Straight Talk on Group Purchasing With Joe Colonna

Edition: June 2002 - Vol 10 Number 06
Article#: 1248
Author: Chris Kelly

Atlanta, GA --
Joe Colonna has always been intent on making his professional life less complicated. In fact, he's downright passionate about it. As VP of Operations for Atlanta-based Shared Services Healthcare, a regional Group Purchasing Organization (GPO) with over 800 hospital and alternate care members in the Southeastern United States, Colonna feels very strongly that misperceptions about GPOs have led to confusion. That in turn, has created a number of concerns. And according to Colonna that has limited his, and his organization's, effectiveness.

''Not all GPOs are alike,'' says Colonna. ''If the vendors calling on the GPOs clearly understood the differences, many of the misperceptions that exist today would disappear, making it much easier to get business done.''

Shared Services' goals in its contracting activities are very straightforward, says Colonna. ''We develop contracts that are good for the member and the vendor. We bring value to our members by helping them reduce the cost of doing business. If we focused only on generating fees, quite frankly, it would be hard to accomplish our goals. It would also erode our value proposition.''

Some vendors find it difficult to swallow that what's good for the member, that is, what the member wants, may not always be what the vendor has to offer. ''Oftentimes we get blamed for reacting to the requests of our members,'' states Colonna. ''Why do we write contracts with companies like Tyco? Because in most cases, that's what the hospital is using and wants to continue to use.'' The reality is, it's difficult to drive a little-known vendor into a hospital. But if a vendor can make a significant impact in a hospital's overall spend, ''we owe it to our members to talk with them.''

The Holy Grail
Vendors sometimes believe that signing a GPO contract is the ''holy grail,'' which will bring immediate access to every GPO member. But that's a misperception.

''Regardless of the GPO, getting the deal signed is only 10 percent of the work,'' says Colonna. ''The reality is most GPOs, excluding the proprietary chains, cannot aggressively market a contract. That's the vendor's responsibility. We may be a good lead generator, but all we can do is show our members the value of the contract.''

Today, the average hospital belongs to 2.5 GPOs, says Colonna. Therefore, most hospitals fail to maximize their GPO relationships. ''It's amazing how many vendors who call on us assume that we control our hospitals,'' states Colonna. ''Some even think we own them! We can take down some roadblocks and smooth the way, but signing the contract is just a start. Then the real sales and marketing efforts begin.''

Additionally, Colonna says GPOs are most effective with commodity-type items – those that meet the needs of the majority, not just a subset of members. ''This is where we have to spend our time,'' says Colonna. ''If you have a physician preference item, it's best to go directly to the hospital. That is their area of expertise.''

Independent Distributors and GPOs
While many independent distributors actively pursue GPO contracts in the hope of increasing their volume and profitability, many fail to completely understand what's involved, says Colonna. ''When we negotiate with local distribution companies, they don't know that a contract usually increases their costs, not decreases them,'' he says. ''These companies need to do due diligence – not just on cash flow, but on the total scope of the investments that have to be made.'' According to Colonna they need to ask themselves some tough questions:

• Can I support a bigger base of business?
• Can I manage another set of pricing with multiple tiers?
• Can I carry all the manufacturers that are on the contract?
• Can I work on the margins the GPO requires?
• Can I provide the GPO with the correct reporting?
Many companies don't realize their investment is just beginning when a contract is signed. ''It doesn't lower costs on a sales force or on marketing,'' says Colonna. ''In many cases, I believe it's a case of 'be careful of what you wish for.''' He believes the dynamics are the same for smaller manufacturers.

Another area of misunderstanding is that GPOs cannot write effective contracts with ''niche'' general line distributors. ''We cannot help our members by writing a contract on odds and ends that only benefits the distributor's margin. They have to be able to offer our members consistent pricing across the board.''

Just because a company does not have a GPO contract doesn't mean they shouldn't pursue business in the acute care market, says Colonna. ''Smaller companies have a wonderful opportu-nity if they focus on non-contract items. They can make better margins, make fewer investments, and really add value to the hospital.'' And if they're intent on pursuing contract business, ''go to the IDNs,'' says Colonna. ''That's a much better place to start than a GPO.''

Agreement to Expand SSH's Contract Portfolio
Shared Services Healthcare's recent affiliation agreement with St. Louis-based MedAssets HSCA will change the complexion of the group. Under the agreement, signed in April, Shared Services will remain an independent, nonprofit organization, but will blend its contract portfolio with that of MedAssets HSCA. The end result is that Shared Services will be able to provide its member facilities access to nearly twice as many contracts as it did prior to the agreement. In addition, Shared Services will continue to develop regional contracts for its own members.

''Shared Services is not being bought and is not merging,'' said Sandra Green, president and CEO of Shared Services Healthcare ''This affiliation gives certain exclusive marketing rights to SSH to market MedAssets HSCA's contract portfolio. Our members will now receive the benefits of a national GPO with the personal service they've become accustomed to from Shared Services.''

Rand Ballard, president of MedAssets HSCA called the agreement an ''alliance of companies with complementary strengths,'' adding that ''We can now offer more products to a larger customer base, enabling us to attract better discounts for all of our customers.''

MedAssets HSCA serves more than 15,000 healthcare providers nationwide with purchasing power approaching $7 billion in gross throughput.

Editor's Note:
Repertoire Magazine spoke to Joe as he was preparing to leave his current position as VP of Operations for Shared Services Healthcare and begin his new position as Executive VP Corporate Sponsorships and Business Development with Care Lift International, a charitable organization dedicated to improving global healthcare.