2002 Year In Review

Edition: December 2002 - Vol 10 Number 12
Article#: 1404
Author: Repertoire

Name Game

In January 2002 Repertoire: The Coalition for Healthcare Standards (CHeS), comprised of executives from some of the country’s biggest GPOs, reported making progress toward the healthcare supply chain’s dream: a common nomenclature for medical products. CHeS had selected the UNSPSC (United Nations Standard Products and Services Codes) taxonomy as the best choice for health care to use in categorizing and classifying products and supplies. UNSPSC is an open system, which means no licensing fees are needed for organizations to use the standard. And it is already widely adopted in other industries. CHeS finished work on a taxonomy for “laboratory measuring, observing and testing equipment,” and had put together a committee to develop a taxonomy for medical equipment, accessories and supplies. When Repertoire reported on it, the group had developed a system for 1,600 products in 200 classes.

Today: The med/surg program continues to move ahead, and pharmacy is picking up speed, reports Ken Inchausti of CHeS member Premier Inc. “CHeS is working on multiple fronts, [the Universal Product Number] being one of them,” he says. “We are working to provide input when necessary to help the industry set up standards, or to deal with a federal mandate if one should come down….We want to make sure we’re providing a voice on behalf of GPOs and providers.”

GHX and Neoforma

In January 2002 Repertoire: Global Healthcare Exchange and Neoforma reported they were making progress on what they called an “integrated e-commerce solution” for suppliers and providers. The plan was to enable Neoforma’s hospital customers to use its Marketplace@Novation™system to transact business with GHX’s network of suppliers, which numbered about 100 at the time. Meanwhile, GHX’s suppliers were to be able to sell their products to Neoforma’s current and future hospital customers through one Internet-based exchange.

Today: Neoforma and GHX report that 84 hospitals and nine corporate suppliers are connected and conducting transactions through the two companies’ integrated exchanges. Transaction volume has doubled every month since the first trading partner connections were established in December 2001. A number of hospital systems, including several Mayo Health System healthcare organizations, Sutter Health, and Sentara Healthcare, have joined the strategic alliance, connecting through the Marketplace@Novation. In addition, several of GHX’s equity supplier members, including Johnson & Johnson, AmerisourceBergen, GE Medical, Tyco, and C.R. Bard, have expanded the amount of business they conduct through e-commerce by participating in the partnership through their existing connection to GHX.

Skinny on Sharps

In February 2002 Repertoire: Effective April 18, 2001, health care providers were required to evaluate and use safety-engineered medical devices to eliminate or minimize occupational exposure to bloodborne pathogens. This was a result of the Needlestick Safety and Prevention Act. Peter Allen, senior director, advanced protection technologies, Becton Dickinson, Franklin Lakes, NJ, told Repertoire that the company had reports that OSHA had already inspected all types of facilities – nursing homes, physicians’ offices, surgery centers, hospitals. In addition, the Joint Commission on Accreditation of Healthcare Organizations said that effective April 1, 2002, they would use the law as one requirement for accreditation.

Today: OSHA reports that in the 2002 fiscal year (Oct. 1, 2001 to Sep. 30, 2002), the most frequently cited violation of the bloodborne pathogens standards was lack of an exposure control plan (624 violations). The next highest was lack of engineering controls (439 violations), lack of hepatitis B vaccines (329 violations), lack of training about bloodborne dangers and safety precautions (316 violations), and lack of adequate recordkeeping (130 violations). Most of these violations occurred in the health care industry. Other industries incurring violations (in order of importance) were are logging, fabricated metal, motel/hotels, local passenger transportation, and personal service (e.g., laundry and cleaning).

Physician Pay

In March 2002 Repertoire: Medicare physician payments were cut 5.4 percent effective Jan. 1, 2002. It was the largest payment cut since the Medicare fee schedule was initiated 10 years earlier. The American Medical Association reported that the cuts could force physicians to lay off staff and close their doors to new Medicare patients. But the Medicare Payment Advisory Committee (MedPAC) pushed for a revised system linking the annual Medicare physician payment update to predicted fluctuations in physician costs, with an adjustment for productivity gains. If implemented, physicians could see a 2.5 percent increase in pay for 2003.

