthcare technology space. He is CEO and co-founder of Kermit, a Baltimore-based company revolutionizing spend management for high-cost implantable medical devices.

Under Richard’s leadership for over a decade, Kermit has saved hospitals more than 200 million. Richard also chairs memberships for entrepreneurial organizations like the Baltimore Chapter, empowering business owners through networking and learning. His previous ventures include founding and pioneering a logistics consulting firm and a leading IT at AIM International.

With over 20 years of experience founding, building, and leading innovative companies, Richard offers valuable insights on entrepreneurship, health tech, and driving change. Kermit has pioneered an impartial, evidence-based approach to financial control in healthcare. The company is transforming the hospital implant billing process through automation and insight.

We look forward to an engaging discussion exploring Richard’s journey, how we can maximize savings in the healthcare supply chain, and much more. Thank you for joining us today, Richard. How are you today?

Richard:

Yeah, I’m great, Bryce. It’s my pleasure to be here.

Bryce:

Yeah, I appreciate your time, and I’m excited to have this conversation.

So, I’m kind of getting started here with maybe the start of Kermit. Can you share a pivotal moment or experience from your journey that significantly shaped your approach to business as you started?

Richard

Sure. So Kermit is the fifth business I started, but my first one has achieved any scale by purpose. Everything else I did in the past was more of a solopreneur kind of thing, lifestyle businesses, and they did well.

They put money in my pocket. But this was an opportunity to change the landscape of healthcare, especially around the way that hospitals procure and use implantable medical devices. So we’re invested in the hospital supply chain coming alongside and transforming how they’ve done something for 50 years.

It’s been a long time for them. And so, like I said, this is the first enterprise at scale I’ve had to build. I also did it with two co-founders who were former medical device reps.

They came into my office at the time I was doing something else. I was running the business that I’d started. And they told me a fantastic tale about how, as med device reps, they would stand in the operating room with a surgeon.

They weren’t providing any patient care. They were standing there basically selling medical devices during the surgery while the patient was under anesthesia on the table. As they developed this story, I became more fascinated about how something can be fundamentally broken for a period. So many different operators were involved in how this would come about.

For example, they tally everything sold to the hospital during the surgery on a piece of paper. Then they marked the price at the end of the surgery, and they walked that paper down the hallway to purchase, turning it in and expecting me to purchase more. And so, when I heard the story, that was my reaction, too.

I was just kind of blown away. I went home that evening and thought about what they had said. I wasn’t looking to start a new business then, but I thought we had a real opportunity to change something for the better by introducing technology into this space.

And so, kind of didn’t sleep that night and came back the next day, caught up with them, and said, let’s try to put something together and see where it goes. That was 13 years ago.

Bryce

That’s very interesting. You would think that they would still be using the old pen-and-pad approach in a world with so much technology in the surgical space. That’s very interesting; I had no idea about it.

The healthcare technology space is very dynamic. What are some of the challenges that you guys faced, and maybe how did you overcome them?

Richard

So you can imagine that you’ve got these various players in this area I’m talking about. You’ve got the hospital providing the services, but you’ve also got a surgeon. And they may or may not be aligned with the hospital.

They may be an employee; they may not be an employee. They have their interests. Fundamentally, their first interest is ensuring they have the best outcome for the patient.

They wanna make sure they get in and out of that operating room quickly and safely, that the patient has minimal blood loss, and that they have a quick recovery. And that, ultimately, they’re pain-free at the end. Many of these types of surgeries that we deal with are orthopedic.

Maybe they’re cardiovascular, things like stents and pacemakers, or anything with a medical device involved, which is a category we play in. And then you have a patient who sometimes has no say. They certainly don’t have any say when they’re under anesthesia; they’re not able to function or do anything.

And you’ve got the underpinning of all that, which is basically a business transaction in a healthcare setting. And for a long time, that was kind of a dirty word. You wouldn’t say the word business or transaction in a healthcare setting.

But now, where we are, a lot of hospitals are, in fact, extremely focused on not just the revenue side but the cost side as well. And I think COVID did some interesting things to bring awareness to the supply chain, especially healthcare. And so we have a lot of notoriety now in the healthcare supply chain, attracting some good and smart people to come in and revolutionize things.

And so we had an opportunity to participate in that. And I think one of the earliest challenges to answer your question was that my two co-founders were former med device reps, and here they were, kind of leaving that world. You could say ostensibly a lot of secrets that they had at the time, and coming in and uncovering a lot of that, how things work, that type of thing for their brand new customers, who they’re on the other side of the equation.

