GPOs Fight Two-Front War
Edition: February 2003 - Vol 11 Number 02
While GPOs sweat out the Senate Subcommittee floodlights, the adverse publicity and the accusations of skullduggery by their traditional foes (manufacturers), they must also respond to demands being made on them by their largest members. The defection of several large networks in recent months highlights a concern for GPOs: How can they balance the needs of small hospitals with those of big integrated delivery networks?
In December, two IDNs announced their intention to withdraw from Novation and sign on with MedAssets HSCA. They are Tupelo-based North Mississippi Health Services, the third largest non-urban health system in the United States; and University Hospitals Health System, St. Louis.
“Our decision wasn’t influenced by recent events in the industry,” says Calvin White, director of purchasing for North Mississippi. “It just so happened we made a decision the same year this publicity hit.”
North Mississippi has an annual supply budget of $60 million and operates a nonprofit organization of six hospitals and more than 40 clinics in northeast Mississippi and northwest Alabama.
“We’ve been in an evolutionary process, moving from a single hospital many years ago, to finally becoming an integrated network,” says White. “We’ve had to re-evaluate our business partner relationships, one of them being how we contract for [products and services].
“We went into this asking if we could find a different kind of model that would meet our needs in the GPO world. That was our premise to begin with.”
What White and North Mississippi sought was a group that could accommodate the needs of very large IDNs. They decided that MedAssets fit the bill.
“It was their flexibility in being able to merge their strengths with ours and form a unique partnership for North Mississippi Health Services that attracted us,” says White. “It was not just ‘Here are our contracts,’ but, instead, a recognition of [North Mississippi’s] need and ability to have independent contracts.”
Like many other purchasing executives, White prefers to outsource to GPOs the contracting for commodities, “where price has pretty well been beaten down,” he says. “I don’t want my staff spending time on low return-on-investment items.” He anticipates a much greater return on investment for North Mississippi from pursuing higher-dollar items on its own or in conjunction with MedAssets HSCA.
Says White, “I think the real story is this: Is the industry at the beginning of an evolutionary wave? This isn’t a reaction to GPOs getting bad press. And companies are beginning to realize that providers have different needs. With MedAssets, there was no preconceived idea of what we needed.”
Take It to the Marrow
Executives at University Hospitals Health System went through some of the same decision-making processes as those at North Mississippi. According to Senior Vice President of Supply Chain/Shared Services Steven Standley, UHHS was seeking:
1. Flexibility on distribution.
2. Flexibility to help the IDN contract directly with manufacturers, with support from the GPO.
3. Significantly enhanced administrative fee return.
4. An advanced electronic piece, which would allow the IDN to run most or all of its transactions through an electronic process and, thus, allow it to profile its entire purchasing history by vendor, by facility, etc.
Like White, Standley says that the Senate hearings and attendant publicity had little to do with his IDN’s decision to leave its long-standing GPO (Novation). UHHS has an annual supply budget in excess of $300 million and operates a not-for-profit organization of eight owned hospitals, five partnership hospitals and several affiliates that together serve patients at 150 facilities throughout Northeast Ohio.
“I didn’t sense anything unethical going on,” says Standley. “[Many GPOs] don’t fit big systems’ needs any more. They’re more about supporting community hospitals who need co-operative purchasing because they lack volume on their own.”
Everyone knows what the latest GPO contracts are within a week of their signing, says Standley. “My belief is that the vendor won’t take it down to the marrow with a big GPO. No, they can’t afford not to have a deal, but you have to wonder how aggressive that pricing relationship will be when you know it will be handed out to everyone in the country.”
IDNs on Their Own
IDNs have to beat their own path to manufacturers’ doors, with or without the support of a GPO, he says. Hospitals banded together to form IDNs for a number of reasons, one of them being the ability to obtain better pricing, says Standley. “But the fallacy of that discussion is that most [IDNs] are in GPOs, and they already get multi-hospital-based pricing. You need to do something to improve that.
“If you’re a stand-alone, 300-bed hospital, it’s tough to come up with contracts that are aggressively priced. But if you’re a $2.2 billion regional system, you can.”
The successful IDN will make sure that almost everything coming through its doors has been negotiated in some way, says Standley. He calls this “penetration.”
Though time-consuming, working with the IDN’s clinicians and striking a local or regional deal with a manufacturer (either on its own or with a GPO’s help) will ultimately yield greater savings for the IDN than trying to hit the GPO’s top pricing tier on every contract, he says. “Overall, you’ve achieved much more control and penetration.”
Besides, he says, “I’m not going to try to sell [clinicians] on some decision made in Dallas or Chicago, because that was made for the common denominator – and with the major market-share leader, who covers the entire United States.”
Similarly, IDNs have to strike their own distribution deals, says Standley. “Distribution contracts just don’t work on a national basis,” he says. “Everybody has a unique situation. One hospital has plenty of room or space, the next has none. One needs five-day-a-week delivery, another doesn’t.”
GPOs that can work with IDNs to meet their individual objectives will be the winners, says Standley. MedAssets HSCA believes it is doing just that.
“If people were to look back on what’s going on today, they might say this is a classic example of changing the basis of competition,” says Gary Johnson, MedAssets HSCA’s director of marketing and marketing services. “In prior years, it was, ‘Show me the market-basket price.’ Now it’s, ‘I’m an integrated delivery network with a unique strategy, and I’m looking for a unique supply chain partner who handles group purchasing, e-commerce, physician preference items, etc.’”