RPCs demand value and service from their suppliers in return for market share
Are RPCs really that different from stand-alone hospitals, hospital systems, IDNs, even GPOs? Maybe not.
It’s true that suppliers have to learn about the mechanics and organizational structure of each RPC they approach. Not all are created equal. But the bottom line is pretty simple: RPCs are run by supply chain experts, and as such, they demand value and service from their suppliers. In return, they promise to deliver market share.
“If Seagate members sign on to a contract, the supplier can count on loyalty from that member, provided the supplier holds up their end of the contract and works with Seagate and the members to keep prices in check,” says Diane Ashley, president and CEO, Seagate Alliance LLC, Rochester, N.Y.
Ashley was one participant on a roundtable discussion about RPCs at the recent Regional Purchasing Coalition Seminar in Dallas. The event was the second such seminar sponsored by MDSI, the Lawrenceville, Ga.-based publisher of the Journal of Healthcare Contracting.
Exchange of information
The seminar was designed to provide RPC executives “the opportunity to share with and learn from respected, experienced healthcare executives throughout America in a non-competitive environment, focusing on the issues and challenges of regional contracting from the RPC executive perspective, and the impact on their respective organizations,” says Journal of Healthcare Contracting Publisher John Pritchard. “In addition, suppliers in attendance had the opportunity to hear firsthand from the purchasing coalitions their issues and challenges, so they can better serve their needs.”
Speakers included Darrell Weatherford, president and CEO of Consorta Inc; Mark Dozier, director, sourcing and contracting, Mayo Clinic and Upper Midwest Consolidated Service Center; Sidney Hobbs, vice president, national accounts, Medline Industries; Tom Wilkinson, Specialty Pharmacy Services Inc; Dee Ann Cross, director of operations, Novation; and Roger Nolan, senior vice president, Aspen Healthcare Metrics.
Roundtable participants were:
- Diane Ashley, Seagate Alliance.
- Jon Pruitt, vice president, Texas Purchasing Coalition, Plano, Texas.
- Danny Blount, director of material management, Cook Children’s Medical Center, Fort Worth, Texas.
- Mark S. Combs, regional vice president, supply chain management, Mercy Health Partners, Knoxville, Tenn.
- Tim Rezash, vice president, medical/surgical contracting, Child Health Corporation of America, Shawnee Mission, Kan.
- Steve Carpenter, executive director, Colonial Regional Alliance, Hagerstown, Md.
Mission statements
Though each has a different organizational structure, RPCs have missions that are remarkably similar to those of smaller purchasing entities, that is, to drive value for providers and suppliers.
Seagate Alliance LLC, an owner of Premier healthcare alliance, is more than 15 years old and has purchasing volume approaching $375 million (including its local, non-Premier contracts). It comprises 12 acute-care hospitals and more than 1,300 non-hospital facilities.
In 2008, Seagate formed the Great Lakes Purchasing Cooperative, an RPC comprising Seagate, Rochester General Health System (two acute-care hospitals, in addition to nursing homes, physician practices, assisted living centers, etc.) and Vantage Health (12 acute-care hospitals and several hundred non-hospital facilities).
“We understood the value of partnering with other Premier owners who were willing to invest the time and commitment to bring the power of committed volume to the table,” says Ashley. “This is a benefit not only to those that participate in the partnership, but also to vendors who know we are willing to bring the volume we promise and to move volume when needed.” In the past 12 months alone, GLPC has signed a clinical reference testing agreement with Laboratory Corporation of America (LabCorp), a bone and tissue agreement with Musculoskeletal Transplant Foundation (MTF), an office supplies agreement with OfficeMax, a sterilization agreement with 3M, and a surgical glove agreement with Cardinal Health.
Seagate itself is a fully developed regional purchasing coalition, points out Ashley. Its staff of 18 FTEs provide a variety of services to its members, including access to an on-staff pharmacist and registered dietician, and an on-site Premier regional director. What’s more, the Seagate/Premier contract portfolio has more than 310 enhanced contracts and provides the Premier MySpend price-benchmarking tool to Seagate’s acute care owners at no charge, as well as a subsidy for acute participants for GHX, she says.
Seagate provides members with an opportunity to participate in the decision-making process through its committee structure. Committees for supply, foodservice and alternate site meet bimonthly; those for pharmacy and lab meet quarterly; and dialysis and other ad hoc committees meet as needed. “The committee structure…allows Seagate to hear from the end users about their needs and concerns,” says Ashley. “Members learn from Seagate about new contracts, services and how to maximize the value of those contracts and services for their organizations.”
The committee structure is also the basis for aggregating member volume and discussing which vendors to choose to enhance Premier contract offerings or move members’ aggregate volume to higher tier levels on existing Premier contracts, she continues. “It also allows us to bring in suppliers of new or proposed contracts to meet with our membership, providing value to the members as well as to the suppliers and vendors. Members get to know the products being offered from those responsible for providing them, and the suppliers get to know Seagate’s members and Seagate’s staff. This all builds a better working relationship.”
