A tough year behind it, GPO industry seeks to build momentum for 2003

by Curt Werner

By all accounts, and by virtually any measure, the year 2002 was a historic one for the group purchasing organization industry. Groups found themselves in the clutches of an inquisitive national media, angry members of Congress, a feisty trade group representing small manufacturers and a host of skeptical materials managers. GPOs, however, somehow managed to sidestep the sort of major scandal that brought down far more powerful corporate entities during the year.

Nevertheless, the group purchasing industry survived to write contracts another day, and by most accounts remain in the same form as they have come to be known. Just how well the public and legislators understand the GPO system, however, is still open to question.

As usual, one group’s troubles lead to another’s gain. Where the two largest GPOs fought to keep members in the fold, smaller GPOs battled just as hard to use the GPO issue of 2002 as a rare chance to siphon off some business. Probably the most successful group in that regard has been MedAssets HSCA. The St. Louis-based group, which has as its GPO roots the former Los Angeles-based Purchase Connection and Health Services Corp. of America, has in its new persona quickly gained a reputation as a nimble, scrappy outfit and picked up new or mostly new business from at least two significant providers.

In the first, Scripps Health, a $1 billion network of five hospitals and numerous clinics in the San Diego area, moved its supply contracting business to MedAssets, edging away from Irving, TX-based Novation. It should be noted that insiders say that Scripps had already outsourced its more lucrative pharmaceutical contracts to Houston-based Owen Healthcare, and that those contracts would remain with Owen, and that the San Diego network had done a significant amount of self-contracting, which would hollow somewhat MedAssets HSCA’s apparent victory. However, the change is still viewed by many as a blow to Novation, one of two super groups that found itself in the unwanted position as a magnet to controversy in 2002. Premier Inc., of course, is the other super group that along with Novation represents the lion’s share of U.S. hospital supply purchases, and Premier too has had to struggle to maintain its market share, enjoying perhaps more success than rival Novation. Then last month, MedAssets drew more business away from Novation in the form of University Hospitals Health System, a 13-hospital network with an annual supply budget in excess of $300 million operating in northeast Ohio.

To mark the beginning of what GPOs must certainly hope will be a much more uneventful year, HPN asked top executives from leading group purchasing organizations to reflect on the industry and their own companies for 2002 and look forward to 2003. Novation president Mark McKenna’s response was relatively brief, but expanded remarks can be found in his Having My Say piece elsewhere in this issue of HPN. Representatives of Premier Inc. were contacted to contribute, but declined to respond to those requests.

Robert “Bud” Bowen, AmeriNet president

On 2002 for GPOs: It was certainly a rough year for the GPO industry. We found ourselves linked to accusations that painted the industry with a single brush and we have never experienced that before. Group purchasing has always been viewed in a positive light for the savings we offer to providers. It’s difficult to deal with this situation of some doing things wrong or badly. This was all new to us and made for a difficult year. 

On 2002 for AmeriNet: To a lesser extent the year’s events affected AmeriNet. We always felt that we complied with all good business practices. But we are part of the industry and must save hospitals money. We’re not condoning or condemning any individual organization, but we spent a lot of time in 2002 dealing with those global issues.

On 2003 for GPOs: The industry through HIGPA (Health Industry Group Purchasing Association) embarked on a road that’s longer than a one-year issue and is part of a going-forward business. We expect to identify specifically what will be happening relative to the Code of Conduct and to the reputation of the industry on the issue. Hopefully, we’ll be spending less time in 2003 on this than we did in 2002. Kohl has looked at it. Health and Human Services has looked at it. The General Accounting Office will continue to look at it in 2003. We’ve spoken with all these folks, and they have become better educated about GPOs than they were a year ago. Sunshine is always good. A lot of light has been shed on the industry this year. Light will reflect an accurate view of the industry, that the industry is by and large very ethical and has yielded tremendous business advantages to healthcare through our contracts.

On 2003 for AmeriNet: We’ll have a lot on our plate, including some exciting initiatives and some HIPAA issues. I don’t expect that the issues of 2002 will have a negative impact on us for 2003, as we have made sure that our business practices were properly articulated. It’s never a bad thing to state your position and have a lot of people find out what you are about and how you go about your business. We feel as though we need to point out that some of us in the industry didn’t need to fix any of our ethics or business practices.

