Edition: December 2002 - Vol 10 Number 12
Author: John Pritchard
Whether trying to gain contracts directly with IDNs or to drive compliance of a current agreement, suppliers can gain the most business as quickly as possible by doing three things:
1. Understand the IDN’s level of supply chain integration.
2. Focus on the top 175 IDNs.
3. Pinpoint those IDNs with the processes and technologies to deliver compliance.
Begins with Understanding
It all begins with making an effort to understand the IDN to whom you wish to sell your products. Time and time again executives in progressive IDNs recommend to current and potential suppliers that the supplier needs to better understand the IDNs’ uniqueness and individual challenges. Whether it is the IDNs’ mission, vision, financial situation or clinical objectives, it is imperative that suppliers understand IDNs before, during and on an on-going basis to successfully increase sales and gain market share.
In the October 2002 issue of IDN Strategies, executives from Swedish Medical Center are asked, “What insight can you give vendors for best methods of doing business with your organization?” They responded as follows:
· Richard Peterson, CEO: “Take time to understand your customer. Listen carefully to our needs.”
· Ron Sperling, CFO: “Get to know the people, so you can get to know the problems, so you can come help us solve our specific problems and needs.”
· Allen Caudle, vice president of supply chain management: “Learn about our value analysis process and our self-contracting system. Use our process and you will learn access and partnerships are very easy. Old school techniques do not work here!”
How Integrated Is It?
The most important point to know about an IDN is its level of supply chain integration. With more than 1000 IDNs in the United States today, suppliers will find it difficult to determine issues such as:
· Does the IDN use a direct contracting strategy?
· Is it culturally aligned to deliver compliance to a contract?
· Is it a shareholder of a GPO?
How an IDN answers the above questions will help suppliers determine whether their proposals or ongoing services will meet those IDNs’ specific needs.
Many suppliers believe they only want to know and understand the “self-contracting” IDNs, where they are sure they can contract directly. This is especially attractive to suppliers with second, third and fourth place market share. They believe knowing these self-contracting IDNs will give them a more level playing field, and they are particularly interested in IDNs who have recently adopted a self-contracting strategy, where GPOs contracts had previously dominated business for years.
While this may very well be a time of opportunity for non-incumbent suppliers, the market share leaders need to know the level of supply chain integration more than ever. Two major factors need to be considered when a highly integrated IDN is loyal to a GPO contract:
1. How do suppliers maximize sales for the sales teams’ efforts?
2. What is the best way to drive compliance of a GPO contract?
As the tug of war continues with progressive IDNs as to whether it self-contracts or complies with a GPO contract, suppliers need to prioritize their time and sales energy to call on IDNs that will provide them the greatest impact. Calling on all health systems, IDNs, or hospital networks in the same fashion is neither effective nor efficient.
Stage IV IDNs
Many progressive suppliers are focusing on the top 175 IDNs that are considered Stage IV (that is, the most highly integrated) in their level of supply chain development. In this model, the criteria used to categorize IDNs includes
· Contracting strategy.
· GPO affiliation and quantity of GPO relationships.
· Distribution relationships and quality of relationships.
· Strategic supplier relationships.
· Product utilization and standardization.
· Technology integration.
Below is an explanation of what would be found at a typical Stage IV, or “Progressive IDN.” (For more information on stages of development, see www.ncihome.com.) Keep in mind that of more than 1,000 IDNs, fewer than 200 are considered in or near Stage IV:
Contracting Strategy: When meeting with the IDNs’ executives or management team, contracting strategy is important for current and potential suppliers to know so that a business proposal is geared towards one of two objectives: gaining a new contract or driving compliance of a GPO contract. It is important to keep in mind that driving a GPO contract through highly integrated IDNs that are shareholders of the GPO under contract is probably the fastest way to increased utilization. Typically, progressive IDNs will make available their strategic contracting initiatives.
GPO Affiliation: It is important for suppliers that have a number of GPO contracts to know the GPO affiliation and the quantity of GPO relationships so that it can determine which contract best fits the need of the IDN. Most progressive IDNs will have one GPO relationship, usually as a shareholder. It is also important to know if the GPO with which the IDN is associated offers custom contracting, where the GPO negotiates proprietary contracts for the member IDN. In response to IDNs “self-contracting,” some GPOs have responded by adding custom contracting assistance as part of their service.
Distribution Relationships: Distribution relationships will tell a supplier if the IDN’s distribution strategy is fragmented and by how much. Much like GPO relationships, progressive IDNs tend to have fewer distributors relationships or even a self-distribution model.
Strategic Supplier Relationships: Strategic supplier relationships come in many formats, including risk-sharing and committed volume programs. Repeatedly, IDNs in a self-contracting disposition will work with suppliers to ensure the relationship is not a zero-sum, transaction-based relationship. Suppliers providing these IDNs with business solutions as opposed to selling product features will find success much quicker.
Physician Buy-In: Product standardization and utilization is one of the major hurdles to overcome when trying to attain contract compliance. As IDNs have moved along the supply chain development scale, these organizations have made sure to include physicians and clinicians in the product evaluation process. Stage IV IDNs often have a mix of representatives from material management coupled with physicians and clinicians to meet both the clinical and business goals of the IDN. Physician preference items often hamper product utilization when the physician base of the IDN doesn’t provide input prior to an agreement being finalized.
Technology Know-How: Technology integration across departments and facilities is an important ingredient for an IDN to deliver compliance. If information about consumption, inventory and purchasing history is unavailable or too cumbersome to accumulate, compliance will be greatly hampered even with the best intentions of IDNs. IDNs with some congruent systems and/ or a strategic plan for implementation make for great prospects.
IDNs present plenty of selling opportunities. But smart suppliers will begin tapping those opportunities only after doing their homework.
John Pritchard is the President of USLifeline, an MDSI Company. USLifeline publishes The MAX, which profiles 1000+ IDNs, 5600+ Hospitals and all GPOs. For more information please call John at 770-263-5262 or via email at email@example.com.