MALCOLM BALDRIGE NATIONAL QUALITY AWARD
Quality Focus
Good for Business
by Dave Nelsen, assistant editor
L
ike many organizations, when Premier Inc.
began using the Malcolm Baldrige National
Quality Award criteria, it was just looking
for a way to conduct business better.
“We did so as a way to create a common frame-
work for our performance improvement efforts,”
says Hunter Kome, Premier’s VP of communications.
Seven years later, representatives from the San
Diego based healthcare alliance went to Washing-
ton, DC, to claim a Baldrige award in the service
category. Premier joins the ranks of Federal Express,
AT&T, the Ritz-Carlton Hotel Co., Xerox Business
Services and Boeing Aerospace Support, all past
award recipients in Baldrige’s service category.
In 50 Words
Or Less
• Premier Inc., a healthcare alliance, received a 2006 Malcolm
Baldrige National Quality Award in the service category.
• Premier achieved improvement by using a five-step process
management and improvement system and focusing on
what it calls its “big, hairy, audacious goal.”
36 I APRIL 2007 I www.asq.org
Premier credits employee involvement, the
experience it gained while earning a state quality
award and the leadership of CEO Richard Norling
for its Baldrige success. Most integral was a five-
step process management and improvement sys-
tem (PMIS) that combines several quality methods
to improve processes, customer satisfaction and
quality.
What Premier Does
Premier is a healthcare alliance entirely owned by
not-for-profit hospitals and health system organiza-
tions. The 200 owners operate or are affiliated with
more than 1,700 hospitals and 44,000 non-hospital
facilities, such as nursing homes and ambulatory
centers. This makes Premier the largest healthcare
alliance in the United States. It was founded in 1996.
Owners participate to share services and pro-
grams aimed at improving quality and cost-effec-
tiveness. According to Premier’s mission, the goal
is simple: to help hospitals accelerate clinical and
financial performance.
It does this in a few ways. In addition to main-
taining a repository of hospital clinical and finan-
cial information, Premier also operates the nation’s
largest healthcare purchasing network. Like other
group purchasing organizations, Premier’s mem-
bers use collective buying power to obtain dis-
counts from suppliers, with the savings passed on
to member organizations.
It also heads up national healthcare improve-
ment initiatives, like its Hospital Quality Incentive
Demonstration (HQID) project, a joint undertaking
with the Centers for Medicare and Medicaid
Services (CMS). The project provides incentive pay-
ments to participating hospitals that meet certain
high quality care criteria. The purpose is to deter-
mine whether such pay-for-performance methods
will be as effective in healthcare as they have been
in other industries.
Premier introduced HQID in 2005, and CMS
recently extended it for another three years because
of the positive results so far. The 250 participating
hospitals have raised quality levels by 11.8% in the
five clinical areas studied.
Premier has more than 900 employees, 650 of
TEAMWORK: Premier employees doing a product review.
whom work at the Charlotte, NC, operation. The
Pictured are (l-r): Ginny Starnes, Lee Edmondson, Dave
company’s two main divisions, which handle pur-
Edwards, Louise Lazeer and Andy Brailo.
chasing management and data analysis, are housed
there. Other offices are in San Diego (headquarters)
and Washington, DC, with field staff scattered
across the country.

The Baldrige Journey ria, the North Carolina program provided a rigor-
Before receiving a Baldrige award for 2006, Premier ous test,” says Kome. “Of particular value is the
had applied in 2005, the same year its Charlotte office fact that [the] North Carolina [program] conducts a
applied for a North Carolina Award for Excellence site visit with all applicants. Site visits play an
(NCAE). The NCAE program, which is based on important role in engaging and motivating
Baldrige, recognized the Charlotte office at the employees.”
advancement level, the second highest. When naming Premier a recipient, the NCAE
Kome says Premier had been conducting self- program specifically pointed to the company’s
assessments and using incentive metrics based on PMIS, shown in Figure 1. Premier uses the PMIS
Baldrige scores for several years before that. He for all of its process improvement initiatives and to
credits the experience with NCAE as the best prepa- maintain key business processes.
ration for Premier’s second Baldrige application. Under each phase of the PMIS, Premier uses a
“Because it is based on the national Baldrige crite- standard set of quality tools that includes mea-
surement, process maps and results
analysis. In the improvement phase
(step five), Premier uses any number
of quality methods, depending on the
FIGURE 1 Premier’s Process Management complexity of the project, including
And Improvement System the plan-do-check-act cycle, lean and
Six Sigma.
Step 1 Of the five-step process, Kome says,
Identify “These improvement methods enable
Continuous improvement and define Engage, prioritize
and communicate work groups to implement a standard
set of improvement tools to reduce
t Pla process variation and process steps,
AcStep 5 Customer
n

Step 2
he Improve o
and process
Document
improve customer and employee satis-
C

ck D requirements
faction, and improve the overall quality
Action
plans
of our products and services.”
It all contributes to Premier achiev-
Step 4 Analyze results Step 3 Map process
Monitor Measure ing what it calls its “big, hairy, auda-
and manage and track cious goal” (BHAG), taking a term
from authors James Collins and Jerry