Today: Didn’t happen – MedPAC’s revised system, that is. Instead, docs at press time were looking at more cuts ahead, and the American Medical Association was hopping mad about it. According to the AMA, if Congress failed to act when it returned to Washington after the November elections, physicians would face an additional 12 percent in Medicare cuts over the next three years, totaling more than $11 billion. When the AMA asked physicians if they would continue to sign Medicare participation agreements if the cuts were implemented, 42 percent said they would not. “More and more physicians are coming to the sad realization that accepting new Medicare patients under the current reimbursement system is a losing proposition,” said AMA President Yank D. Coble Jr., M.D., and Illinois Medical State Society President John F. Schneider, M.D.

Corporate Retreat

In April 2002 Repertoire: Over the past 10 to15 years, as large distributors have acquired more and more small ones, the owners of these small companies have had to ask themselves if they could make it in a large corporation. Bob Wooding, who had spent years in the distribution business working for other companies, bought Southwest Medical Healthcare Supply in Mesa, AZ, from his son in August 2001, and promptly renamed it Arizona Southwest Healthcare Supply. He moved the physician supplier into a new, larger building, launched a closed-door pharmacy and DME business, and began offering physicians a full line of injectables.

Today: President Bob Wooding reports that Southwest Arizona Healthcare’s growth rate has been almost 17 percent this year. The company now has a staff of 12, including five sales reps. Wooding brought on a full-time physician sales rep, who increased the company’s pharmaceutical business fivefold in just two months. In September, the distributor signed a contract with the Maricopa County Long-Term Healthcare Plan to supply its long-term-care patients with their incontinence and personal care needs. Wooding expects the contract to generate $2 million a year in sales. He hopes to become a public reporting company with a listing on the NASDAQ exchange within two years.

Novation’s Eleven

In April 2002 Repertoire: Novation signed distribution agreements with 11 distributors for the GPO’s non-acute-care members, particularly physicians, long-term-care facilities, and home care providers. Members were to begin selecting their new distribution partners on March 15. The physician distributors were Allegiance, Direct Medical, Kreisers, Medline, PSS, Seneca and Shared Service Systems. Long-term-care distributors were Allegiance, Buffalo Hospital Supply, Caligor, Gulf South, Kreisers, Medline, Seneca and Shared Service Systems. Home care suppliers were Allegiance, Buffalo, Kreisers, Medical Specialties Distributors and Medline.

Today: Novation reports that the non-hospital distribution program got off the ground May 1, with sales reaching $47 million on an annualized basis. Since the original agreements were signed, Novation expanded its original regional agreement with PSS into a national agreement. Says Novation Vice President Jill Dillon, “We are placing an enhanced focus on non-acute care within Novation, and over the next few months, we will be finalizing a total supply chain solutions market strategy.”

Starting Over

In April 2002 Repertoire: In Florida, Gary, Roseann and Myron Cohen left the distribution company they had founded (and which had been acquired) to start Star Medical in Fort Lauderdale, FL, in November 1999. The company’s focus was on long-term-care, home care, closed and independent pharmacies, and government and export sales. It had plans to expand in the Southeast.

Today: The Cohens are making good on their promise. Since speaking with Repertoire last spring, Star Medical hired two salespeople to cover Georgia, the Carolinas and the Florida Panhandle, and now plans to open up a distribution center on the I-20 corridor (between Atlanta and Augusta) in the first quarter of 2003. By the end of that quarter, Star intends to have hired two more reps and to seriously investigate opening yet another facility in North Carolina.

Distributor Quandary Solved

In June 2002 Repertoire: Sam Schatz, president of San Rafael, CA-based UnimedUSA a distributor of medical, dental and laboratory supplies and equipment to prisons-was in a predicament. “I work with over 100 manufacturers. And there are about 100 prisons that want to do business with me,” he said. This translated to too much work and not enough time. Unimed was in need of a link-a joint venture third party logistics partner to help meet its demand.

