Changing the Purchasing Focus—Bring Me Some Water, Please!

The following is by Fred Crans, Area Vice President, North & West, ECRI Institute

 

Changing the Purchasing Focus—Bring Me Some Water, Please!

In the old days, every purchasing negotiation ended with this phrase:  Give me your best price. Everything was about price.

Today, too often, that same phrase enters the discussion.

But things are changing…

Central to the methodology of 35 years ago were some basic assumptions:

• The decision of WHAT to buy was made without input from the Purchasing or Materials departments
• Physicians had the right to tell the hospital what to buy (and they were determined to exercise that right)
• If you belonged to a GPO, that GPO had very little effectiveness as it pertained to Physician Preference Items, and it was your mission to get the best price possible, even if that meant ignoring the GPO agreement
• Finally, your job as a Purchasing Manager was totally dependent on how well your immediate supervisors felt you did as it related to price.

Thirty-five years later, while price remains a significant consideration, the idea of Value-Based Purchasing of HEALTHCARE, as defined by the Agency for Healthcare Research and Quality, a subset of the Centers for Medicare and Medicaid Services, has become more and more important. That concept refers to the idea that buyers of health care (insurance companies, employers, individuals) should hold health care providers responsible for the COST of that care as well as the quality.

Suddenly, considerations beyond price enter the fray. Under traditional models, it was often thought that any physician should have what he or she requested to get the job done. In fact, the physician’s leverage was so powerful that a mere threat to take his business to the hospital across town was enough to seal the deal and get him the product he wanted. Within those constraints, even the discussion about price was often moot. In many cases, physicians were so closely tied to their preferred vendors that the vendors quoted whatever price they wanted for their wares.

The old model was Opinion and Influence-based. A physician’s opinion dictated what constituted quality and his influence with hospital leadership made folks in supply chain meekly yield. Even “product standardization” committees were driven by opinion.

In today’s Evidence-based model, documented support is replacing individual preference and influence as the key to reaching a determination concerning a product, good or service to be purchased or offered. This is partly due to the scarcity of fiscal resources, but also to a wiser and more demanding  consumer base.

Today the questions that must be answered are:

• Should we do it?
• What are the options?
• What is the return on investment?
• Is there a new product or service that will render this decision incorrect?

Today it is necessary to enlist the support of unbiased third parties to help answer these and other questions that arise every day. With new technology being released daily that trumps the technology released only the day before, a question posed to us in one of my MBA classes comes to mind:

“What is the value of perfect information?”

Re-stated, the question asks, “How much would you pay for information if you knew that by virtue of using that information, you would make the correct decision?” We labored over that question for a semester, and I cannot honestly recall what conclusions we reached.

I don’t believe the question has a correct answer. It is more about process than anything else. It plants the seed that a rigorous discipline must be pursued in order to make the best possible decisions—a process that we see being employed more and more every day.

Yet all too often, I hear, “What’s your best price?”

Do you know why? Because all too often, directors and managers are given targets to reduce their operating budgets by a certain percentage or dollar amounts, and if you can’t GUARANTEE that the good or service you are selling will reduce their INDIVIDUAL operating budget by a particular amount, they have no interest.

The simple fact is that all too many folks in the purchasing/contracting functions of health care organizations are short-term, transaction-driven as opposed to being long-term, strategically-driven. That’s the only reason I can divine that would explain why someone would balk at spending $10,000 for a service that would return $100,000 to $500,000 in savings. The $10,000 represents the bird-in-hand, whereas the larger amounts represent birds-in-the-bush(es).

Today’s challenge is to think in the long run—to attempt to understand long term goals as opposed to short term ones. Those people who fail to see the importance of evidence-based approaches are doomed to suffer the fate of the old oaken bucket factory.

In 1818, Samuel Wordsworth wrote this poem:

How dear to my heart are the scenes of my childhood
When fond recollection presents them to view
The orchard, the meadow, the deep tangled wildwood,
And ev’ry loved spot which my infancy knew
The wide spreading pond, and the mill that stood by it,
The bridge and the rock where the cataract fell;
The cot of my father, the dairy house nigh it,
And e’en the rude bucket that hung in the well.
The old oaken bucket, the iron bound bucket,
The moss covered bucket that hung in the well.

The moss covered bucket I hailed as a treasure,
For often at noon, when returned from the field,
I found it the source of an exquisite pleasure,
The purest and sweetest that nature can yield.
How ardent I seized it, with hands that were glowing,
And quick to the white pebbled bottom it fell
Then soon, with the emblem of turth overflowing,
And dripping with coolness, it rose from the well.
The old oaken bucket, the iron bound bucket,
The moss covered bucket that hung in the well.

A few years ago I was at a leadership seminar and the speaker referenced the poem, saying that the company who manufactured the old oaken bucket of poem and song, had just gone out of business. Why? Because it thought it was in the bucket business. It didn’t know it was in the distribution and logistics business.

And so, too may be the fate of those who continue to ask, “What’s your best price”, instead of, “Show me your value proposition.”

Fred Crans is Area Vice President, North & West, ECRI Institute