QUALITY PROGRESS I APRIL 2007 I 37

MALCOLM BALDRIGE NATIONAL QUALITY AWARD

Premier, Baldrige Respond

To Controversy
In February, Quality Progress published an article about critics who spoke out in opposition to
Premier’s receiving a Baldrige award (“Baldrige Recipient Faces Controversy,” p. 14). The matter
didn’t just make headlines in QP; several other news sources, including USA Today and the San
Diego Union-Tribune, also reported on it.
Detractors had suggested a possible conflict of interest due to Premier’s president and CEO
Richard Norling’s position on the board of directors for the Baldrige Award Foundation. They also
pointed to Premier’s status as a group purchasing organization (GPO). GPOs were investigated in
2002 by a Senate anti-trust subcommittee.
In response, the Baldrige National Quality Program (BNQP) has explained its reasons for choosing
Premier and BNQP’s methods for determining award recipients.
In a statement QP did not have access to at the time the February story was written, Harry Hertz,
BNQP director, said, “The Baldrige Award’s examiners and panel of judges determined that Premier
and the other 2006 Baldrige award recipients lived up to the very high standards of the Baldrige per-
formance excellence criteria.”
Regarding the possible conflict of interest, the statement said the Baldrige Award
Foundation is a nonprofit organization created to support the BNQP through
fundraising and “has no oversight of the Baldrige program and has no involvement
in the award process.”
According to the statement, the foundation’s fundraising helps cover the costs of
the Baldrige award ceremony and the printing of the Baldrige criteria.
The statement went on to say, “The panel of judges determined Premier has
been a leader in setting ethical practice guidelines for the GPO industry and was
instrumental in founding the Healthcare Group Purchasing Industry Initiative to
promote and monitor best ethical practices in purchasing for hospitals and other
healthcare providers.”
The February QP story also mentioned that four medical device companies have
filed lawsuits against Premier, claiming anti-competitive practices. As a GPO, Premier
connects its member organizations with large suppliers to provide the members with
volume discounts. Those who filed the lawsuits say this is unfair for small suppliers,
which are often left with fewer customers.
At the time, QP reported three of the four lawsuits had been settled out of court.
Since then, the fourth was also settled, according to Hunter Kome, Premier’s VP of communications.
Kome says and no more lawsuits have been filed against Premier.
“A central aspect of our Baldrige application was the way we have addressed concerns by some
stakeholders through changes to our business practices, creation of a code of conduct and our lead-
ership in establishing an industrywide ethics initiative,” Kome says.

38 I APRIL 2007 I www.asq.org

Porras.1 Premier’s BHAG is: Owners will be the
leading healthcare systems in their markets, and
with them, Premier will be a major influence in
reshaping healthcare. Kome says all employees are
aware of Premier’s BHAG and drive improvement
efforts toward achieving it.
Premier began using the PMIS in 2004 and decided
it was time to apply for the Baldrige award shortly
after. Several employees were involved in the appli-
cation process, led by a cross functional group called
the PEAK (performance excellence, assessment and
knowledge) team. Employees not directly involved in
the application process could stay updated through
an area on Premier’s intranet called the performance
excellence center, that included feedback reports,
award application copies and other information.
When Premier was told it had been selected for a
site visit, Kome says management prepared staff by
sharing “as much information as we could, as often
as we could, using the intranet, e-mail, voicemail,
meetings, teleconferences. We focused on the basics—
taking a deep breath before answering questions,
not feeling like you have to know everything, focus-
ing on connecting what we do back to our core roles
and corporate goals.”
Kome says the biggest thing Premier had going
for it was just receiving the NCAE.
“We felt as prepared as you can under the cir-
cumstances,” he says.
Growing Business
In addition to receiving a Baldrige award,
Premier’s business results have greatly benefited
from applying quality methods to its practices. The
company’s pre-tax operating income increased
from about $140 million in 2002 to about $223 mil-
lion in 2006, equaling or exceeding that of its com-
petitors each year.
Premier’s operating margin percentage increased
from 35% in 2003 to 50% in 2006 and exceeded that
of Premier’s single largest competitor in all years.
In addition, operating expenses have remained well
below those of Premier’s top competitor.
The market share for Premier’s informatics busi-
ness unit, which provides comparison data for hos-
pitals and other healthcare organizations, as
measured by number of clients, is more than double
that of its nearest competitor. This makes Premier the
largest provider in the nation of such information.
All of that success has benefited Premier’s
clients, too. Savings and cash returns to member
hospital owners have increased from about $180
million in 2002 to $804 million in 2006, a reflection
of both business success and growing membership
numbers. Retention of hospital members increased
from 94% in 2002 to about 97% in 2006.
Employees are staying loyal to Premier too, often
moving up within the company. The percentage of
job vacancies filled internally improved from 20% in
2003 to 32% in 2006. The company credits this to its
systematic approaches to employee career develop-
ment, including tuition reimbursement, and internal
education programs, such as its leadership college.
Lessons Learned
While measurable results are important, the
immeasurable results are what most employees in
an organization are often affected by. According to
Kome, the top three lessons Premier learned from
the Baldrige process were:
1. The importance of having a powerful long-
term goal, or BHAG, that motivates employ-
ees and pulls the organization forward
2. The importance of aligning everything the
organization does so that it moves the organi-
zation toward the long-term goal
3. The importance of focus and persistence
Kome also underlines the importance of main-
taining quality processes even after problems are
solved and goals, such as receiving a Baldrige
award, are accomplished.
“The award is a milestone in our improvement
efforts, but not a stopping point,” he says.
REFERENCE
1. James Collins and Jerry Porras, “Building Your
Company’s Vision,” Harvard Business Review, 1996, Vol. 74,
Issue 5, pp. 65-77.
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QUALITY PROGRESS I APRIL 2007 I 39