Today: “We received about 50 responses to the article repertoire wrote about us,” says Schatz. Now, companies such as McKesson Medical Surgical Corporation, Henry Schein, Inc. and MMS (Midwest Medical Supply) manage UnimedUSA’s relationship with manufacturers. “We can ship out on P.O for 10 or 15 manufacturers and write one check,” says Schatz. The distributors take it from there, saving UnimedUSA time and allowing it to handle more business. “Sales have increased 20 percent,” says Schatz.

Travelin’ Supply Chain Man

In June 2002 Repertoire: Lawton R. Burns, professor of health care systems in the Wharton School at the University of Pennsylvania, published a book called The Health Care Value Chain (copyright © 2002 by Jossey-Bass). He wrote it at the request of healthcare executives eager (or maybe desperate) to explore whether linking up with distributors, manufacturers and GPOs might help them control healthcare costs any better than their earlier attempts to link up with physicians and managed care companies. But those executives who take the time to read the 444-page book were more likely to find that their upstream supply chain partners are as baffling and contrary as physicians and managed care companies. In fact, Burns’ book showed why the health care value chain doesn’t deliver a lot of value – or, to put it in a more positive light, how it could deliver a whole lot more value than it currently does.

Today: Since publishing his book, Burns has become a travelin’ man. He has made presentations to a group of CEOs from Southeast Asia, to the HIDA Executive Conference, the International Expo of the Health Industry Group Purchasing Association in Amsterdam, the Accenture Pharmaceutical Leaders Forum in London, the Association for Healthcare Resource & Materials Management national meeting in San Antonio, and the Healthcare Manufacturers Marketing Council in Chicago. He also addressed the Institutional Investment Fund, a group of investors who want to know what’s going on in the industries in which they invest their money, and the Federal Trade Commission, which sponsored a two-day workshop while investigating the need for more oversight in hospitals, health plans, GPOs and generic pharmaceuticals. “This is virgin territory for a professor,” he says. “I’m addressing sectors of the industry I knew nothing about five years ago.”

One high point was the AHRMM meeting. “I confronted the materials managers and told them, ‘Here is what your trading partners are saying about you, and here’s what I perceive to be some of the weaknesses of hospitals in the supply chain.’ The leaders of the organization came up and thanked me,” he says. “So did others.”

COSH Builds Niche

In July 2002 Repertoire: Ron and Karen Shinault worked hard over the past 14 years to build their company - COSH - into a small but successful minority-owned distributor in the suburbs of Atlanta. The company built a niche servicing academic research departments. In some cases, COSH transformed its small-business and minority-business status into business opportunities with big companies, for example, in April 2002, the company kicked of a program with Allegiance Scientific products, which, among other things, would allow customers to place orders with COSH over the Allegiance website.

Today: Ron Shinault reports that COSH continues to work with Allegiance’s Scientific Products division on a mentor/protégé program. The program is a two-way street, he says: On the one hand, it helps Allegiance and its customers meet some of their small- business utilization goals, and it gives Allegiance access to the academic research market, a market cultivated by COSH. At the same time, it gives COSH an opportunity to broaden its exposure in the marketplace. The program is moving slowly, as expected, says Shinault. “We knew going into this that it wasn’t going to be a godsend, an end-all-be-all.” But it is moving, he adds.

On another subject, Shinault reports a milestone for the National Minority Medical Suppliers Association, an association of which he is president. For the first time, the organization put on an educational program during the HIDA Conference in Chicago. Titled “Turning supplier diversity requirements into a competitive advantage,” the session covered not only the sate of minority business development, but the nuts-and –bolts of how to develop a successful and productive relationship with a diverse supplier.

Flu Bug Faces Long Season

In July 2002 Repertoire: Henry Schein reported that it was confirming pre-booked flu vaccine for the 2002-2003 season with its customers. The Melville, NY-based company expected to have more vaccine available than last year. In addition to standard ten-dose vials, it planned to supply pre-filled single-dose syringes. According to the Centers for Disease Control and Prevention, last year the entire supply of flu vaccine in the United States was pre-booked by the end of May 2001. Because of this, the CDC urged health care providers to order flu vaccine as soon as possible for the 2002-2003 season.

