Streamlining Hospitals: Omnicell CEO Randy Lipps (Part 2)

SM: How did you address the culture issues at your new company?

RL: I struggled with it for about a year and then brought in some folks from American to help out. Ultimately the business got built up very nicely, and then the company was sold. I then went into consulting for a medical device company because I did not have anything else to do.

SM: How did you get involved with a medical device company? What did they want you for?

RL: They really wanted help with their sales and marketing operations. A lot of their work was done over the phone; this was an area in which I had a lot of expertise. They were trying to figure out how to deal with sophisticated doctors on the phone who wanted to order very complicated lenses. They had three types of contact lenses which had three dimensions to them, and as a result doctors would order the lenses as if they were glasses treating someone with astigmatism. The problem was that contacts could not be ordered the same way because there was less distance between the eye and the lens than there was with glasses.

We had customer service reps trying to explain to doctors that they were wrong. The company also had a guaranteed fit program where it would keep making lenses until the patient was happy. It was a really fun challenge for me. We ended up sending the doctors a little calculator that had the formula embedded into it, and we branded the name of the formula. It was then very simple for the doctors to punch their stuff into the calculator and for them to get the exact size lenses they needed. We cut down the number of lenses produced by 30%, which turned out to be a substantial savings.

I came out of that experience realizing there were two businesses in the world: high transactions with skinny margins or low transactions with fat margins. Out company was making lenses for $8 and selling them for $400. Now that’s a margin! At the airlines you sold a $2,000 package and hoped to make a $50 margin.

SM: Did you know anything about the medical industry before that experience?

RL: I didn’t know a thing. In 1991, around the same time, one of my children was born with RDS, which is immature lungs. It’s not that big of a deal these days, but back then she could not breathe for the first 12 days she was alive. They sent her to UCSF for treatment, so I went there and asked when the visiting hours were. They told me there were no visiting hours, just that when the doctor needed to conduct treatments I needed to get out of the way. That was fine by me so I moved in.

That experience was just fascinating. I was looking at a nurse who was highly paid and highly trained, and it seemed like 75% of her work was what a clerk would do. Because my daughter was on a ventilator there were a lot of disposables. My daughter had dedicated nurses, and I saw the entire cycle. When the next nurse came in she would start fumbling around the drawers, looking for stuff. I would tell her where the previous nurse had stored her stuff. The each had their own secret stash of supplies because the supply chain within the walls of the hospital was so broken. They all had their own system to make sure they had the materials they needed for their jobs.

I found that unbelievable. After that experience I had some doctor friends set me up with some free consulting with a local hospital. I did some basic stuff regarding inventories, looking at processes, the number of people doing particular work, etc. The whole objective of supply chain healthcare at that time was to never run out. That was the only variable in the formula which resulted in poor utilization and a lot of expirations. It was a budget line item that people did not watch that closely. Purchase processes where immature and ad hoc with a lot of manual involvement by a lot of different people culminating in poor results.

This segment is part 2 in the series : Streamlining Hospitals: Omnicell CEO Randy Lipps
1 2 3 4 5 6 7