So there was some, sure, we were taking money away from their former employers and competitors and trying to right-size things. But you kind of fast-forward to where we are 13 years later. There’s been maturity in this category and a hyper-focus on cost reduction. It’s not as novel as it was 10, 13 years ago when we started this to say, hey, what’s going on in my operating room?

Am I paying for three screws when only two were used in the surgery? How do I determine that? Now it’s more about how do we make this a super-efficient transaction, this whole thing where it’s a very choreographed dance that has to happen in real-time in an operating room to get a patient in, get the procedure done and get them out safely and still keep the cost low.

How can we do that for both parties? Can we do it? Can we make a difference for the patient?

Well, we’re gonna save some money for the hospital. We might be able to pass that on to the insurance company. We’re certainly helping the hospital save money.

As you mentioned, it’s now well over $200 million in 13 years we’ve done. But what about the surgeon? And what about this device rep?

There are probably things that we can do to make their experience more pleasant and efficient. They’re not having to do paperwork anymore, those types of things. So we’re more of a facilitator now in the middle, making that whole thing work smoothly, seamlessly, the same way every single surgery, every single day, all year.

Bryce

And getting into the role of data analytics in kind of the healthcare supply chain, I mean, as a leader in the healthcare technology space, how do you kind of perceive the role of data analytics in optimizing supply chains, and especially in that same context of high medical cost and high device medical cost?

Richard

So for a long time, many years, hospital supply chain folks, and even senior finance folks would sit down with a surgeon and say, let’s look at the costs. Is there something else we could be doing that we could have the same outcome with the patient, but we do it at a lower cost? Surgeons don’t wanna hear that.

I mean, I can say that with a smile on my face. My dad was a doctor, and I watched him practice cardiology for probably the better part of 35 years. I even went to work in his office for some time.

And a really good physician doesn’t wanna be told how to practice medicine. They’ve got their thing down, and they’ve got a process, and they’re focused on the patient, the patient experience, the patient care. So when you don’t have data, or you think you have anecdotal data, and you sit down with a surgeon, they can debunk that very quickly.

They typically will find errors in the data you put together because they understand the clinical nature and technical nature of that data. You’re looking at the ones and zeros as an administrator. This is where you need to lean on an expert, somebody who understands these medical devices.

One of the big disservices that our hospitals have done is relying on the supply chain to optimize a highly technical category, like implantable medical devices. When you’re asking them to also negotiate their landscape and long care services, as well as their linen, purchase MRI and CT machines and capital goods, and be an expert in 28 different categories of implantable medical devices, You’re talking about hundreds of different vendors with lots of different technologies, some very cutting edge stuff like biologics, for example.

A lot of stuff that doesn’t have a long track record of data to prove whether it works or not. And so it’s just a very difficult conversation to bring together both the administrative and clinical sides of this. But when you bring empirical data, as you’re asking about, you can speak to a surgeon in a way they can understand.

They wanna know, just show me the evidence, show me that I’m spending more because until you tell me that I’m spending more, it won’t resonate with me because I know what I’m doing. But suppose you show me that every single time I do this, it adds $800 to my case, and everybody else is having the same outcome at a lower cost. In that case, I’m willing to go have dinner with a couple of surgeons and figure that out because I want this place to be solvent; it’s writing a check to me, and I think that would be a thing I would like to do is a good steward and part of the equation.

Bryce

Can you share a specific example where data analytics played a crucial role in enhancing efficiency and decision-making within the healthcare supply chain?

Richard

Sure, you know, when I mentioned this example of how this all takes place in surgery, where there’s a surgeon who’s doing the operation, obviously you have the clinical staff there in the operating room who are helping, nurses, scrub techs who are handling the implants, whatnot. And then you’ve got the sales rep who’s there, and they’re not standing next to the patient; they’re in what’s called a back table, a non-sterile area of the operating room, but they are in the operating room many times. We were able to sit down with the chief orthopedics at a hospital in Maryland a couple of years back, and we were showing him we had come across some data that showed there was probably about $150, $160,000 worth of wasted implants.

What do I mean by waste? It means they were opened and used in some fashion but weren’t implanted, so somebody had to pay for them. And so some practice was going on that we wanted to get to the bottom of and figure out, is there something with the surgeon was doing?

Is there something that the rep was doing? Maybe the two of them have worked together for a long time and had a comfort level, and we’re wasting these implants, but something was going on. So, we showed this data to the chief of orthopedics, a practicing surgeon who had done plenty of surgeries on his own during that time.

He looked at the data and said that it was really interesting. Do you have my cases inside of your software? We said, of course, we do, doctor.

