Moving Targets

Edition: July 2012 - Vol 20 Number 07
Article#: 4029
Author: Repertoire

Putting together a rational supply chain for an accountable care organization can be quite a bit more challenging than putting one together for a two- or three-hospital IDN, says Claflin Co. President Ted Almon. Yet Warwick, R.I.-based Claflin is doing just that. And with good reason.

At least two of the distributor’s customers are among the “Pioneer ACOs” named in December by the Department of Health and Human Services. “Their behavior, in terms of procurement, while currently in flux, is clearly evolving,” says Almon. So is Claflin’s approach to servicing them.


Created as part of the Affordable Care Act, accountable care organizations, or ACOs, are groups of doctors, hospitals and other healthcare providers who come together to coordinate care for Medicare patients. When an ACO succeeds in delivering measureable high-quality care at lower cost, it will share in the savings it achieves for the Medicare program.

The Pioneer ACO Model is a program for early adopters, that is, organizations and providers that already are experienced in coordinating care for patients across care settings. The payment models being tested in the first two years of the Pioneer ACO Model are a shared savings payment policy with generally higher levels of shared savings and risk for Pioneer ACOs than levels currently proposed in the Medicare Shared Savings Program. In year three of the program, participating ACOs that have shown a specified level of savings over the first two years will be eligible to move a substantial portion of their payments to a population-based model. HHS says that models of payments will also be flexible to accommodate the specific organizational and market conditions in which Pioneer ACOs work.

ACOs can take many forms, points out Almon. But the ones in Claflin’s territory – the northeastern part of the country – are hospital- or IDN-centric. “Hospitals have acquired or contracted with a network of primary care and other non-acute providers to manage the health status of a specific population,” he says. (A physician-centric ACO would look different, in that a group of doctors would control the ACO, but would contract with a hospital or hospitals to provide acute-care services.) Regardless of who controls the ACO, the fact is, the idea is to break down silos between acute- and non-acute-care providers. And that has definite supply chain ramifications.

“As we know, IDNs have been undergoing a process of consolidation of supply processes for some years now, and they are all at different phases of this development, depending upon how long they have been in existence, and how aggressive the supply chain organization’s effort to consolidate may be,” says Almon. “The same is true for how they approach the new members of the ACO.”

Some time ago, faced with the development of ACOs, with their acute- and non-acute components, Claflin discussed a partnership with a physician supplier, which would have called for them to split the acute-care and non-acute-care business. “But at the end of the day, we decided we really couldn’t determine who should do what,” says Almon. “If you can’t decide on the division of work, you can’t decide on the split of the margin either, so we just wished each other well and decided to compete.”

Not surprisingly, that decision presented some challenges to Claflin. Some hospital- and IDN-led ACOs expect their vendors to expand their supply activity to all the new members as “ship-to” locations, says Almon. “The vagaries of geographic dispersion, delivery formats, and contracting, not to mention the usual product standardization issues, are easily overlooked.”

In such cases, the Claflin team must explain that “while our trucks deliver to all of their hospitals on a JIT/LUM basis daily, the deliveries come in a tractor-trailer in the middle of the night,” says Almon. “We can pick orders for the off-sites easily enough, but delivering them is another issue, and a cost variable. Then what about order entry? Are they tied to the system network? How will receipt be verified for payment? Will anyone call on the sites? How will their questions about products and availability be addressed? By the hospitals, or by Claflin?”

Fast developments

These issues are tough enough to resolve when an ACO is standing still. But in reality, they are moving targets, continually adding providers and developing new business models. That’s why careful planning and ongoing communication between supplier and ACO are necessary. Says Almon, referring to one ACO, “Frankly, the whole enterprise is developing far faster than we can keep up with, but we do have a cooperative program in place with the supply chain folks and their consultants.” The result, he hopes, is a professionally engineered supply chain that services all of the components of the ACO.

An important piece of Claflin’s program is a web portal called e-claflin, explains Almon. “Any authorized member of the ACO can now go to a site where their product template and specific pricing is clearly listed. They can ‘shop’ for other products they may need from a formulary that is approved by the ACO, or they can inquire about things they can’t find.

“They can enter orders, which are shared electronically with the system’s ERP, and they can ‘receive’ their orders electronically and transparently so that the system AP knows they can pay the invoice. There are established protocols for dispute resolution in an ever-expanding array of circumstances.

“The bottom line is, the sites that are mature and operating smoothly achieve considerable savings in their supply expense from the prior practice,” says Almon. “It works and saves money, although the development and transition has been longer and more difficult than at first imagined.”