Exploring options
Cook Children’s Medical Center is a private not-for-profit children’s hospital, which is affiliated with Premier through its relationship with Child Healthcare Corporation of America, explains Blount. “My company is part of a national IDN, and we are exploring options for regional coalitions within our IDN,” he says. “However, as we are working through the details of ‘regionalizing’ our purchasing efforts, we are also exploring the idea of ‘categorizing’ rather than ‘regionalizing,’ meaning our hospital and those in other states may want to contract for endomechanicals all at the same time. However, when dealing with a geographical item – bulk oxygen, for instance – we may work with hospitals in our IDN that are also in our region.”
Texas Purchasing Coalition, meanwhile, is a regional purchasing group comprising 11 Texas-based healthcare systems. Combined, its members represent approximately $800 million in annual supply purchases, explains Pruitt. The Coalition was created in 2007 and since then has achieved savings exceeding $25 million. It signed a multiyear agreement with MedAssets effective January 2010.
“We have a member-driven approach to supply chain,” says Pruitt. “We hold each other accountable for savings. So there’s peer pressure. And each CEO signs a formal document saying they will be committed to working together. Senior management and administration support is a big key to supporting our supply chain initiatives. Without that top leadership approach, a lot of our efforts wouldn’t be achievable.” What’s more, a formal LLC infrastructure “creates a formality to how we operate and act.”
Give and take
RPC contracting executives understand that in order to get value from their vendors, they have to deliver it as well. In most cases, that translates to market share.
“A key belief of Seagate and its membership is that the value of an agreement is not only price, but the quality of the product or service, the supplier’s commitment, and follow-through on what and how it has promised to deliver,” says Ashley.
The Seagate staff – most of whom have been with the organization for many years – has consistently worked with the supplier community in developing relationships based on understanding, honesty, trust, and commitment, she says. “Seagate continues the tradition established long ago by RRHA Joint Ventures Corporation in working with suppliers in a way that brings the best value to our membership while respecting the need for suppliers to thrive in order to continue to meet the needs of our members. This respectful working relationship helps both parties, particularly when there is an unpleasant or difficult issue to be resolved.”
Suppliers who want to conduct business with Cook Children’s need to step up, and step up quickly, says Blount. “We are trying to help manufacturers bring their items into our companies, and cost improvements are paramount. [But] we are bombarded with multiple sales calls every day, and we have to filter what we will act on. It is important [for vendors] to make a convincing value proposition very early on in the introduction of a product or service.”
Mark Combs, regional vice president, supply chain management for Mercy Health Partners, a Premier member, adds that manufacturers should focus their efforts on attaining a contract with the national group purchasing organization before approaching Mercy. The organization comprises seven acute-care hospitals, two ambulatory surgery centers, one long-term-care facility, an imaging center, and multiple physician practices.
Misconceptions
Because RPCs are still relatively new on the supply chain landscape, it’s no surprise that vendors harbor some misconceptions about them.
“Many [suppliers] are confused as to the role of the regional coalitions vs. the national GPOs,” says Combs. “For physician preference items, the regional coalitions are the way to go, while commodity items are usually best handled by the national GPOs.”
Pruitt points out that vendor misconception No. 1 might be that all RPCs are the same. “Second, there is a misconception that RPCs can’t really drive compliance,” he says. “In reality, we can aggregate volume and move market share. We are delivering that.
“Another misconception is that RPCs don’t always speak for their members,” he adds. “As long as communication and an infrastructure are in place, RPCs can be very effective in speaking on behalf of their members.”
Ashley believes that vendors might – mistakenly – be under the impression that RPCs are only interested in driving down price. “Yes, driving price down is definitely a key element [to what we do], but we are willing to move business to those suppliers who are willing to work with us, not only on price, but on quality of product and service and other terms and conditions as well.”
Vendors would also be mistaken if they believed that GLPC is trying to compete with Premier, she adds. “This is completely untrue. Premier contracts are the basis for our negotiations with vendors through GLPC. Premier is the common thread to the GLPC partnership. Premier is our strategic partner; we are all shareholders in Premier, and it is in our collective – as well as individual – best interest to use Premier as the basis for GLPC efforts.” In fact, Premier attends all GLPC meetings and provides support when needed, she adds.
Finally, vendors should understand that GLPC continues to grow; it’s not static. “We at Seagate and our partners in GLPC are growing their volumes in various ways,” says Ashley. “Seagate adds between 40 and 60 new affiliates each year, and brings that volume and need to the table. Vantage likewise grows its volume, and Rochester General Health System is an ever-evolving and growing system, with new services and increased market share. The potential volume is definitely not static, but very dynamic.”
No small plans
Not only is GLPC growing in numbers, but in product areas under contract, says Ashley. At press time, the RPC was considering pursuing contracts in three areas: cardiac rhythm management, advanced wound care, and sharps containers. “There will be others, but these are front and center at this time.”
To paraphrase famed Chicago architect and city planner Daniel Burnham, RPCs are making no small plans. Cook Children’s Medical Center, for example, is considering a self-contracting model, working with a regional contractor (“regional” in this case encompassing three or four states), and even reassessing its GPO/IDN relationships, says Blount.
Meanwhile, Texas Purchasing Coalition was at press time finalizing some big changes of its own – standardizing on med/surg, lab and pharmacy distribution.
“It’s an initiative that will be very powerful and will continue to provide direction for our group,” says Pruitt.
Mercy Health Partners is planning to focus on spinal implants in 2011. “This will require a great deal of research and administrative and physician interaction,” says Combs.