John Bardis, president of MedAssets HSCA

On 2002 for GPOs: It was a year that the recognition of an ongoing need for GPOs to make changes in their business came to light. Changes were part of an undercurrent before 2002 and are now in the open.

On 2002 for MedAssets HSCA: Last year brought us closer to our customers. They were open to telling us where their true needs were, and this gave us the opportunity to respond. Our customers in 2002 were interested in seeing changes in their supply chain relationships and were able to articulate what they were looking for in our own business model. All through the year, we remained confident in how our business was to be conducted and how we can do even better.

On 2003 for GPOs: We’ll be looking at public policy and how value is created in the supply chain through GPOs. Group purchasing has got to think in a way that makes sense for providers. GPOs will have to make sure prices are very accurate and are properly built into item masters and charge masters so utilization is properly accounted for. 

On 2003 for MedAssets HSCA: Our outlook for 2003 is very positive. We’re in the middle of a very nice growth curve as we continue to deliver value that our customers expect and need. We believe there will be continuing market share shifts between GPOs as large providers find alternatives to current group purchasing partners.

Mark McKenna, Novation president

On 2002: While 2002 was a challenging year for Novation and our industry, there is much that we are thankful for as we head into 2003. Member purchases and participation continue to grow. Member satisfaction continues to rise. And, members continue to want to work with us to help them in their cost-saving efforts.

Much of the attention that we received in the last year was incomplete or misguided, and it is essential that we set the record straight – with lawmakers, regulators and the media.

On 2003: Moving forward, we are committed to adhering to, if not exceeding, the operating principles we have put in place, while continuing to provide value to the hospitals we serve. For example, we have launched a new technology forum on our public website that offers all suppliers, those on- and off-contract, to showcase new and evolving technologies. We have recently signed several new contracts for innovative technologies, such as cardiology and safety devices. We have developed new practices to ensure even fuller access by suppliers, and adopted a revised business ethics policy to eliminate any potential conflicts of interest.

Often overlooked in this past year’s very public debate is that the financial challenges facing hospital members continue to escalate – often at critical levels. Employers, individuals and government are all struggling to pay their medical bills. As we move into 2003, we recognize that we must further the leadership position that we have been privileged to hold. Using member input, we will continue to lead the market in developing innovative solutions. We will continue to focus on meeting the evolving cost reduction efforts of members, while offering unique and unparalleled solutions. We will continue to drive flexible solutions and utilize our local presence with members. And, we will put further distance between ourselves and our competitors by offering solutions that meet the individual needs of members.

David Ricker, Broadlane president 

On 2002 for Broadlane: The attitude at Broadlane that was most notable in 2002 is that we are focused on operating a business model that we began in 2001 with customers like Kaiser Permanente and Continuum Health System in New York where we come in and take over the facility. That is the model we introduced where over 30 Broadlane employees were put onsite and related with the client differently than would a traditional GPO. We believe it is a high degree of operational and implementation commitment that works. We also have that kind of relationship with the Health Alliance of Greater Cincinnati where they turned over 100 percent of their contracting responsibilities to us. 

On 2002 for GPOs: Underlying noise is that GPOs in the past, due to the way the system has been set up, were never held accountable enough for delivering anything and for that reason purchasing has gotten lazy. The real root cause of GPOs’ difficulties is that lack of accountability. The business practice issues that were raised in 2002 were the result of GPOs taking their eye off the ball.

The GPO industry is still not being challenged enough to create a higher competitive environment among suppliers. The problems the industry has are very deep-rooted. 

On 2003 for GPOs: A lot of GPOs have to respond to their customers, many of whom are having significant financial challenges and there will be a trend for groups to try and be everything to everyone, which will ultimately be unsuccessful. Will groups develop a stronger sense of discipline, or will they create more questions regarding what really is true value? There will be more defections from different groups by hospitals and networks looking for high-octane, high-performance, measurably deliverable opportunities.

HPN

January