Claflin’s program requires centralized billing, that is, billing for both acute- and non-acute providers. “IDNs who have [physician-hospital organizations] and other affiliation programs where the doctors still pay their own bills are not eligible,” he says. And that number may be diminishing.

It’s true that some IDN supply chain executives continue to believe that it’s easier for them to maintain their physician sites’ current supplier(s) rather than try to move all sites to one supplier, says Almon. But Claflin has found that some IDN executives who previously were unable or unwilling to consolidate payables are returning to the table.

Taking the plunge

Claflin is about to begin aggressively marketing its alternate-site program. “It will be among our own accounts at first, but eventually, it will become a business unit and stand on its own,” he says. (Almon points out that the program is completely separate from the e-commerce model currently being pursued by Claflin’s subsidiary, Claflin Medical Equipment.)

There’s no doubt that years of experience delivering in low-unit-of-measure to its hospital customers has positioned Claflin well for the future. “We have purposefully pursued being a low cost operator, and we can pick and pack low-unit-of-measure orders extremely quickly and efficiently,” says Almon.

The first challenge in servicing non-hospital customers was getting them to submit orders in an electronic format. That problem has been solved with e-claflin.

“The other piece that doesn’t ‘fit’ our model, of course, is the delivery,” he says. “Right now, we are using several of the leading package service delivery vendors and that seems to be working OK. We will continue to look at this piece as we grow this business and perhaps re-evaluate the make/buy options.” What’s more, Almon believes Claflin will need to address some product line extensions, particularly, pharmaceuticals, which are a bigger share of the physician buy.


Claflin recently appointed Billy Almon Jr. as manager of ACO sales, reporting to Alex Caldwell, the company’s director of sales and marketing. And while the company is recruiting some new reps, “we will favor self-trained candidates” to call on ACOs, says Almon.

That said, Claflin will not pursue the traditional approach to physician office sales, he says. Instead, the company will employ what Almon says is a “much more streamlined and lower-cost approach, which reflects the change in the buying decision point from the practice to the network.” Claflin will respond immediately to the ACO’s service requirements and emergencies, but reps won’t visit regularly to take orders or count inventory. In addition, the company is considering implementing a telesales component. “And of course, we will continue to call on the corporate or network purchasing staff.

“It is our opinion that the traditional model of physician/alternate site was marked by very high sales costs, which the networks will want to convert to savings,” he says. “We recognize this may not please every one of the alternate sites. We will also have to continually evaluate where the buying decisions are being made as the ACO model evolves, and possibly redeploy sales resources accordingly.”

As ACO supply chain professionals attempt to standardize products across sites, Claflin will help, says Almon. Last year, the company created a clinical coordinator position, and now, Patty Winderman, RN, BSN, works directly with end users, both in the hospitals or non-hospital sites, on product standardization initiatives. “She has been very effective in helping supply chain professionals implement various value analysis initiatives, and typically sits on user committees as a resource person.”

What’s ahead?

At press time, the fate of the Affordable Care Act was up for grabs. But Almon believes that whatever the Supreme Court decides, healthcare reform will continue.

“We believe that the key element of reform is payment reform, and that is already happening and doesn’t depend upon the Affordable Care Act to continue. The organizations formed in response to the Affordable Care Act are not going to go away, and the new payment schemes will replace traditional fee-for-service and stress ‘coordinated care.’ So this time, the train of reform has indeed left the station.”

The union of doctors and hospitals will continue, he adds. “The docs who remain independent may have no way to get paid if they are not part of an ACO or medical home. Hospitals must expand their primary care offering to be able to manage the health status of an insured population. And insurers have already been changing their contracting models.

“Fee-for-service is disappearing quickly as the new organizations emerge to share risk and manage care. We are not going back this time, but that isn’t to say the transition will be smooth. Look at the increase in hospital bankruptcies already – mostly community and unaffiliated sites. The markets may be efficient, but they are not particularly enlightened. I think we are in for a very bumpy ride.

“As for our industry, it was built to address customers in clinical ‘silos,’ due to the incentives of fee-for-service reimbursement. As those silos break down, and they already are, the supply chain will reconfigure itself accordingly.

“Perhaps it is too simplistic, but the old model was vertical, with very little coordination among the providers in acute care, primary care, specialists, long-term care, home care, etc. Distribution companies evolved to serve the particular needs of those customer subsets. The new provider infrastructure is much more horizontal, with the customers now having elements from all the former silos.

“Distributors will have to restructure their capabilities accordingly.”