And he said, can you go look up my case from yesterday with, I’ll just say Mrs. Smith, you know, and tell me, I know I had a wasted implant. And I turned to the rep and said, you’re not charging me for that, correct? And the rep said, don’t worry, doc, I got it.

And so we pulled up, found the case he’s referring to, pulled it up, and sure enough, a $3,000 charge for a femoral implant that was never used. And that was the end of the conversation. We were in the middle of the meeting.

He grabbed his white lab coat, put it on, and went to the operating room to find that rep. And he wanted to quiz him on how that happened. So what’s happening is the surgeons are providing the patient care, but the business side of the transaction, the paperwork and the bill and all that stuff, they’re not seeing, and they don’t need to be concerned with that.

That’s not their area. But without them playing a role and having an awareness that this is how this was going down, this kind of stuff was happening under this man’s watch the whole time with his surgeons. He brought this data to bear and showed them that if we just change one or two things here, we can save this much money.

It led to a whole bunch of other things that they went through our data using our consultants sitting down and figuring out what other areas we may wasting or what other opportunities we might have. And so the data can surface a lot of that, but you need it to have those conversations because typically a surgeon is gonna say, look, there’s nothing going on. I’m in the operating room.

I see that the patient’s there. We had a great outcome. Everything’s fine.

You just got to go look inside the data.

Bryce

Yeah, and also when it comes to the doctor, one, focusing on that patient, that’s what he wants to focus on, and two, the time that they have, and then being able to take time out of their day to sit down and go through analytics and analyze something. It’s not what they want to do. It’s not what they need to be doing.

It’s not what they need to be focused on, and having a solution like Kermit is perfect. To get into some more cost-saving strategies and their impacts, could you elaborate on another successful cost-saving strategy implemented during your tenure at Kermit and showcase its impact on that healthcare organization?

Richard

Sure, so there are two fundamental things that Kermit does. The first is more of a consulting play. We would come in and look at all of the spending and all the utilization of the various implantable medical devices in any category.

So let’s just stay with this notion of orthopedics for a moment, and I’m talking about knee surgery and hip surgery; it could be upper extremity like shoulder surgery, but the large joints in the body. And in all of those situations, we’ve got very expensive implantable medical devices being used. They’re made of basically metal and plastic.

Is there some technology in there? Yes, but by and large, the stuff that’s been used for the last 20 or 30 years is still viable. It still works very, very well.

The price points for many things have come down, even though the industry wants to focus on innovation and bringing new technology to market. And a lot of that, of course, will have a higher price tag on it, but is it necessary? Can you use the tried and true stuff and still have a great outcome?

And so, in several projects, we will focus on letting the surgeon use exactly what they want to use. We don’t wanna change their utilization. We just wanna bring the price point of what they’re buying down to the street level.

It’s a price we already know is being honored at one or more hospitals. And we think that just because somebody is doing less volume of surgery, or maybe sometimes they’re doing more and not getting the same price as the hospital down the street, there should be some equity in that. And we’re gonna pass that cost or that cost savings on obviously the hospital.

Our incentive is to get that cost down because our model is we take a portion of that savings as our fee. So we’re both on the same team, fighting for the lowest price. We take the process through a typical bid in negotiation and run it on the hospital’s behalf.

So that’s the first piece. And there are millions of dollars in savings. We typically save a hospital 30% of their annual spend in any category.

That’s the average. That’s the cost reduction effort, but that’s not enough. You can bring the cost down, but those costs will creep back up if you’re not managing what’s going on in the operating room.

Some of the things we just discussed, Bryce are waste, fraud, and abuse. So, we’ve built a piece of software that uses business rules and some artificial intelligence and some machine learning to be able to look at a bill and say, for example, you set Johnny’s broken wrist with a plate that had two holes in it, but there were three screws used. Where’d the third screw go?

There were only two holes in that plate. And so it looks at things like that, has the right sizes, and makes some checks, and it says, looks, we must’ve had something that was not done correctly on the billing side of this. Let’s go back and fix it.

Tell the hospital what’s okay to pay and what isn’t. Then, take all that transactional data and create analytics, dashboards, and whatnot that you can share with a surgeon. And so at the University of Maryland, for example, which is one of the larger academic health systems here in the state where we’re located, over four years, we saved them $55 million just doing that.

When we first arrived, they said our price was optimized. We’ve been negotiating these contracts for 30 years. We’ve got a good handle on it.

And one of the leaders said it’s not gonna cost us anything to try this. They’re gonna take a portion of the savings. So why don’t we just go ahead and try?

And that was pretty astute because there were a lot of savings there. And we share that obviously with the leadership, but we can’t expect that that supply chain person will understand how to do this work when we’re asking them to do so many other things, too. It’s a perfect place to bring in an expert and do that project.