Today: Henry Schein reports that it has 17 million doses of flu vaccine available for its customers this season, or 15 percent more than last year. The CDC reports that the overall supply of vaccine grew from 77 million doses last year to 94 million doses this year. Ideally, CDC would like to have 150 million doses available.


In July 2002 Repertoire: Manufacturers of handwashing products, including soap and alcohol-based sanitizers, were awaiting philosophically the release of new government handwashing guidelines, which were expected to endorse alcohol-based sanitizers as a useful adjunct to soap and water. At the heart of the proposed guidelines were two recommendations: 1) Caregivers should wash hands with a non-antimicrobial soap and water or an antimicrobial soap and water when hands are visibly dirty or contaminated with proteinaceous material, such as blood or feces; and 2) If hands are not visibly soiled, caregivers should use an alcohol-based, waterless antiseptic agent for routinely decontaminating hands.

Today: The Centers for Disease Control and Prevention released guidelines that advise the use of alcohol-based handrubs to protect patients in health care settings. The new hand hygiene guidelines were released on Oct. 25, 2002, in Chicago during the 40th annual meeting of the Infectious Diseases Society of America. In making its announcement, the CDC estimates that each year nearly 2 million patients in the United States get an infection in hospitals, and about 90,000 of these patients die as a result of their infection. Improving hand hygiene will help prevent the spread of germs from one patient to another. CDC said that data show that health care personnel may be more inclined to use alcohol-based handrubs because they are more convenient to use, and that recent studies show that such handrubs actually reduce the number of bacteria on the hands more effectively than washing hands with soap and water.

Iowa IDN Plows Ahead With Clinic Contract

In August 2002 Repertoire: Iowa Health System signed a five-year contract with Allegiance to service approximately 450 physicians employed by Iowa Health at more than 100 clinic sites. The contract was new ground for Iowa Health, whose clinics had up until that time conducted business with multiple distributors. The IDN hoped that working with Allegiance and its electronic purchasing systems would help its clinics standardize on products and reap bigger savings. Service was set to begin Aug. 1.

Today: Wayne Schellhammer reports that the program began as planned on Aug. 1, and that all the Iowa Health System clinics have been brought up with Allegiance. The biggest challenge has been to convince clinic management that they will benefit from the program, says Schellhammer. “They thought they had managed themselves into the best deals and service by working with sales reps directly,” he says. Schellhammer predicts that it will be a year before IHS truly understands its clinics’ buying and inventory patterns.

Will the program work? Will the clinics convert to Allegiance? Will Iowa Health System use all the data it accumulates to cut inventory, standardize products and reap further savings? “I’m still in the 90 percent range of confidence that it will work,” says Schellhammer.

Falling Off the Cliff

In September 2002 Repertoire: Medicaid was coming up short in its funding of seniors’ nursing home care by about $3.5 billion annually, according to a report by national accounting firm BDO Siedman. To make matters worse. Medicare was targeted to trim 10 percent in its funding for nursing home care on October 1, 2002. The Medicare cut – also referred to as the Medicare Cliff – was expected to further jeopardize quality nursing home care nationwide. At press time, lawmakers were working to gain enough support to pass bill S.2490, the bipartisan Medicare Skilled Nursing Beneficiary Protection Act of 2002, which could prevent the Medicare Cliff from going into effect.

Today: On October 1, Medicare funding for skilled nursing care was cut by 10 percent – or $1.7 billion annually. This figure is comparable to an average loss of $35 per patient, per day. Concerned about the negative impact this cut will have on patient access to skilled, quality nursing care, state health officials representing 47 states and the District of Columbia were anxious to persuade Senate and House leaders to reverse the cut prior to their November 1 adjournment. At press time, there was no further word on a reversal in the cut. Healthcare officials worry that the lost funds will jeopardize caregiver jobs and ultimately threaten the wellbeing of seniors.