Bryce

Yeah, it is. And I love the adage of what we discussed earlier, where you can come to them and show them this data and say, hey, this is where you’re wasting money, but it’s up to them to fix it. It’s up to them to find a solution, or you’re 100% correct.

Your costs are gonna go right back up. In your experience, what are some innovative approaches to cost-saving and healthcare supply chains that you believe could be more prevalent in the future?

Richard

Yeah, there aren’t any secrets or quick fixes to this. It’s a lot of hard work. It’s a very tedious process to do a bid.

For example, the process that we use, we’ve honed over 13 years, and it works. It’s very efficient. We can get the bid done in 60 to 90 days, whereas a hospital typically takes a few months.

I’ve seen some projects go six months, even a year. What that does is it creates a situation where the bidding community, the vendors who supply the hospital with implants, will wear down the hospital with price list after price list and bid after bid. It’s very tedious to analyze a spreadsheet that’s got 50,000 SKUs in it.

So the machine we’ve built handles that very quickly, and we can ingest a brand new bid in a matter of seconds and turn it back to the bidder and say, okay, you now met the price we were requesting on this group of products. Still, you haven’t even addressed this group over here, which we use a lot. So you’ve got to have the ability to do that. You have to do it in near real-time to keep the momentum of the process going.

And you can’t be worn down by the attrition of just the typical bid process that happens in probably lots of other industries, not just the one in which we play a part.

Bryce

But the novel- It’s really good to allow them to compete with what they’re, with who they’re bidding against, right? It almost feels unfair.

Richard

Every other market works that way. You know, why do we do it differently in healthcare? Because you have this other interested party and the surgeon who’s not, they’re not paying the bill but choosing which product to use.

And many times, in fact, almost always, I would say, Bryce, there’s no price tag on that box. So when they go to choose between, I’m going to use this device or this device, or I get in and discover maybe there’s a bone, there’s a tumor in the bone, and I’ve got to do something different as a surgeon. I need a different style implant.

Oh, that rep will be there with that implant, and that, you know, is perfect for that cause. And we don’t ever talk about what this will cost the patient. We just implant it, so.

Bryce

Only really focusing on outcomes as they, again, as their specialty, you know, points them to do is to, hey, let me focus on outcomes, not necessarily the cost of this medical device. I love that, I love that. Richard, those are all the questions I have currently.

I would love to know if, you know, speaking a little bit about Kermit at the close here, there are any projects you guys are currently working on in the future that you can share with us. Maybe a quick teaser about some current projects you are working on at Kermit?

Richard

Sure, I think, you know, if you’re going to be in the healthcare technology space or any technology space, you’re going to be innovating a lot. So you can stay one step ahead of what’s going on. Things move very quickly, especially with the advent of artificial intelligence and how it’s playing a role in almost every single industry right now.

It’s a big focus for us. We built Kermit in the cloud so that we could get up and running very quickly without having to be integrated with healthcare enterprise systems or go behind their firewall and do a lot of that style of work. Our hospital clients are asking us to integrate with their enterprise systems, electronic medical records, and enterprise resource planning systems.

These are well-known brands like Oracle Workday and whatnot. So we’re doing a lot of those integrations, too. The hospitals are finding that because we are capturing the data at the point of use in the operating room, our data tends to be quite clean.

We’re also quality assurance checking it as it goes into the database. And even if Kermit finds an anomaly and says, okay, the bill was 8,000, we would right-size it down to five. We even have a person go back and look at that to ensure the technology did what it was supposed to do.

So, there are a lot of checks and balances that are using human beings and artificial intelligence in our process. And so hospitals are saying, you’ve got very, very clean data. Can we just ingest that data rather than typing it into three or four different systems along the way?

So, I am being asked to do a lot with AI and integrations, and I am still doing a lot of consulting. There are still a number of hospitals that are not threatened by what we do, but they embrace it and would like some assistance. They’re still looking to save money and want to deploy those kinds of services, too.

So, much is still rolling up our sleeves and getting in the trenches.

Bryce

And coming from the OSP side, we can definitely speak to the integration side for your EMRs and EHRs. I know that can be a beast. So, it is an exciting project in the future and something that is necessary and truly helps.

Richard, thank you so much for sharing your knowledge and maximizing those savings in the healthcare supply chain. It’s been a pleasure speaking with you and learning about Kermit’s journey and what you guys have accomplished but are also looking to accomplish in the future. Thank you so much.

I look forward to staying connected and talking again shortly.

Richard

Great, Bryce. Yeah, thanks for having me.

Bryce

Thanks. Great day.